Archive for Money

How To Plan For Unexpected Expenses

It’s just a matter of time before it happens. The transmission blows on your car right around the time your daughter needs braces and your washing machine decides to call it quits. All of these are unexpected expenses and something we need to deal with throughout life. My recent personal example is my heat pump dying and my van windshield needing to be replaced.

Being prepared as much as you can is your best bet when life throws you a financial curve ball.
Do your best to anticipate upcoming expenses. If you’re driving an older car, or your dishwasher has seen its better days, start saving up to replace the item. You may also want to start keeping an eye out for good deals on the replacement.

An even better strategy is to have an emergency savings fund. Set up a savings account and add to it monthly. Use it only for completely unexpected expenses. I’m a fan of the Dave Ramsey baby step of saving $1000 as a starter emergency fund ($500 if your income is below the poverty line). Make sure you know what’s in the account. And once you have to take money out of it replace it as quickly as possible.

This brings us to a good point. Here’s how to recover quickly after that purchase. Go over your budget (you have one of those, right?) and see if you can temporarily cut back on some things. Stop ordering pizza every Friday night and make your own at home. Skip a night out on the town and watch a couple of movies on Netflix (or Red Box, if you must) instead of going to the theater.

Use the money you’re not spending for the next few months to refill your emergency fund. For an extra boost, work a few hours of overtime (if possible; sometimes my boss can find a few extra hours the following week after I ask), do a few freelance projects, or temporarily pick up a part time job to get back on track fast.

But what do you do when the expense comes up before you had a chance to set up the emergency fund? Take a deep breath and assess the situation. Can you make do without the item for a little while? Just long enough to scrape together the funds to repair or replace it. If it’s the dishwasher, that’s easy. You can wash dishes by hand for a little while. If it’s the fridge or the car you rely on to get you to work each day, that’s a different story.

If you need the item that broke, evaluate if it would be less expensive to repair than replace. Even if it isn’t the perfect solution, it may get you to work until you can save up for a different car. Shuffle your money around and if there is no other option charge it to the credit card and get to work. Your one and only goal right now is to pay off that expense. If you stick every penny of discretionary income in, it won’t take you long.

Once your bills and credit cards are paid off, do what you can to get a larger emergency fund set up. Because you know something else will break down the road.

Why You Need To Keep A Household Budget

I have kept a budget for years. That is, I’ve written a budget for years using a simple spreadsheet I budgetmake in Excel. I didn’t have to learn any new software or programs and I can look online by uploading it to onedrive and using the Excel app. I don’t think I’ve ever actually stuck to it, though. Recently, I’ve started a pilot class in our larger area called Bank On Roanoke Valley (check to see if they have one in your area; they had one in Montgomery County, MD before we left there). Writing and sticking to a budget are the cornerstones of the course.

We work hard to earn a living. We should make sure we spend the money we bring home wisely. That’s where a household budget comes in. It’s a good tool to see at a glance what we have coming in, what’s going out (and what that money is paying for), and if there’s anything left at the end of the month to put into savings. Or if it’s hair-on-fire panic, time-to-get-an-extra-job time.

Before we dive into exactly what a budget can do for us, let’s consider for a minute what will happen if we’re not tracking income and expenses. We may end up spending more than we’re making in a given month (or two, or three, or 36). Over time that can put us into some pretty hot water financially. We may also spend a lot more than we’d like to believe on things like eating out, going to the movies, or new clothes.

Having a budget gives us more control over where we want to really spend our hard earned cash. Maybe that’s dinner and a movie, but maybe it isn’t. Wouldn’t it be nice to have an actual choice?

budget2

It Tracks Where Your Money Is Going

A budget simply tracks your money. You record where the money comes from each month (your income) and then write out everything you spend it on, starting with your regular monthly bills like mortgage or rent, car payments, utility bills, etc. What’s left after all the bills are paid is your discretionary income. Wouldn’t it be nice to have discretionary income?

Helps You Identify Things You Waste Money On

Having it all in front of you in black and white helps you identify things you’re wasting your money on.

It makes you reconsider if you really want to spend well over $200 a month on Cable TV or $150 on your large cell phone plan. Or how about that yearly magazine subscription to something you no longer read? Go through your expenses and reevaluate if this is REALLY how you want to spend your pay check. For us, that was dining out. Not as a plan, but just while we’re out doing errands or shopping and I either didn’t pack enough food or Kaida decides that she doesn’t want to eat anything that we brought (I know, I could just tell her to go hungry, but usually it’s me not packing enough).

Allows You To Be Proactive About Savings

Saving money without a budget is hard. We go in with the best of intentions at the beginning of the month, but somehow there isn’t anything left at the end of the month. And saving money is crazy-important! Kaida used some of her savings when we had to have Bubba at Virginia Tech for two weeks because I did not have anywhere near enough. Add to that my own plethora of medical bills from this past summer and fall and you find the reason I’m suddenly staring at my budget with new eyes! Remember that part about hair-on-fire panic? Yeah, that was me.

A budget gives you a chance to be a bit more proactive. Set aside some money for savings at the beginning of the month, even if it’s just $20, or $10, or $2. Anything to get started with the habit of saving! Put it in the budget as a regular expense, just like you do with your other urgent bills. If you need to, open a separate savings account so you’re not tempted to spend it.

Ensures You’re Not Spending More Than You’re Making

Most importantly, your budget will keep you on track and help you make sure you’re not spending more than you’re making. And I don’t have to tell you that that’s pretty important for your financial well-being.

How To Get Started

Dave Ramsey is probably the most well-known person with regards to budgeting; I may test-drive his totalmoneymakeoverEveryDollar budget app, but I’ve been pretty happy with my spreadsheet. I recommend his book The Total Money Makeover, the accompanying workbook The Total Money Makeover Workbook, and Dave Ramsey’s Complete Guide to Money: The Handbook of Financial Peace University. The workbook has more numbers/forms and The Total Money Makeover book has more stories; buy whichever one you think would be more helpful for you. He also sells a faux-leather envelope system, but I have not yet upgraded to that (I’m using progressively ratty paper envelopes). I plan to upgrade to them, but I have to plan for it in the budget first! 🙂