Budget Archives - Page 5 of 8

How To Deal With Regular Bills When You Have An Irregular Income

When your income doesn't come in 24 equal payments spaced evenly throughout the year it can be hard to make a budget. Unfortunately, this is a fact that a lot of people deal with in their life. There are a lot of industries where the pay is great in the summer time and then tapers off with the chill of winter. Or even vice versa. If you aren't careful with your budget throughout the year you can find yourself in a pinch in the off-season.

I was talking to a friend of mine who is a realtor. She was saying her income is great in the summer but then in the winter she has a hard time making ends meet. People would prefer to move in the summer since the kids are out of school and the weather is nicer, and no one wants to move around the holidays. She wanted to know how much she should have in her emergency fund to cover her winter expenses.

But I actually felt she was looking at it the wrong way. An emergency fund for emergencies and her winter expenses aren't emergencies. She knows these bills are coming, so she should plan for them, outside of her emergency fund.

The first thing she needs to do is figure out what her average monthly income is and make a budget based on that average. Part of her budget should include debt elimination, if she has debt, building of her true emergency fund, and future investments. Along with that she needs to put some money into an emergency fund. A little bit of money, not the full 3-6 months right away. She just needs to protect herself from a normal sized emergency right now.

Let's look at some pictures. (hand drawn by yours truly)

Cyclical Income

Here we have her income. The gray curvy line is her income. The black dashed line is her new budget. Now she has a budget that works for her income. Next she needs to start building what I call, her cushion fund.

cyclical income with cushion

A cushion fund is money that you set aside to fill in the gaps between your income and your budget. So during the summer months she would build her cushion fund, and in the winter months she would draw from it. This smooths out her income so it's not wild parties in the summer and Ramen noodles in the winter. It's just normal life all year-long.

This system allows her to plan for her reduced winter income and also be prepared for a true emergency should one arise. Right now, at the end of summer, she is feeling very stressed knowing her income is going to go down soon. But if she follows this plan, next year will be a different story. She probably still won't like receiving those smaller checks, but at least she will have a plan to put food on the table.

Do you have an irregular income? How do you handle it?

This article was written by Ashley over at Everything Finance. Everything Finance is a site about just that, everything related to finance. You can get information about investing, saving money, shopping, blogging, and making money online. If you like what you see here, make sure to stop by or better yet subscribe to their feed so you don't miss a thing.

Is Money A Means To An End? Or An End Itself?

By Miranda Marquit 3 Comments

One of the questions you have to ask yourself when you begin probing your relationship to money is this: Why do I want more money? It makes sense to want to earn more money, but why are you so interested in having more money?

Think about why you want more money, and try to define some of your reasons for making the effort to amass wealth. Your reasons for striving for more money can reveal a lot about you — and your level of happiness.

Do You View Money As The End Result?

It's easy for money to become the end result. If you want money just to buy more things, or just to have more money, you have made money the end. You may not have a plan for that money. Instead, it just sits there. And the more money you have, sitting without purpose, the more likely you are to be dissatisfied. In some cases, amassing wealth can become something of a hobby — or even a measure of status. When you begin to confuse net worth with personal worth, it becomes harder to be happy with what you have. After all, there is always someone with more, and you can never get all the money there is. Without a purpose for your money, you can quickly get caught up in deciding that money is the end result, rather than viewing money as a means to an end.

Money As A Means To An End

Most of us recognize that money is a necessity. We need money to buy clothing (or at least cloth to make our own clothing), and many of us have to buy at least some of our food, no matter how great our gardens grow. Additionally, we use money to pay costs associated with maintaining an adequate living space, and for other necessities of life. Having money can help you improve your quality of life, and it can provide you with the things you need. However, it helps to have a purpose for your money, so that you are using more effectively. Plus, you are more likely to enjoy your life more when your money is used for things that bring you pleasure and a sense of fulfillment, rather than having it just sit there, granting you some perceived social status.

