Real World Finance$

When I was on here last, I was on my way out the door to a trade show in Arizona for my new business. We had a GREAT 4 days and got several contacts for some potential clients that could make us very busy early on next year.

In the mean time, the proposition for funding of public transportation around here failed. I guess gas prices falling from nearly $4 this summer to under $2 by the time of voting (I actually saw $1.499 this weekend) made people seem less anxious to spend tax money on public transit. The system has since announced rate increases for January, and my bus line continues to be on the list for probable elimination come spring. Of course, I’m hoping that my other business takes off by then and I can just work from home when the time comes. Otherwise, I’ll need to decide on how to get to work.

Other than those things, we continue to watch our retirement savings dwindle with the market. I’m on the verge of increasing my contribution through my company. I also hope to wrap up in the next couple of weeks our new medical insurance plan. My employer’s plan for next year came out with a 7% rate increase. Doing the math, I can get my own plan (same plan from the same insurer) with a higher deductible for $350 a month less. By contributing the max to the HSA portion to cover the rest of the deductible and taking into account the tax benefits of both, I still end up with a couple hundred dollars a month in my pocket. I just need to make a few phone calls and get the plans finalized.

One final note here as well. My wife decided that the boy needed to get a better understanding of where our money goes. Our current budget gives us an average of $300 a week for groceries, gas and other expenses we pay with our check card. She decided that once he gets back from his dad’s for Thanksgiving, that they will start going to the bank every week and pulling out the “allowance” in cash. It won’t be quite as convenient in all cases, but she’s hoping it will help them save money for our vacation coming up in February. I’m looking forward to the experiment as well. I know we don’t always use that amount every week. We have many weeks we don’t spend nearly that amount and others where we make up for it.

Hope everyone is doing well getting ready for the Holidays!

Part of a ballot initiative here today deals with increasing taxes to help fund our public transit system.  If this does not pass, it is almost a sure thing that my current bus line will be discontinued by the Spring.  If it does pass, there is a still a pretty good chance that service will at least be reduced.

If the line is cut altogether, I’m going to need to decide how I will get to work.  I’ve thought of several options and don’t really care for any of them.  We currently have 1 car for our family of three and it stays home with my wife and son during the day.  I currently work 4 miles from home.  It takes about 15-20 minutes to make it there through city traffic and all the lights.  My time actually on the bus is about the same as it takes the same path I would drive and makes very few stops after I get on and before I get off (there are a number of people on the bus, they just get on before me and get off after me).  My monthly expense for a Bus Pass is current $60 (and is likely to get raised to $70-75 by next year).

With that background information out of the way, here are my other options as I see it:

1. Stick with riding the bus.  There is still a couple of other bus lines near home, but they don’t take a direct path towards my work.  My current total time with walking to and from the bus stops is about 30-35 minutes.  If I take another line, I will have to go out of the way, wait and transfer to another bus or Metrolink which would make the trip closer to 50-60 minutes long.  I’m not exactly thrilled about spending an extra hour every day away from home.
2. Get a scooter.  With it being a short drive and city streets, a scooter is an option.  For about $1,500 you can get one that would suffice and get 80-90 mpg.  Still, I do live in St. Louis and we do get snow during the winter.  I’m not sure I’d feel safe on the road with other drivers during inclement weather.  I suppose a bicycle could work here as well, but again, I don’t trust car drivers on the streets during poor weather.
3. Get a cheap, used car.  This would keep me more protected from the weather and would still keep up front costs low, but I’m not much of a mechanic for doing my own auto repairs.  Anything cheap and used at this point is likely to be pretty inefficient fuel wise as people are finally getting rid of them and moving to better fuel economy.  In addition, with state personal property taxes and license fees, there is an additional cost for the car (a scooter under 50cc engine size does not pay those additional fees or taxes).
4. Get a new, fuel efficient vehicle.  If we did this, it would probably involve getting a new family car and me using the current Versa as my commuter vehicle.  It’s been getting nearly 27 mpg in purely city driving, so that would make me feel a bit better about gas, but I still have to deal with a new car payment, more insurance and the taxes and fees.
5. Carpooling.  This could possibly be an option.  I do know several people in the neighborhood that work near me or at the same place.  Of course, that always puts you at the mercy of their schedule as well.  At least with the bus it is a fixed schedule and I know that going in it’s not going to change by the afternoon.  Also, I suppose I could offer a carpool to some others on my current bus if I chose to buy a second car as well.
6. Force the wife and kid out of bed.  I could always force the wife and kid to get up early with me and take me to work and then pick me up as well.  They would only have to do that if they actually wanted to go out during the day (which is most days of the week currently, but they could probably rearrange things if they knew we were doing this).
7. Green Car?  If I knew of a viable, affordable alternative electric vehicle, I’d gladly consider it, but I honestly don’t know of any.
8. Any other ideas???

