(no subject)
So almosttomorocco is having issues with her parents, bills, and money, and I started writing my suggestions. I got a bit wordy, because I've been working really hard to make sense of the whole money and budgeting thing for myself, in the hopes that someday I'll be able to move out of my parents' house and be a responsible adult. Actually, a bit wordy doesn't cut it, I wrote a comment that's four full pages long in Word, single spaced. So, I decided I'd post here, and just link to it from my comment in her thread, so that I wouldn't take over her lj post. And, because I'm nice like that, I'm putting it behind a lj-cut here.
I'd really like it if anyone who manages to read it all lets me know what they think, and if they have any suggestions or comments. Just remember, I wrote it to almosttomorocco, and some of the stuff is directed to her, but it should work for anyone, I hope. It's REALLY basic stuff, but a lot of it only seems basic until you realize you actually haven't done it and have no idea what you're spending on X or Z. So, here goes nuthin.
Here's what I learned about budgeting, and it's helped me a lot. Bills are evil, and they become more evil when they're a big surprise. They're even evil-er when they don't get paid on time. File folders are your friends, and you absolutely have to have a place to organize your financial information. I have a drawer of file folders in my desk, and I pile all my pay stubs, receipts, and paid bills on top of the folders, and then I file the pile into the folders about once a month or every two months if I'm lazy. I had my info all over the place for a while, and it was a disaster if I needed to find something.
If your parents have a financial planning computer program like Quicken or something, ask them to set up a file for you on the program, for all of your accounts. I've got a checking account and a savings account, and it's made keeping track of them a lot easier, especially the checking account. I'm crap at math, and it does all the math for me. If they don't have a program, you might consider getting one yourself, because sooner or later you'll move out, and need one anyway. Quicken basic is only $30, which isn't a bad deal. It has a budgeting function too, and a lot of other stuff. If you can’t seem to keep your checking account reconciled, you NEED Quicken. I had a hard time with that, and it’s the very first thing you need to do, or you’ll have no idea how much money you have on a daily basis. If you don’t have a balanced checkbook, stop reading now. Go balance your checkbook. If you haven’t reconciled your last checking account statement from your bank, ditto. Do not pass go, do not collect $200.
To start budgeting, write down when bills come due, and any charges that are the same month to month (in my case, that's my car loan and health insurance.) Then, write down the general amount you spend each month on your more variable bills, like credit cards and telephone bills. Total that amount. I try to keep at least that much in my checking account, if I can, so that when something happens (like my car going off-roading without permission) I can afford to pay that "Surprise!" charge.
Now, I have no idea what your finances are like, but I have a credit card bill, and it is evil. The rest of my bills are the same month-to-month, but my credit card bill likes to surprise me. There are things on my credit card bill I can't really avoid spending money on, like gas, food, and medical bills. Some of those things are about the same every month (gas, groceries, prescriptions) and others (doctor's visits, going out to eat) vary from month to month. A while ago, I sat down with statements from the last 6 months and tried to figure out about how much I spent on the more non-variable credit card stuff. That really helped, because it gave me another set of numbers to add to the "fixed, required charges" group, along with my insurance and loans. The idea, for me, was to get a handle on what I HAD to spend a month, so I'd know how much I had left to play with.
Remember, any charges that don’t come once a month but come anywhere from bi-monthly to yearly still need to be budgeted for on a monthly basis, and that money needs to go somewhere. If you can’t trust yourself not to spend all the money in your checking account, you’ll have to deposit the amount you have to save each month for those things into your savings account. The best way to do this is probably to deposit your paycheck into your checking account, then immediately, each month, write a check to your savings account and deposit it.
Now, at this point I ran into a problem, because due to my weird job situation I have no idea how much I'll be making a month. You probably don't have that problem, so you've got it a bit easier. You should have some idea, based on how many hours a week you generally work and how much they pay you an hour, how much you make a month. (Or, if you’re on salary, it’s even easier!) If you don't know how much you make, figure that out right away!