The first thing to do, when you want to use money as a means to an end, is to figure out your priorities. Decide what's important to you, and then direct your financial resources in such a way as to make those important dreams a reality. Try to be as specific as possible. Sure, you want to save up money for a comfortable retirement. But what do you want to be comfortable doing? Consider what your ideal retirement would like, whether it's travel, volunteer work, or entertaining family. Then, make a plan for your money so that you can accomplish your goals. The same is true if you want to go back to school, pay down debt, donate more to charity, or build alternative income streams so that you can quite your day job.

Rather than looking at money as an end itself, consider money a tool to help you accomplish your goals. You'll be more likely to live the life you want — and have the financial resources to succeed.

What Are Some Reasons That You Overspend? Addressing The Root Causes Of Our Debt

By Mr. Money 6 Comments

We live in a consumer culture where we're constantly bombarded with advertising and marketing messages that have been carefully crafted to get us to spend money. Those sending out the marketing don't care if you have the money or not. They just want you to buy, even if it means going on a payment plan.

We're told that we need to buy the newest and the best, and that if we don't we're getting left behind. We're told that the we can buy experiences or things that will make our lives better, and make us happier people.

The problem is that for the most part it's just not true. Too many of us get caught in a debt spiral of spending, trying to fill holes in our lives, and we become very good at rationalizing why we're spending.

Reasons Why We Overspend

debt and overspending

Why do we overspend? There are a million different reasons. Here are some that I've come up with off the top of my head.

Easy access to credit cards: Even after our nation's debt crisis,we still have relatively easy access to credit, allowing us to buy just about whatever we want, and worry about paying it another day.
Monthly payments make it more accessible: It used to be that if you wanted something, you had to save up and pay cash. Nowadays you can just get on a monthly payment plan for anything from a car to a couch to a vacuum cleaner.
Peer pressure or keeping up with the Joneses: We've all either been that person, or known someone who just always has to have the best of the best in order to keep up with the folks in their neighborhood, school or workplace. They buy things to be seen as successful or important.
Spending addiction or spending to feel good: Some people actually have an addiction to spending money and buying things, it gives them a high of sorts. The problem, just like with drugs, the high wears off and they need to move on to the next purchase.
Wanting to live “in the moment”: I've heard a lot of people talking about how they want to live high on the hog now, while they're still young and healthy. The result? They end up in a world of debt that they'll be paying until their old and gray.
Wanting the best for your kids: As parents we want the best for our kids. The problem is that sometimes we can get carried away, buying all the best for our kids when it isn't even necessarily what they want or need. We buy them things to fill our own ideas of what's best for them -or to fill a void from our own childhood.
Wanting things NOW: Sometimes it's just hard to have the discipline to save up for something, especially when you just want, nay, NEED, to have it now!
Wanting to have the newest and the latest: So many of us are big into new technology like to rationalize buying the newest or the best technology. Others rationalize that they need to have the latest in fashion or decor. In reality we could probably get by with something less the newest and best.
Not focused on long term goals: We overspend because we're distracted from or we have never focused on our long term savings and retirement goals.

So as you can see there are a plethora of reasons why we overspend. We're good at rationalizing and coming up with reasons why we should be spending on things we want. It's the discipline part that gets hard.

If you have other reasons that you've used for spending- good or bad, let us know what they are in the comments.

Addressing The Root Causes Of Our Overspending

So we know there are a million reasons why we overspend. The important thing to do in my opinion is to realize that you are overspending, and to then sit down and think about why it might be that you're overspending. Are you trying to compensate for hurts experienced as a child? Are you trying to appear more successful to others because of feelings of inadequacy? Do you just enjoy spending and the feeling it gives? Realizing that you have a spending problem, and trying to figure out why you overspend is a big part of starting to find a solution.

So what are we supposed to do about our overspending once we've thought about the root causes?

