Here is a budgetting post from Daily Worth. I am going to comment on my “budget” at the end of the article.
Step 1: Declutter Your Budget
By JD Roth
If you have struggled with a budget, maybe that’s because you’ve been making things too complicated. Many budgets fail because they are too complex.
Here’s what I’ve learned: Loose budgeting is surprisingly powerful. Trim the clutter and keep things simple. Start with just three broad categories—Needs, Savings, and Wants—and then add more detail as needed.
I used to loathe budgeting, but then I found “The Balanced Money Formula” (from the book, “All Your Worth”, by Elizabeth Warren and Amelia Tyagi). Allocate your after-tax money as follows:
* Spend no more than 50% on Needs, such as housing, transportation, groceries, insurance, your basic wardrobe. NOTE: THE KEY TO THIS BUDGET IS TO KEEP SPENDING ON NEEDS AS LOW AS POSSIBLE.
* Spend at least 20% on Savings, which includes retirement saving and debt repayment.
* The rest—about 30%—can be spent on Wants: cable TV, dining out, concert tickets, extra shoes and clothes, knitting supplies, and so on.
Once I discovered this budget (or “budget framerwork”, if you prefer), it revolutionized my relationship with money.
Look at your budget and see if you can decipher how much you’re spending on Needs, Savings and Wants. What do you see? What changes do you need to focus on this fall? Share.
J.D. Roth is the founder of the Get Rich Slowly blog and the author of the new book, “Your Money: The Missing Manual.”
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To be honest, and I have to be honest here, my husband works at a computer technical job that pays well and I work part-time because it gives me some value, not really for the money. (Let’s just say if it was for the money, the fact that I am paid less now per hour than I used to make before my son was born almost 13 years ago, would be even more annoying than it is and I probably would not be working where I am.) This helps you understand that our budget is not probably doable by others. We are a family of three with two cats.
The largest monthly bill is the mortgage and we pay more than the minimum amount so that we can pay the mortgage off early. Our plan when we bought our house was to go for something less than they (the real estate agent/loan company preapproval amount) said we could afford. That took some effort, as they were not even showing us houses in that price range, but they were sending sheets in the mail to our house and we saw one we liked and told them about it and went to see it. It is the house we wound up buying. (We probably could have offered less, if we had known that it had been on the market for so long, but our agent was not aware of that, as it looked like a new listing as they had switched agents, tried to sell it themselves, etc.) Then when mortgage rates went down we refinanced into a 15 year loan, as we could afford it and it was a much lower rate than before. Now, it looks like we will be able to pay off our mortgage in about two years ago. (Yes, I know some people recommend investing in the stock market instead of paying off your mortgage early, but I am not one of those people, as I like being debt free. It takes quite a load off when the main bread winner looses their job, or when the main bread winner dies. Yes, my fear was my husband would die and leave my son and I without a way to send my son to college or for me to continue living in our house. Paying of the mortgage takes care of the my living in our house if he dies and gives us great peace of mind if he did loose his job someday.)
The rest of our monthly bills are fairly small in comparison. Our cars are paid off. One is a 2001 minivan and the other is a car we bought in 2008 with money in savings. When we first went to two cars, we did buy a used vehicle, but it was a piece of junk on the road so for successive car purchases, we bought safe and reliable new cars. (A 1995 Saturn, then the used car a Plymouth Breeze, then a 2001 Honda Odyssey and then a 2008 Honda Civic.) The main thing I will say about cars, is that some recommend going used, I do not, as I am not a mechanic who can recognize a good used car when I see one/drive one. Also we wanted extremely safe and reliable transportation, and yes, that is what a car is to me. I don’t love driving, I don’t need a status symbol. I just need a good car that will keep me safe if I hit something or someone else hits me.
We have no other debt. All credit cards are paid off at the end of the month. That is the rule around here. If you can’t afford it, don’t put it on your credit card. How do you do that? Well, be choosey about what you actually buy and having an emergency fund. There will be things in apartment renting or house owning, that you have to replace when they break. You must have an emergency fund for this, or you will put things you can’t afford right now on a credit card. How to set up an emergency fund? Set some kind of a spending/saving plan. How much do you really need to spend? And be honest with yourself, if you spent this much per month, don’t try and half it or something overnight. You can slowly reduce your spending. Halving it can only be done if you are desperate and you will hate it. (If you have to though, you have to.)
The rest of our bills that do exist are gas/electric, groceries, going out to eat, quarterly water bill, property taxes yearly, home insurance, car insurance, and life insurance, cable modem, gas for the vehicles, and some of our hobbies, and school costs. Our grocery bill is about $400 per month for 3 people, or less, as this year, with the couponing and finally having a stockpile, we are typically spending less. (The past two months have been closer or just over $400 though, as in the month of June I did little shopping after breaking my toe on 5/27.) We go out to eat once per week, so about 4 to 5 times per month and spend about $150 at most. One thing you will notice is no cable bill other than for our cable modem/internet. We canceled cable a year or so ago, in favor of online content like hulu. For what we were paying per month on cable TV (about $40 to $60), we can buy a lot of content on itunes, or watch hulu for free, or rent old seasons of tv from the local public library. Another thing that helps is that my husband actually works from home and I work less than 3 miles from work. This saves a great deal on gas for the cars. We fill up the car about every week and a half and the minivan every month or two. (To be honest, lately, we haven’t really needed two cars except for every Tuesday night, as I have bible study and my husband has a writing class and my son has a fencing class/group.)
My philosophy is to keep the monthly bills low and that leaves some money for saving and for the one time purchases. My dad on the other hand would think to himself it is only so much per month. Like the car commercials on tv say $30 per month! Seems like so little. But when you loose your job next year, it might not be so little. I prefer to buy a prepaid cell phone and not have the monthly bill. Yes, we do now have two prepaid Tmobile cell phones, but rarely use them except in cases of emergency. (Well, okay, my standing at a video store, saying what were the reviews of this movie, does not qualify as an emergency. That is a rare occasion though.)
I am curious how is your budget right now? Have you take any steps to reduce it in the past few years? If so, what? Did you find ways to make that reduction less painful?