Any other ideas or thoughts on my alternatives here?  I need to come up with some sort of plan to try be prepared for this as part of our budget because it’s looking like a possibility.

I’m sure I haven’t spent much time on this topic, but considering the recent post over at Get Rich Slowly about
How Low Can You Go? Cutting Back to Minimum I was a little inspired to spend a few moments on this.

I have to admit though, that my wife is the brains and brawn behind much of this. Here’s just a few things we have done over the past year to save some money and try to be more eco friendly.

• CFLs - Yes, those good old compact florescent light bulbs. If you haven’t looked at these lately, they aren’t your father’s CFLs. There is a much wider variety out now that have a much softer light and you can’t really tell you’ve got a florescent light in. Plus, I LOVE that I haven’t had to change a light bulb in ages.
• Cleaning Spray- My wife has found some recipies using regular old white vinegar (which is amazingly cheap) some essential oils (for scent) and some other stuff that I don’t remember to make a very effective general household cleaner.  She uses it for sinks, counter tops, floors and all kinds of other stuff.  Trust me, it’s MUCH cheaper than the $4 bottle of stuff you buy at the store.
• Laundry Soap - Another home brew concoction my wife found a recipe for.  She uses Borax and Washing Soda to make powdered laundry soap at a fraction of the store cost.  It’s also more powerful because it doesn’t have all the fillers you find in most detergents.  Having had a college instructor who was once a divisional director for a large conglomerate that made laundry detergent, having fillers makes people need to put in more which makes them feel better about the cleaning.  Evidently our psyche is such that we think more soap is better, even if a little will do the job.
• Curtains - My wife is nearly finished with this project as well.  The curtains in our bedroom for the last 2 years have been old bed sheets (attractive I know).  She had bought some fabric and made camo curtains for the boy’s room, but ours has still been lacking.  She dug out her boxes of fabric that have always been intended for quilting and has pieced together some beautiful curtains in her favorite colors.  She just needs to put on a backing to help block the light (she bought that yesterday when the fabric store had a 40% off 1 item sale) and then we’ll be all set with some wonderful custom curtains with stuff we mainly already owned.
• Garden - It’s amazing what you can grow in such a small space in your backyard with a few bucks worth of seeds.  Our only fertilizer was a bag of crushed up, lump charcoal we mixed in when tilling the soil.  We were awash with wonderful fresh tomatoes, peppers and cucumbers.  Our counter top is also getting pretty crowded with acorn squash as well.  Oh, and I should mention, we rarely had to water the garden (though we aren’t on a meter, so it doesn’t technically effect our bill if we do).  We’d like to get a rain barrel attached to the garage so we can water with that next year as well.  To boot, we did almost zero weeding and things still grew just fine.

All little things you can do that not only save you a few bucks here and there, but they can also save the environment a bit as well.

As I have started making plans for our budget for the coming year, I’ve thought back to some business accounting courses I’ve had (and taught).  There’s one crucial thing you have to remember when you get to your total budget:

THE BUDGET IS ALWAYS BALANCED

If you spend less money than you bring in, then the remainder should go a budget line for savings.  If you are spending more money than you make, the remainder either has to come from savings or from new borrowings.  If you don’t plan those at part of the budget and realize the consequences, you are merely fooling yourself.