Ok, now compare the amount you make to the amount you HAVE to spend every month just to get by, no fun stuff involved. Hopefully you make more than you have to spend. If you don't, that's when you go to your parents and say "HELP!", because even if you don't do anything or buy anything, you'll still be in the hole. You'll have to find a way to make more money, because you can't cut back on anything. Now, I'm positive you're smart enough to figure that out for yourself, so I'll assume you're not in that situation. You've probably got a bit of a cushion between how much you're making and how much you have to spend.
That's where the un-fun “how to save money” part of budgeting comes in. Obviously, you could spend tons of money on everything you want to do and buy. But you don’t have that much money; so, figure out how much you have been spending on "discretionary" stuff. Be sure to add in things like doctor's visits and car repairs, trips, gifts, etc. Ok, obviously you have to go to the doctor and have your car repaired, but those things are discretionary in my mind, because they vary and because you probably don't know yet how much you spend on them from year to year, because you don't have much experience with costs like that yet. So for now they're discretionary. This sucks, because that means they fall in the "Fun stuff" expense file, even though they aren't actually fun. Mind you, if you can budget for them in advance, do. Some things, like dentist visits and doctor check ups, you do on a yearly basis, and you may know how much those things cost you. I didn't have any idea until recently.
So take a good look at your discretionary expenses. Grab your credit card bills from the last six months (and any other variable bills, like a cell phone) and get some idea of what you've been spending on what. I sat down at my computer and used excel, because it has a wonderful sum feature that allows you to total all of the amounts in a column, and you can print out the result. I needed columns for computer $, restaurant $, clothes $, movie/theater $, and wedding $ because being a bridesmaid is expensive.
Here's the really sucky part. If you haven’t been paying all of your credit card bills in the past, you're in debt, and you don't want to be. This doesn't mean, however, that you should stop spending money on fun. That's impossible. It does mean, however, that you want to be very, very careful to spend within your budget, because every time you go over budget, you don't have any cushion to keep you from going further into debt. It also means that you need to add the finance charges to your expenses. Don't forget this step! Finance charges make your discretionary income even smaller. Bummer. If you aren't in debt, that just means you still don't want to spend over your budget, because that'll be cutting into your savings. Either way, you only want to spend a portion of your discretionary $, because we all want to have savings, and the only way to get savings is to, well, save money.
When I start to think about spending money on something, I always do a little mental math. How much have I spent of my "fun $" so far? Do I know about any un-fun surprise charges that'll be coming up, like that lovely car repair bill I just got? Where does that put me, budget wise? For my last credit card bill, I spent the majority of my fun $ on bridesmaid stuff, and I went WAY over budget due to my car repair. Fortunately, that's ok, I've got savings for stuff like that. But that meant that I didn't buy lunch out, like I had been doing, and I didn't go to the movies, and I didn't buy the computer game I wanted (ok, I did, but I had gift cards). I was still way over budget, but that happens. Other months, I’m under budget, so I’m not going to go into debt; I have savings.
It's all about the mental math. You have to think, when you really want to download that CD, or buy that DVD set, or use your cell phone to go online, or buy that shirt, or something. "How much do I have in my fun $ left this month? Is there something I'm going to want (a new CD) later this month that I'll be going over budget for if I spend money now?" And you also want to decide if what you want now is worth the worry and pain later if you don't have any savings, or you're in debt. And if you're planning something long-term, like a trip (to Maryland, eh, Kate?), that doesn't have to be paid off this month but will be costly in the future, don't forget about that! You have to think long term sometimes too.
When you think, "Gee, this DVD set would be cool to have, but if I don't spend all of my fun $ this month, I could pay off some of that credit card debt and start saving money instead," you'll be using your budget to improve your finances. You may not be able to use your willpower to have extra money every month. But I'm sure you can do it every other month, or better. But if you're in debt, whatever you do, even if you don't save money, DON'T spend over your budget, because you'll just be adding to your debt, and thus adding to your expenses with those credit card charges.