Analyze your spending: The first thing I would suggest is giving yourself a wake-up call by actually tracking your spending. At our house when we started tracking using a software called You Need A Budget, we were shocked to find out how much we spent on several non-essential categories. Knowing where we were overspending was half the battle.
Set up a budget, especially in problem categories: The next step is to actually set up a budget for your household. What we've found was especially important was to set spending limits on problem categories. If, for example, you struggle with spending in your dining out category, set a limit of how much you can spend on that every month, and don't go over. Try using a cash envelope system for problem categories. Get out enough cash at the beginning of the month to cover the category, and don't go over that amount.
Start living below your means: While it may sound like a simple concept to live below your means, it can sometimes be easier said than done. But if you do want to get ahead, you'll have to start living on less than you make, otherwise you'll just be treading water, or going under.
Save & Invest: Once you're living below your means and all debt is paid off, you can start saving and investing and start living!

So why do we overspend? It varies from person to person, and you need to think about why it may be happening for you. Once you've figured that out however, getting back on track is probably going to involve some pretty similar steps for everyone.

What tips do you have for addressing overspending? What have you done to cut back on unnecessary expenses?

Do You Have Savings In Case Of An Emergency? 1 In 4 Americans Have Zero Emergency Savings

By Mr. Money 10 Comments

As the economy continues to be stagnant and the unemployment rate continues to be high, a recent poll by BankRate.com found that still far too few people are preparing for the possibility of a job loss or a long term financial emergency.

Over 6 million people have been out of work longer than six months, yet only 24 percent of Americans have at least six months' expenses in an emergency fund. An equal 24 percent have nothing tucked away for a rainy day. And 22 percent have some savings, but not enough to cover even three months' expenses. Those under age 30 and the lowest-income households were most likely to report having no emergency savings at all.

As the poll found, only 24 percent of Americans have saved a minimum of 6 months of expenses in an emergency fund or saving account of some kind. To be honest I guess I'm not surprised that in our credit focused society that only 1/4 of people have saved up 6 months of expenses, but to some degree it's still sad that so many people are unprepared. Are they hoping that someone else – or the government – will pick them back up when they've fallen? I wouldn't count on it.

emergency savings

Why Are Emergency Funds Important?

There are a variety of reasons why I think emergency funds are more important than ever.

Bad Things DO Happen

I think a lot of people have the outlook that bad things happen to other people, or that if something bad does happen, it won't be that big of a deal. The thing is, most of us are going to have a major negative event at some point.

Money magazine says that 78% of us will have a major negative event happen in any given 10-year period of time.

78% of us are going to have a major negative event to deal with in any 10 year period. I know that has certainly held true for our family has we've had to deal with several major negative health events. So if you haven't had one recently, you may be due.

Emergency Savings Help You Bounce Back Quicker

The fact that you have an emergency fund can help you to weather any number of storms from a layoff to a major health event. While you can't always avoid bad situations, when you have an emergency fund you're able to bounce back that much quicker. When you don't have an emergency fund the sad fact is that people end up in foreclosure, bankruptcy and other horrible situations I wouldn't wish on my worst enemy.

Why not plan ahead and avoid all those things?

Emergency Savings Give Peace Of Mind

When you have emergency savings you'll have a lot more peace of mind when the waves start to get higher and the adversity starts showing up. When you've got emergency savings, insurance and a backup plan, you won't be as worried about some of the bad things that can happen.

Have A Backup Plan

So many have not planned ahead for the negative events that will happen in life. They don't have emergency savings, they don't have insurance and they are just hoping that someone else will cover the bill for them. While in some cases that may happen, far too many will find that there isn't anyone there that they can rely on, including the government.

Do you have an emergency fund saved up? How much are you saving in case of an major negative event? Why do you think so few people save up in case of an emergency?

Look For Ways To Earn More Money

By Miranda Marquit 6 Comments

While I like feeling like I'm getting a good deal, it has always bothered me a little bit that a lot of emphasis is placed on spending less.

While I certainly don't think that you should let your tendencies to spend control you, I'm not convinced that the best way to create the lifestyle you want is to simply cut back on your spending.

To me, frugality is more like a lifestyle choice that involves getting the best value for my money and time, rather than a collection of actions that involve pinching pennies and “sacrificing” for the future.

Yes, you need to get out of debt, and yes, you need to spend your money wisely. But why all the focus on cutting back? What if you looked for ways to earn more money?