I did a quick search last week for the budget of the US Government.  I found this website that has the details and even has a ton of historical spreadsheets that you can download with details of past budget performance.  Being the number junkie I am, I naturally downloaded anything I could and I’ve looked through some of it.  First, it’s really a misnomer that we have a budget deficit or surplus.  A deficit just means we had to borrow more money to operate that year and a surplus means we were able to pay back some of our past borrowing.

The frightening thing is that, according to the data, the actual approved budget has only shown a surplus 3 times in the last 50 years (1960, 1999 & 2000).  And don’t get me started on the whole section of the data for “off-budget” dollars.  What the heck is that about?  Especially considering they have estimates for it going forward.  I can understand some new thing not being part of the budget some year, but don’t you know for next year it will be there?  Shouldn’t you be actually planning on that going forward?  Considering the off-budget portion is about 1/3 of the on-budget (or 1/4 of the total) I think someone should start consider budgeting for that revenue and expense.

Of course, in the end, our government is behaving the way of it’s citizens.  After all, it’s citizens that are running the government.  We spend and get in debt then raise a stink when the government does the same thing.

Here’s some tips for you to create your own budget at home.  We’ve done okay with ours this year in total, but individual categories vary wildly.

1. Start by planning for your revenue (or income).  I like to be a little pessimistic here.  I’m a contractor and not a salaried employee, so I typically plan for me to actually work about 45-46 weeks a year and not a a full 50-52.
2. Next, I’ve been using the 60% Budgeting method I described here.  I divide my expenses up into Committed Expenses (60%), Long Term Savings/Debt (10%), Retirement (10%), Fun (10%), and Short-Term Savings (10%).  It helps me focus on categories of budget rather than the minutia details when it comes to our performance.  I can always drill in deeper if something needs to be reviewed, but otherwise just stay at the top level if everything is okay.
3. I’ve adjusted my percentages some as we are spending less on retirement and short-term savings in order to spend more for long-term savings (which is strictly debt repayment) at this point.
4. Short-term savings, however, is still a very crucial point.  Don’t ever leave yourself with a budget that has 100% of your money accounted for.  You should always have a “slush-fund” of money you think you might spend, but isn’t allocated to anything.  This helps cover emergency car or home repairs  that may happen.  It should end up in a savings account in the mean time.

From a personal perspective, there is always the question of whether to do your budget as before or after tax.  Personally, I like to do mine before taxes so that I can try and pay as little as possible during the year (not getting a large refund later) and plan to pay off debt and put money in savings.  Others prefer to have higher taxes withheld and then budget for after taxes, using their return as a bonus to pay off things in a lump sum.

So, make your choice and sharpen your pencils!

That’s right folks, it’s that time of year again.  If you haven’t started yet, you should be considering it before long.  I like to start early to allow myself time to make actual adjustments to our spending prior to the end of the year.  I’ve done quite a few posts this last year on the topic of budgeting and how we do our budget.  You can see them all here.

Not only am I working on my budget at home, I’m getting ready to present our next year budget to the local neighborhood association (for which I am the Treasurer).  Between those 2 budgets, my head seems to be swimming with numbers lately… and it’s kind of fun!  I know, I’m weird that way.

Anyway, I’ve already started picking out a few areas where I think we can save money in our budget this next year.  The biggest question at this point is still where my income will be coming from.  I know I have my current contracting job and it should be quite safe through all of next year if I choose to stay, so that’s what I’m basing the income from.  I’m hoping to be able to supplement that by sometime early next year with some income on my own business (you can take a sneak peek here) and possibly start working full time for myself by the last half of next year if things go well.  So, here are the areas of our budget I plan on address over the next few months to see what can be done.  I’ll give more detail of each area as we make decisions and move forward.