Now, somewhere I read that it's best, if you have money left over, to use part of it as savings, and part of it as debt payment, if you have debt. In other words, don't use all of it to pay off debt, unless you have MASSIVE finance charges. Put part in the bank. This gives you a cushion to keep from adding to your debt if something goes wrong. If you tend to spend all the money in your checking account, open a savings account and put some money in there, and don't touch it unless you HAVE to, for medical or car bills or something.
I also read that, if you can’t afford to pay off your bills right away, just be sure to pay the minimum on all of them at least. The only exception to this is student loans. Student loans should always be paid in full, before ANYTHING else, because student loans are really important in your credit history, and because the loan companies often decrease your interest rate if you pay on time, in full, every month. Anything that decreases your interest rate is good.
Yeah, money sucks, but managing your finances is absolutely the MOST important thing you can do. Essentially, things like your credit score and your financial history are uber-important, because banks and loan companies look at that information when they determine the interest rates they’ll charge you on your loans, including car loans, home loans, and even things like rent, where you may not be able to find an apartment because the owners think you are too big a risk. Someone told me that a credit score is the adult report card, and it’s actually not that hard to get a good grade, but that most people have no idea how to keep track of their finances, which is the first and most important step to a good credit score.
So anyway, this is the KJK method of saving money and not freaking out when the bills come due. It’s really long, but not that complicated in the end, I hope! Good luck, and feel free to ask questions, although it’s not like I really know what I’m doing, I’m just repeating what other people, especially my MBA mom and self-employed dad told me.
Next time (several years from now once I’ve figured it out): INVESTING 101!
I'd really like it if anyone who manages to read it all lets me know what they think, and if they have any suggestions or comments. Just remember, I wrote it to almosttomorocco, and some of the stuff is directed to her, but it should work for anyone, I hope. It's REALLY basic stuff, but a lot of it only seems basic until you realize you actually haven't done it and have no idea what you're spending on X or Z. So, here goes nuthin.
Here's what I learned about budgeting, and it's helped me a lot. Bills are evil, and they become more evil when they're a big surprise. They're even evil-er when they don't get paid on time. File folders are your friends, and you absolutely have to have a place to organize your financial information. I have a drawer of file folders in my desk, and I pile all my pay stubs, receipts, and paid bills on top of the folders, and then I file the pile into the folders about once a month or every two months if I'm lazy. I had my info all over the place for a while, and it was a disaster if I needed to find something.
If your parents have a financial planning computer program like Quicken or something, ask them to set up a file for you on the program, for all of your accounts. I've got a checking account and a savings account, and it's made keeping track of them a lot easier, especially the checking account. I'm crap at math, and it does all the math for me. If they don't have a program, you might consider getting one yourself, because sooner or later you'll move out, and need one anyway. Quicken basic is only $30, which isn't a bad deal. It has a budgeting function too, and a lot of other stuff. If you can’t seem to keep your checking account reconciled, you NEED Quicken. I had a hard time with that, and it’s the very first thing you need to do, or you’ll have no idea how much money you have on a daily basis. If you don’t have a balanced checkbook, stop reading now. Go balance your checkbook. If you haven’t reconciled your last checking account statement from your bank, ditto. Do not pass go, do not collect $200.
To start budgeting, write down when bills come due, and any charges that are the same month to month (in my case, that's my car loan and health insurance.) Then, write down the general amount you spend each month on your more variable bills, like credit cards and telephone bills. Total that amount. I try to keep at least that much in my checking account, if I can, so that when something happens (like my car going off-roading without permission) I can afford to pay that "Surprise!" charge.
Now, I have no idea what your finances are like, but I have a credit card bill, and it is evil. The rest of my bills are the same month-to-month, but my credit card bill likes to surprise me. There are things on my credit card bill I can't really avoid spending money on, like gas, food, and medical bills. Some of those things are about the same every month (gas, groceries, prescriptions) and others (doctor's visits, going out to eat) vary from month to month. A while ago, I sat down with statements from the last 6 months and tried to figure out about how much I spent on the more non-variable credit card stuff. That really helped, because it gave me another set of numbers to add to the "fixed, required charges" group, along with my insurance and loans. The idea, for me, was to get a handle on what I HAD to spend a month, so I'd know how much I had left to play with.
