Budget Archives - Page 7 of 8

Breaking News: Personal Finance Blogger Makes Silly Financial Mistake

This past week I made a mistake, and it was a costly one.

I've been writing personal finance blogs for 3 years now, and in that time I feel like I've learned quite a bit about personal finance. I've learned about the importance of investing early and often, about the power of compound interest, and the importance of staying focused on your goals by using a budget. Just because I write about personal finance, however, doesn't mean that I'm always on top of my own finances unfortunately.

This year has been a stressful one. We had a new baby at our house, and getting enough sleep has been tough. We also have been dealing with various health issues for my wife. In addition it's been busy at my day job – and the blogs I run are all doing well. But again – it's busy.

I Made A Money Mistake

I'm not trying to excuse what happened by explaining it away – and claiming life has just been too stressful and busy to stay on top of things – it's just one of the reasons why I allowed things to get away from me. In reality, it should never have happened.

So what happened to this personal finance blogger? What horrible awful mistake did I make?

I overdrew my checking account. (Gasp! )

I know it's pretty horrifying. I talk about budgeting all day long every day, yet I can't even keep my own checkbook balanced. So what happened?

My wife and I currently use Microsoft Money as our budgeting and all around money tool. Sometime last year Microsoft announced that they would be discontinuing the product, and at the end of 2010 the product would no longer allow for online account updates. In other words, the software would stop downloading bank statements and transactions directly into the software.

While that in itself shouldn't have caused me to overdraw my account, what it did was remove one of the checks and balances I had in place. If I forgot about a transaction or didn't get a receipt, it would still show up in my account because all transactions were downloaded from my bank. When the online updates stopped working, my carefully laid plans disintegrated.

Several auto-transfer transactions that previously were automatically entered were now not entered for two months. Also, my wife forgot to enter a pretty large purchase she made online. Because of those oversights the balance we showed in our account was actually about $300 more than we actually had.

At the beginning of this month I paid for several large bills all at once. I paid for our mortgage, my estimated tax bill, as well as a couple of checks to our church. All in all I paid about $2500-3000 in payments all at once. I thought I had more than enough to cover it, but due to the oversights we made, we overdrew our account by $107. The result? $140 in overdraft charges. The worst part was, the day after a payment showed up in my account for $1900. If only I had waited a few days to pay those bills!

Time To Fix Our Problem

When I realized what had happened, I talked to my wife about it, trying to figure out what had gone wrong (already stated above). I hadn't caught the issues because I had been lax in balancing our accounts for the last couple of months. If I had been balancing the checkbook as I normally did, I would have caught these problems a couple of months earlier and avoided this mess. Once we discovered the overdraft I went back and balanced our checkbook based off of my bank statements for the past 3 months. I quickly found the sources of our error.

Ask For The Bank Charges To Be Reversed

So now that I knew what happened, what was I going to do about this big $140 overdraft charge? There's no way I want to pay that – even if I did overdraft. So I decided to ask the bank to remove the charge as this was a one time issue, and it wouldn't be happening again. What's the worse they can do, tell me I have to pay it anyway?

The first customer service rep I talked to told me she could take off one of the charges, so I would still owe $105 in charges. That's better, but still not that great. I asked if I could talk to her manager because I'd like to have all of the charges removed.

She transferred me over, and I told the manager that I'd like the charges removed. The manager told me that she couldn't take them all off, it was “bank policy”. I persisted and said that I would at least like all but one of the charges removed, or I would consider closing my account. At that point she agreed to remove all of them except for one – leaving me a total fee of $35. I may have been able to get that one removed as well, but I can't say I feel as bad about that one fee, because I did make an error. Sometimes you need the pain to remind you not to make the same mistake again.

What I learned from this is that the bank – and the bank manager do have some flexibility to fix a situation for you. You just have to ask.

What I Learned From My Money Mistake

Now that this mistake is behind us, what are some things I've learned from it?

