Archive for income

Closing Out The Monthly Budget

It’s Finance Friday and I thought I’d talk about closing out my monthly budget. I usually do it on the last Sunday of each month because I usually have some time on that day (if not, I do it across a few weekdays). I want to share a bit about my process. For the record, I use an Excel spreadsheet so that I can customize everything any way I want.

First, I make sure that all receipts have been entered. I go through my bank statement online and all of my credit cards to make sure I got everything. I try to log them as I get them during the month, but do sometimes miss something–usually something I’ve bought at Amazon (infrequent) and forgot to enter.

Second, I compare my monthly result to previous months and look for areas where I can cut back. I would love perfection, but have to settle for progress. If I could get the medical bills to slow down, that would be really helpful (I need to get a root canal and crown as well as a few other things done).

Third, and this is something that I’ve only recently started doing, is tracking credit card purchases on another spreadsheet within that workbook. I track all credit cards on the same page and enter each individual purchase I’ve made and a general category (eg. gas, household, etc.). That makes it easier for me to see what I want to pay to where. For example, I use my Costco credit card to get gas since it has a 4% rebate on gas. I want to make sure that I pay for the gas I put on there. I had medical bills and some purchases for the goats over the summer and all three of my cards are fairly full. I track each purchase to make sure that I’m paying off new purchases as well as trying to make a dent in the old ones.

I then go through all of my envelopes, put in the monthly allowance for the new month, and make sure that what’s in there is what’s supposed to be in there if I had any left over from last month. Since I’m putting gas on my rebate credit card, it’s usually not too much. If you don’t already know, the envelopes are based on Dave Ramsey’s advice. It is based on the idea that it hurts more to spend cash than to use a credit card, so you’re more likely to spend less if you force yourself to use cash.

It’s kind of involved and takes a while to do at the end of each month, but I feel like I have a much better picture of where I stand when I do all of the steps.

Do you close out your monthly budget at the end of the month? Tell me how in the comments!

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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.

Put Your Savings On Autopilot

Putting a little money away for a rainy day isn’t always easy. You may have some good intentions, but at the end of the day, there just isn’t any money left. Somehow whatever you make is spent before you make it to the next paycheck. Guilty as charged.

Start by making a personal budget. Take a look at what you bring in each month. Next, write down your fixed expenses. These are things like rent, car payments, utilities, etc. Figure out how much you need each month for groceries and other essentials. This is your bare-bones budget. It’s good to know what you need to get by each month.

Next it’s time for a little bit of math. Start with what you bring in each month and subtract all your core expenses. What you’re left with is your discretionary income. This will pay for entertainment, clothes, getting your nails done, etc. And from here on out, part of that discretionary income will go into a savings account. I decided to use an online account at Capital One 360. I’m currently working on getting my Dave Ramsey $1000 emergency fund. I have so little wiggle room right now that it’s taking me a while to get there! Though I’m working on increasing that!

Pick a number you’re comfortable with. Maybe that’s just $5 per month to start with, maybe it’s $500. Put it in your budget and treat it like any other bill. It won’t take you long to get into the habit of setting aside that money for savings.

It can help maintain motivation if there’s a goal behind the savings. For me, my current goal is to finish my $1000 Dave Ramsey baby step 1. I started by getting to $500 as quickly as possible, plateaued there for a while, and I’m now pushing for $1000. It may take a while, but I’ll make it! My reason for upping the amount is that my heat pump has stopped working and I’m afraid of what it might be. It’s still under warranty so I hope my portion won’t be too bad! Luckily, the furnace still works and we have a fireplace so I’m not in a panic to get someone out immediately.

To make it even more hands-off, talk to your bank about setting up a separate savings account. Then set up an auto-deposit to have the savings transferred to the new account as soon as your pay check comes in each month. If you don’t see it, you’ll never miss it and your savings will run on autopilot.

Don’t forget to audit your savings from time to time. Take another look at your budget. Can you increase your savings a little more? Another great way to boost that savings account is to take any extra money – thinks like birthday cash, tax refund, bonuses, etc. – and put them straight into the savings account. Again, you likely won’t even miss the money, but it will help you build up your savings quickly.

Make sure your savings are sitting in an interest-bearing account. Since you won’t be touching this money unless it’s a dire emergency, you should be able to earn at least a little interest. Talk to your banker about your best options and start putting your savings on autopilot.

One last tip: Talk to your employer about matching 401K funds, if offered. You may be able to get a contribution from the company you work for towards your retirement savings account.

What’s your savings goal? Why? Let me know in the comments; we can commiserate!

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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?


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! 🙂