Ways To Earn More Money

Cultivating Income Streams

I'm not saying you have to run out and get a second, part-time job in order to earn more money. What would be the point of that? It would detract from time you could spend with your family. Instead, you could consider cultivating income streams that would eventually lead to you receiving a reliable source of income. If you have a couple hours a night, you can do this. I recently read a post on My Journey To Millions that encouraged you to ask yourself what you could be doing instead of watching TV. Cultivating extra income streams, that's what!

You can even get your spouse and other family members involved. Some of the things you can do to help cultivate extra income streams in your spare time include:

Starting a blog, and working toward monetizing it.
Getting involved in a worthwhile affiliate program.
Taking a hobby and trying to monetize it (this works especially well if you are a “crafty” person).
Freelancing or consulting (my husband did a statistical analysis as a consultant recently).
Researching solid dividend stocks and bonds, and building an income portfolio.

With the right plan, you could be well on your way to making more money. You could be taking your wasted time, and turning it into extra income — and you can do it as a family. A little creativity can win you some breathing room in your budget, so you won't have to worry so much about cutting back all the time.

Reality: Building Income Streams Takes Time And Effort

Of course, it is important to acknowledge the reality of income cultivation. Your income portfolio isn't going to suddenly manifest itself as a way for you to quit your day job. A successful blog requires that you take some time and effort to provide content, as well as use different tools to market your blog, and build networking connections with other bloggers. A freelancer or consultant needs to have some knowledge or expertise. It can take time to build these extra income streams, so you might have to continue pinching pennies for a while if that's what your budget demands. However, the idea is to work toward more creative ways to pay for the lifestyle you want.

Later on, your income streams can help you in retirement, and you will be well-placed to have a “working” retirement if that's what you want.

Is It Bad To Be A Spender?

By Miranda Marquit 2 Comments

It can be tempting to lump spenders into the “bad” category. When we talk about money personalities, the spender always comes up. Those who like to spend can be vilified in some circles. Even if it is unintentional, the focus that is so often placed on saving money, cutting spending, and being frugal can really put the pressure on spenders.

But is being a spender really so bad? Since I am, in fact, a spender, I'd like to think that it's not a bad thing at all. Like so many other things, it's in how you do it.

Spending Doesn't Have To Be A Dirty Word

In my mind, having a spender personality isn't a bad thing — unless your love of spending leads you into debt. Additionally, spending doesn't have to mean that you are using the money only for yourself. My husband is a spender as well, and he loves spending on other people. He likes buying gifts for others, and we both feel it is important to give to charity, and to our church.

Even spending on yourself doesn't have to be a bad thing. However, you have to draw the line when it comes to getting into debt to pay for your spending ways. As a college student, I often took my spending too far. I took out student loans — even though I had a full-tuition scholarship and a part-time on-campus job. I also got credit cards, and promptly proceed to max them out. Even though I had a number of advantages that should have made it easy for me to live within my means, I overspent every chance I had. I ended my undergraduate career with a great deal of debt.

I learned my lesson. My spending wasn't a bad thing; spending beyond my means was the problem. Now, I make sure that I live within my means. I have spending priorities, and make sure that I spend on those things first. If I run out of money, the spending stops. As long as my enjoyment of spending doesn't put my finances at risk, I think that my habits can be a way to help others, provide my son with valuable experiences, and help me find a little extra pleasure in life.

Preparing For The Future

Just because your spending is kept within your means, though, it doesn't mean that it's ok to put your future at risk. Before you spend on the “fun” things, it's a good idea to make sure your future is provided for. You should have an emergency fund, and you should be saving for retirement. If you have long-term goals, such as homeownership or sending your child to college, you need to plan for those things as well. You can use your love of spending to direct your resources into specific goals that can provide you with a more secure future.

In the end, being a spender doesn't doom you to a life of financial ruin. As with any other money personality, being a successful spender is about harnessing your impulses and desires so that you can use them to your advantage. Figure out what you want, and create a spending plan that helps you achieve your goals.

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