Everyone makes mistakes: I'm supposed to have it all together – being a personal finance blogger and all. But I'm human, and I make mistakes too. How you learn from your mistakes is the important thing.
It's important to stay focused on your financial situation, or it can get away from you: If you aren't doing a budget, balancing your checkbooks and keeping spending in check, you will have issues like this too.
Make sure you have a backup plan: Having this problem also made me realize how important it is to have a backup plan and checks and balances set up. It can help avoid these types of situations.
Don't let it get you down: When you make a mistake, just brush yourself off, fix the mistake and move on from there. Learn from it, but don't let it haunt you!

Have you made any money mistakes recently? What was it – and what did you learn from it? What do you do to keep things like this from happening?

Should Married Couples Have Joint Bank Accounts?

By Mr. Money 10 Comments

One of the most common discussions that I hear from people considering walking down the isle, or those who have already gotten hitched, is the age old topic of whether or not couples should have joint bank accounts – and whether they should share their finances. It can be a touchy topic to discuss because it really digs down deep to the core of a relationship, the levels of trust that there is for the partners, and just how strong the relationship is. It's can often lead to arguments, so it's no wonder that people often avoid the topic like the plague before they get married. I believe, however, that it should be discussed.

Have The “Joint Finances Discussion”

It's a discussion that my wife and I have had in the past, and to some degree we've not completely agreed upon. I have always been of the belief that when you get married, two become one. You should become one in that you share everything, including joining your finances to become a family financial situation. If one partner has debt, the other partner takes that debt on as well. If one has a large savings account, you both have it now. Everything should be shared -both the good and the bad.

My wife, while she theoretically believes in two partners becoming one, has come from a household where that hasn't always been practiced. One parent came from an abusive first marriage, and as a result ended up not being as trusting in a lot of things, especially financial things. Because of that my wife learned that you need to be wary of sharing finances, and always have your own accounts and money – “just in case”. That belief that was engendered in her from an early age wasn't an easy one to overcome.

Because of that level of mis-trust that she had learned from her parents, we never joined our finances completely. We had a joint budget, family budget meetings and we had joint financial goals, however, we never actually joined our bank accounts. We just each had our own checking accounts, and savings accounts. It seemed to work ok, but it just left me with a sour taste in my mouth for some reason. Probably because I felt like I wasn't trusted by my spouse.

We Finally Joined Our Accounts

This year after we had our first child we finally had the discussion again. We were at a crossroads in our relationship, and we're now heading down the road of being parents, and embracing other challenges. My wife is now a stay at home mom, and as a result we started talking once again about having joint accounts. This time she was more agreeable to the idea, mostly I think because she has matured in the relationship and has a higher level of trust in me. I believe now that we have joint accounts it will lead to a greater sense of unity in our relationship, mean less mis-communication about our money, and force us to have less of an individualistic outlook on our relationship – one where there is a “mine vs. yours” outlook. We might even end up with a better bank balance!

Reasons I Think Joint Accounts Are A Good Idea

There are a lot of reasons I think joint accounts are a good idea.

Fosters greater unity and less individualism in the relationship: When you join your finances, and other aspects of your relationship it means you have to become more united, and less individualistic. I know for me remembering that I was now in a relationship where I had to think more about the other person than myself was hard. Joining finances helps that.
Creates better communication about money: When you are sharing an account, you have to communicate more about what's coming in and going out by necessity. More communication is a good thing, however, and you'll probably find you're in a better financial situation as well.
Gives a different perspective on money: Forcing yourselves to be accountable to the other person, and giving up some ownership of your money is a good reminder that “our money” really isn't our money anyway, it's all God's. Remembering that it all belongs to God makes it easier to release some of that control for me.

Now I should also mention that I don't think joint accounts are ever a good idea unless and until you are married. The same goes for other financial arrangements like mortgages and loans. I would never enter into any of those arrangements until I was married as it can cause more problems than you could imagine.

So what do you think? Are joint accounts a good idea like I lay out, or do you think having separate accounts is alright as well? Tell me your thoughts on joining finances in the comments!