• Income - As I mentioned above, this is based on my current job only.  I don’t plan on any less than this.  Also, as a contractor, this amount includes me being away for 5-6 weeks during the year on holidays and vacation and factors in the 401(k) match.
• Medical Insurance - Anyone who’s read much of this blog will realize I’m not a big fan of my current medical insurance.  I’m very strongly considering going to a private HSA plan this coming year and upping our deductible from $2,000/$4,000 to $10,000.  I’ve already started investigating this one as open enrollment is coming soon.  I would especially like to make this change with the anticipation of working for myself.  That way I already have it in place and won’t have to do it later.
• Life Insurance - This is something we drastically need to get added to our budget this year.  It’s not a huge expense at our ages, so we need to get moving and protect ourselves.  We have some unique needs in our estate planning, so it should prove to be an interesting investigation.
• Cell Phones - A line of budget that is no more, only because these are now business expenses.
• Irregular - This area is going to get more detailed next year based on our spending this past year.  I’ll be splitting that up to include our HSA funds, vacation and home repairs.

So, there’s the basics.  Stick around to see more details and see what other areas we delve into over the next couple of months.

As I mentioned yesterday, we are working to get back on track with living within our budget. We have been a little more lax over the summer months and leading up to vacation. Now we’re back and the bank account has dwindled. Today was payday, so the bank accounts are back up a bit.

If you’re not familiar, I have my paycheck split between 2 different checking accounts based on how we plan on spending the money. For things we woud normally pay for out of pocket (groceries, gas for the car, etc) we have an account at National City (NCC) which has several local branches. I calculated the amount we “should” need every 2 weeks between paychecks and have it directed there. The remainder goes into our online account with E*Trade (ETFC). There we pay all of the bills electronically. Because we also have a savings account there, we can transfer money temporarily over to savings when it’s not needed (such as most of the bills being due in a single pay period).

So, this last 2 week pay period ended yesterday. I checked our NC account online yesterday morning and noticed the our projected balance at the end of the day, after pending charges clear, was $-3.10. Not good. Of course, there is an Overdraft Protection account that would cover the difference and I could pay that back off this morning and likely not end up with interest charges. I was stuck on principle though, I didn’t want to use it. I let the wife know and she made a quick trip to the bank (about 1 mile) and deposited $5 cash for good measure.

Now, there have been a couple of times I knew we had a special purchase coming up and I transferred some extra from the savings account to make up the difference, but I didn’t do that this time.  Often, when it gets to a new pay period, I transfer anything left over from our “allowance” at NC back to the savings account, so an occasional transfer back doesn’t bother me that much.

So now I’m torn.  We really need to watch our spending more carefully, but I also don’t want to have to feel like a dictator about stuff.  I’ve been trying to think of a way to involve the rest of the family in just tracking how much we spend every 2 weeks to make sure we don’t have a repeat of yesterday.  I’m not concerned about WHAT we spend the money on, just that we watch more closely HOW MUCH we’ve spent.  I know some people would say we should just use cash, but I don’t feel comfortable with that were we live.  I’d much prefer to continue using our check card for most every purchase and finding an easier to keep track of our status from day to day.

Anyone out there have any suggestions?

I went to play golf a few weeks ago and was planning on  using the rest of the money on a gift card my wife had given me.  Unfortunately, the golf course changed ownership over the winter and they no longer accept those gift cards.  I got in touch with the previous management company and gave them the card information.  They sent me a Pre-Paid Master Card with the balance of my gift card on it.

The pre-paid card is activated on a website and lets you track the balance on there (and add more to if of course).  I was thinking though, could the old idea of “envelope” budgeting be turned into pre-paid credit card budgeting?  Seriously, for someone like me who rarely ever uses cash, this could possibly be an interesting experiment. 

Let’s say you get individual cards for groceries, gas, eating out, etc.  Every week/paycheck/month you could transfer an amount to the balance of the card automatically from your bank.  When you are out of money on that card, it gets rejected and you have nothing left to spend on that category. 

What do you think?  Worth the effort to setup and manage?