The Cash Envelope Spending System: A Great Way To Cut Household Spending

By Mr. Money 8 Comments

About a year and a half ago my wife and I enrolled in Dave Ramsey‘s financial basics class called “Financial Peace University“. The class aims to help people take responsibility for their financial lives, dump all of their debt, and plan ahead for their future. The class is actually quite fun because of Ramsey's engaging speaking style, and sense of humor, so if you have considered taking the class, I would highly recommend it. If you want a preview of some of his teachings, check out our series on Dave Ramsey's 7 Baby Steps plan for getting out of debt.

In the 13 week class we learned a lot of great ways to cut back on your spending, and how to get out control spending categories back under control. Among those tools were doing a family budget, and having regular budget meetings, in addition to using the Cash Envelope system for budgeting. Today I thought I'd look at how to cut your spending by using a cash envelope.

Setting Up Your Budget

Before you even go down the road of setting up your cash envelopes, you need to set up a family budget. If you don't know what money is coming in, and how much should be going out to regular monthly expenses, it will be hard to actually implement your cash envelopes. So the first thing you have to do is figure out how much money is coming into your accounts as regular monthly income. This is the money you have to work with.

Next, you need to track your expenses so that you know how much money is going out, and to what expense categories. You'll have regular monthly expenses like your mortgage, utilities, taxes and student loan payments that are going to be pretty much the same every month. Then you'll have variable expenses, the expense categories that will be different from month to month. Things that could be included here include things like groceries, dining out expenses, entertainment spending and a variety of other things.

At our house tracking our expenses was pretty easy as we had already been tracking pretty much every dollar coming in and going out via money management softare – Microsoft Money. Because of that we had several years of spending history at our disposal. We were able to take a quick look at our monthly spending, and figure out what we were spending, and what areas were possibly over-represented in our budget (like our dining out spending).

Once you’ve figured out what you need to spend every month on the basics, the next step is to set up a monthly cash flow plan, and make sure that every dollar is assigned a job through doing a zero based budget.

What's a zero based budget? A zero based budget means that once you tally up all income, expense, giving and saving categories, you'll end up with a balance of zero. Every single dollar of income that comes into your accounts will be allocated, and assigned a job.

If you make $5000 of net income, all $5000 of that should be allocated either to an expense or savings category. That way you won’t have the extra money (after expenses) disappearing into the ether. It gets saved, or assigned to a debt, or gets some other job. Your money works for you instead of just disappearing into nothingness.

So to review, to set up your budget:

Figure out your income. For most people this will be the same every month.
Figure out your set expenses. These should be pretty close to the same every month.
Figure out other variable expenses (like food, shopping, entertainment) and assign a realistic dollar amount for that category in the budget.
Put together a zero-based budget where every dollar of income and expense is allocated, and you end up with a zero balance.

Setting Up Your Cash Envelope System

Now that you've setup a budget, and you know how much you need or want to spend on each category, you're ready to set up your envelope system for budgeting. The first thing you need to setup your cash envelope system is… you guessed it – envelopes!

You can just use regular plain white envelopes if you want, or go with something a bit more advanced, like our Dave Ramsey cash envelopes. In any event, the idea is to get something where you can write on the envelope, and keep track of spending, and how much is in your envelope.

Once you have your envelopes you need to figure out what categories you'll be using the envelopes for. I would suggest using them for most/all of your variable spending categories that you have in your budget. Things like dining out and entertainment, household expenses and personal spending money. Anything that could change from month to month. For us we leave out categories that rarely change, and just pay those regularly every month out of our accounts.

The idea behind the envelopes is that it helps you control your spending on certain problem categories by giving you a set amount of money each month in your envelope that you need to use towards that category. When the money is gone from the envelope, you don’t spend any more money on that category. Period. If you absolutely need to spend more, you have to take money from another category to fill in the gaps.

At our house we started using the cash envelopes because we had a couple of big problem categories that we consistently overspend in. Eating out/restaurant spending and shopping spending. My wife and I love eating out, and in some ways eating out is our way of connecting with each other, spending time together and relaxing. If we have a date night we go out to a nice restaurant and enjoy an evening together.

While there isn't anything necessarily wrong with that, our problem was that we were doing it far too often, spending hundreds of dollars a month on dining out. So to fix this problem we added a “restaurant” budget category to our envelope system. In the picture below you can see our envelope for “Restaurants”.

We also set up envelopes for other problem categories where we were prone to overspending including groceries, shopping, entertainment and “blow money” (blow money is personal money we can spend for any reason we want, without asking the other person). So now, when we get paid every month, we withdraw a budgeted amount of cash for all our problem categories, and put them in our envelopes.

So as an example, let's say we budget $150 for eating out in a given month. When our first of two paychecks comes in for the month we'll go to the bank and withdraw $150 for our “restaurants” envelope. Now when we go out to eat we can only spend what's in the envelope. So if we eat out one more time than we had anticipated, and we come up $20 short from our restaurants envelope, we'll need to take that $20 we're short from another spending category or envelope. Barring that we would just have to forgo eating out that last time that month.

If you don't spend all of you budgeted money in your cash envelope you can just have it transfer over to the next spending period, or at the end of the month allocate it to a debt or saving category – which is what we prefer to do.

I know a lot of people aren't real comfortable using the cash envelope system at first, especially if you have a large number of problem categories – and envelopes. You can feel a bit silly pulling out your big cash envelope wallet, or stack of envelopes everywhere you go. We know one couple who goes a bit overboard with their cash envelopes, and they basically have an envelope for every conceivable category. While it works for them, and they end up saving a lot of money, for us it would just burn us out to have so much detail. For us, we just have about 6 main cash envelopes that we use for our biggest problem areas.

So for our 6 envelopes that we were using, we would end up withdrawing about $1000 for each month and assigning it to one of our envelopes. It's a lot of cash, but part of the great part about this system is that when you're actually spending cash like that, you'd be surprised at how much it hurts to spend cash. You'll find that you'll often start playing a game with yourself to see how much money you can have left over in your envelopes at the end of the month. It actually can be fun!

So the key components of an envelope system are:

Set up a zero-based budget, and figure out how much you spend in all categories of your budget.
Find your biggest problem spending categories, and variable expense categories, and set up an envelope for those categories.
Every time you get paid withdraw money to fully fund your cash spending categories for your envelope system.
Only money that is in your envelopes can be spent. If a spending envelope doesn't have any money left , you're done spending for that category for that period. If you need to spend more, take it from another envelope and category.
Left over money goes towards savings or gets rolled into a debt snowball to get rid of debt.

Cash Envelopes WILL Save You Money

Using the cash envelope system for spending can have an amazing effect on how much money you're spending every month. We saw that first hand when we saw our restaurant spending drop from $4-500/month to closer to $150-200/month. That extra several hundred dollars we saved every month went directly to our 1 year emergency fund, which grew that much quicker!

Not only are you limiting how much you spend by using the envelopes, but you're also using psychology on yourself. Studies have shown that when you use a credit card, even if you’re paying it off every month, you spend on average 12-18% more. Spending cash hurts more, andwhen you pay cash, you'll end up spending less by default. And spending less than you earn is the key to anyone's success.

What do you think of the cash envelope system? Do you currently have problem spending categories that you think could benefit from using a cash envelope? Do you think the system could be effective for you, or have you used it? Tell us your thoughts in the comments.

7 Good Reasons To Budget Beyond The Bottom Line

By Mr. Money 1 Comment

As a personal finance blogger I'm a big proponent of having the family do a budget because it has the effect of helping you to better regular spending, see where the money is going, and figure out places where you can cut back. It helps you to take control of your finances.

One thing that I realized, however, was that not only does doing a budget help your finances, it has the side effect of also helping other areas of your life.

7 Reasons To Budget

Here are five quick side benefits of doing a budget for your family.