Our 6 month update of our electric bill came this past week.  Last year the bill had been $104 per month.  It was increased last fall after we got the new AC unit to $124 a month.  That was okay mainly because we had used it as supplemental heat that kept us from leaving the natural gas boiler for the radiators on as long.  That meant the gas bill had actually dropped from $165 to $126 at the same time.

Now that we’ve been through a winter with very little electric use the budget is set to adjust again.  We’ve now been in the house for just shy of 2 years and have a full year of the new AC unit on the bill.  Next month, our budget billing will be dropping to $102!  Yeah us.  I’m hoping that our efforts at turning off lights, converting to CFL’s and being more stingy with our temperature in the house that we can get that under $100 by the next adjustment. 

On other notes, we have our 6 month auto insurance to pay yet this month as well as our annual VoIP bill.  Yet, even with those large bills, we should blast past a -10k net worth this month.  I’m hoping to finish up my current class I’m teaching through next month and take a bit of a break.  I want to use that time to get a better handle on our situation and see what I can do to speed things up even more.  Things are going well so far and I want to make it better.

For the last several months we’ve been working with our son to balance a “check book” for his allowance.  Instead of giving him cash (which we never have) we gave him a check book register and he has to keep track of how much he spends and the allowance he gets in there.  We try to sit down a couple times a month to keep up to date.

After 5-6 months of seeing his balance number dropping down and down I was hoping he would notice and figure out he needed to stop spending so much on games and Legos.  Well, he saw his end of month balance last week and said, “I’m not buying ANYTHING for a while until I get my money back up where it was before!” 

It was good to hear, I just hope he sticks to that.  One help is that he is travelling with grandparents for about a week and a half, so that will keep the temptation of him spending his own money down for a while.  We’ll just see what he’s like when he gets back. 

It’s that time of month to review how we did on our monthly budget.  Here is a previous post about putting together our budget:

2008 Budget Planning

Here are the details of our YTD Budget as of the end of February.

• Income - 10.58% over budget for the year, WhooHoo!  Okay, so I know why that is.  Three paychecks in the month of January and I’m ahead of schedule in teaching for what I had budgeted for the year.  I expect that to wander back down closer to budget by mid year before I have the second month of 3 paychecks.

• Committed - Nearly 25% under budget for the year.  This one is a bit confusing to me.  I realize we haven’t had a mortgage payment yet, but I had that as part of the budget.  I’m going to dig into the numbers here and in fun to see if I might have miscalculated something somewhere.

• Debt - I’m over budget here already as well, which is not a terrible thing since I still have plenty of cash on hand.  As mentioned earlier, we’re planning a big payment to the debt in April.  I didn’t really budget that money as it came mainly due to the refinance activity (some cash back and then missed mortgage payment and escrow refund).

• Retirement- This is over budget just slightly due to the 3 paychecks last month as well.  This amount is just my contributions and will not include my employer contributions that I’ll receive later.

• Fun - We were still slightly over budget here last month also, though not as bad as January.  For the year though it still looks pretty bad.  If I find some over estimates in my Committed bucket, I’ll move some of that over to fun to balance things out. 

• Irregular - This is back down to normal.  Last month was bigger because of some plumbing repairs we had done.  So far this category includes payments for my braces and payments to our dentist for my wife’s bridge work.  We’ll be done with dentist payments in April and the ortho payments are only about $100 a month while I’m going through treatment (it’s 0% interest so I don’t consider it debt but just an office visit type of payment).

• All Expenses - Not bad, we are 12% under budget for our spending for the year.  Hopefully we can keep up with that trend.  The more we can be under budget here, the more we will feel comfortable making extra debt payments throughout the year.

I’m liking this method of budgeting so far.  I can see at a glance how we are doing in these categories.  If things look okay, I can just ignore the details.  However, when things start looking out of whack, I have it narrowed down and can dig deeper into a specific category to see what’s going on.  When I’ve tried in the past, I always got so caught up in the details that I would lose sight of the big picture.