Less arguments and fights about money: Before we had a budget and cash flow plan set up at our house, we constantly argued about little things when it came to money. We just didn't feel secure, and any little thing could set us off because we felt like we were hanging on by a thread. Small expenditures by myself or my wife could set the other off because we weren't sure if we would have enough money at the end of the month. Now that we have a set budget, and specific amounts allocated to all spending categories, it takes the pressure off, and we're able to trust that we've got a plan, and we don't need to worry about what the other is spending.
We have a sense of peace: Now that we've got a plan we don't have the constant stress of worry that we won't be able to pay all our bills, or that we're falling behind in retirement savings. Now we know what our financial situation is, we're planning ahead and making sure that we're set.
No more panic when the “unexpected” happens: When unexpected expenses crop up like emergency room visits, car repair bills or the need for a new water heater, we don't have to panic and worry about where we'll get the money to pay for the problem. Instead, we've budgeted for an emergency fund, and we're ready for when the unexpected happens.
It makes the word “NO” easier to say: Before we had a budget and a plan saying no to frivolous purchases wasn't as easy because we figured we could afford something, and we'd just put it on credit in case we couldn't. Now we know what we can afford, we budget for the things we want, and we pay cash. It makes it a lot easier to say no to a purchase when it isn't budgeted for, and you don't have the cash saved up!
You have extra money to use to help others: I guess this one does actually speak to your bottom line, but to me it's priceless to be able to help others more now, because we just have more left over. Because we've budgeted, our surplus has grown, and we've been able to give more to causes we believe in, and more importantly, to our church. Without a budget, that wouldn't have been possible.
Better communication in the family: When we started budgeting at our house we had monthly family budget meetings. The result was that we were talking more about our joint finances, and we were just communicating more in general. It lead to us feeling more connected as husband and wife, and generally improved things in our house.
You feel empowered: When you have a plan, and your budget is working effectively, it gives you a sense of empowerment, as opposed to the sense of helplessness when your checking account dwindles away to nothing and you're not sure where the money is going.

Our family has been doing a budget for a while now, and it has been a huge blessing for our household. It had a lot of wonderful side effects that we didn't anticipate when we first started.

So those are my good reasons to budget, beyond just the monetary reasons. What are yours? Share with us in the comments!

Click here for a budget helper.

Three Steps You Can Take To Turn Your Financial Life Around

By Mr. Money 3 Comments

After we got married just over 8 years ago, my wife and I entered the marriage with more debt than we would have liked. My wife had zero debt, and I came in with student loans, credit card debt (for our honeymoon) and a loan for my car. We weren't happy with having so much debt, and after a couple of years of slowly paying off the obligations, we decided to take things a bit more seriously. We wanted to get out of debt and get on track for an increased net worth as fast as possible.

Here we are several years later and we're now back on track. We have no debt (except a mortgage) and we're slowly building up a nice nest egg that includes savings, retirement accounts and insurance.

Here's are three things that we did that had the greatest impact in helping us to turn things around.

Start Tracking What You Spend And Set Up A Budget

The biggest change that we made was to actually start tracking what we were spending. When we got to the end of the month normally we would be at the end of our bank account – with not much left over to save or pay extra on debts. The money was just gone and we didn't really know where it had gone.

After reading Dave Ramsey's Total Money Makeover we started actually tracking where our money was going for a couple of months. What we found was that we were overspending by huge amounts of money in our eating out category and in our entertainment spending. There was a lot of room for making cuts.

Once we had tracked our spending for 2-3 months we actually set up a budget and cash flow plan at our house. We started working on a zero based budget suggested by Ramsey where you allocate every dollar to either a spending, saving, investing or giving category before the money even hits the account. You allocate every dollar, and if you have money left over at the end of the month – it needs to be re-allocated to a category. If the money isn't given a name and given a job – that money has a way of disappearing.

We quickly found that once we started using our budget, and not spending more than had been allocated in different categories (using a cash envelope system), we ended up having several hundred dollars a month left over that we hadn't had before. And it wasn't like we ended up making any painful cuts or hard decisions. That's quite a turn around!

Set Up An Emergency Fund

Another thing that made a huge difference for us, while we were paying off debt – and once we had it all paid off – was having an emergency fund. According to a Gallup poll a few years back, Only 10% say they have $1,000 in cash available in case of an emergency. That's not good!

In the past I had always thought that having a credit card was just as good as having a cash emergency fund. But what I realized later on was that using a credit card to pay for life's little “emergencies” just helps to continue a cycle of debt by creating new debt – when you could have instead planned ahead and had the cash to pay for it up front.

So how much should you save in an emergency fund? It depends on what you want your level of security to be, and the amount of risk you want to take on by not having an emergency fund. At our house, and in this economy, we currently have about a 10-11 month emergency fund (we can pay for 10-11 months of our expenses if we were to lose all income tomorrow). We just aren't optimistic about where our economy is heading, and we want to make sure we're prepared for the worst. While we were paying off debt we saved up $2000 in our emergency account because we figured that would cover most problems that could happen.

Try Living A Cash Only Lifestyle

The third thing that we did that had a huge impact was switching from a lifestyle financed by credit and loans, to one financed strictly by cash. If we want to buy something now, we pay for it with cash. Now that doesn't necessarily mean we pay for everything with crisp new $20 bills, but it does mean that we don't buy anything unless we have the cash on hand in our bank account to pay for it.

A couple of examples of how things changed in our life.

We needed some new furniture for our new house when we moved 4 years ago. In the past we probably would have financed the furniture at the store or put it on a credit card. Instead, this time we had planned ahead and saved the cash to pay for it up front.
Two years ago my car started having problems, and we knew we'd have to buy a new car to replace it. Instead of buying an expensive model financed at the dealership as we had in the past – this time we had saved up enough money every month in a “car fund” to buy a nice used car – that was new to us. A paid off car just drives so much nicer than one with a huge loan on it!

Paying cash and not having new debt is so much more freeing!

Planning Ahead, Saving Up And Living Within A Framework

When you look at the three points above, they all have something in common. They involve taking a look at your life, and making a decision to live with a plan, to thinking things through and making rational decisions that will pay off down the road. They involve living with delayed gratification, and deciding that you want to make sacrifices today so that tomorrow will be a brighter day. Making those types of decisions isn't always fun, but in the end it will pay off.

What other things would you suggest people do – or what are some things that you have done that have made you more successful? Tell us your thoughts -and your tips and tricks – in the comments!

Keep It Simple Stupid: Sometimes We Make Things Too Complex

By Mr. Money 3 Comments

One thing I've realized over the past few weeks is just how complex we as human beings like to make things, even when they could be so simple. We love to take things that really are pretty basic and easy to understand, dissect them and turn them into something more complex, and harder to understand. The thing is – things don't need to be complex – and are often easier if you just get down to the basics.

Simple Things Made Complex

Here's an example. My wife and I just had a baby 2 weeks ago (That's him up above!). For the previous 9 months we had been reading everything we could get our hands on on raising children, what to expect when the babies arrive, how to properly put them to sleep, how and how often to feed them, what things you need to buy for your child before they arrive – and so on. With all of the information out there things can start to get extremely complex really fast. I can understand how many new parents feel overwhelmed with all of the decisions that they have to make – it ends up being paralysis by over analysis.

What I've realized over the past 2 weeks, however, is that having a baby and fulfilling their needs – while it can be very complex – is actually very simple. All the baby needs you to do is feed it, change it's diapers and allow it to sleep. As long as you do those things the baby will thrive! Yes, there is a lot more to it, but as long as you do those things – and you just focus on the basics – you'll do just fine!

Personal Finance Made Simple

Like having children – personal finance can also be made much more complex than it needs to be. People feel overwhelmed with the amazing amount of choices when it comes to different budgets to follow, what types of investments to make, how to get rid of debt, which investment guru to follow, paying for college educations and more. The thing is – it really isn't that complex. It really comes down to a few simple principles that you can follow:

Spend less than you earn – and live below your means.
Stick to a budget.
Plan ahead for emergencies.
Save for the future.
Give!

Everything else is just an offshoot of those basic principles (although your basic principles may be a bit different than mine).

It's Easy To Get Overwhelmed. Instead – Simplify!

So next time you start feeling overwhelmed when it comes to your finances, take a step back, and try to look at things simplified. Look at the basic concepts of the subject you're examining, and work out from there. It will help you to stay focused, and remind you of what's important when it comes to money. Sometimes the most complex solutions aren't as helpful as the most basic of concepts.

What do you think? Do you have a suggestion for ways to keep from being overwhelmed? Has simplifying a concept ever helped it to make more sense to you? Tell us your thoughts in the comments.

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