Remember, any charges that don’t come once a month but come anywhere from bi-monthly to yearly still need to be budgeted for on a monthly basis, and that money needs to go somewhere. If you can’t trust yourself not to spend all the money in your checking account, you’ll have to deposit the amount you have to save each month for those things into your savings account. The best way to do this is probably to deposit your paycheck into your checking account, then immediately, each month, write a check to your savings account and deposit it.
Now, at this point I ran into a problem, because due to my weird job situation I have no idea how much I'll be making a month. You probably don't have that problem, so you've got it a bit easier. You should have some idea, based on how many hours a week you generally work and how much they pay you an hour, how much you make a month. (Or, if you’re on salary, it’s even easier!) If you don't know how much you make, figure that out right away!
Ok, now compare the amount you make to the amount you HAVE to spend every month just to get by, no fun stuff involved. Hopefully you make more than you have to spend. If you don't, that's when you go to your parents and say "HELP!", because even if you don't do anything or buy anything, you'll still be in the hole. You'll have to find a way to make more money, because you can't cut back on anything. Now, I'm positive you're smart enough to figure that out for yourself, so I'll assume you're not in that situation. You've probably got a bit of a cushion between how much you're making and how much you have to spend.
That's where the un-fun “how to save money” part of budgeting comes in. Obviously, you could spend tons of money on everything you want to do and buy. But you don’t have that much money; so, figure out how much you have been spending on "discretionary" stuff. Be sure to add in things like doctor's visits and car repairs, trips, gifts, etc. Ok, obviously you have to go to the doctor and have your car repaired, but those things are discretionary in my mind, because they vary and because you probably don't know yet how much you spend on them from year to year, because you don't have much experience with costs like that yet. So for now they're discretionary. This sucks, because that means they fall in the "Fun stuff" expense file, even though they aren't actually fun. Mind you, if you can budget for them in advance, do. Some things, like dentist visits and doctor check ups, you do on a yearly basis, and you may know how much those things cost you. I didn't have any idea until recently.
So take a good look at your discretionary expenses. Grab your credit card bills from the last six months (and any other variable bills, like a cell phone) and get some idea of what you've been spending on what. I sat down at my computer and used excel, because it has a wonderful sum feature that allows you to total all of the amounts in a column, and you can print out the result. I needed columns for computer $, restaurant $, clothes $, movie/theater $, and wedding $ because being a bridesmaid is expensive.
Here's the really sucky part. If you haven’t been paying all of your credit card bills in the past, you're in debt, and you don't want to be. This doesn't mean, however, that you should stop spending money on fun. That's impossible. It does mean, however, that you want to be very, very careful to spend within your budget, because every time you go over budget, you don't have any cushion to keep you from going further into debt. It also means that you need to add the finance charges to your expenses. Don't forget this step! Finance charges make your discretionary income even smaller. Bummer. If you aren't in debt, that just means you still don't want to spend over your budget, because that'll be cutting into your savings. Either way, you only want to spend a portion of your discretionary $, because we all want to have savings, and the only way to get savings is to, well, save money.
When I start to think about spending money on something, I always do a little mental math. How much have I spent of my "fun $" so far? Do I know about any un-fun surprise charges that'll be coming up, like that lovely car repair bill I just got? Where does that put me, budget wise? For my last credit card bill, I spent the majority of my fun $ on bridesmaid stuff, and I went WAY over budget due to my car repair. Fortunately, that's ok, I've got savings for stuff like that. But that meant that I didn't buy lunch out, like I had been doing, and I didn't go to the movies, and I didn't buy the computer game I wanted (ok, I did, but I had gift cards). I was still way over budget, but that happens. Other months, I’m under budget, so I’m not going to go into debt; I have savings.
It's all about the mental math. You have to think, when you really want to download that CD, or buy that DVD set, or use your cell phone to go online, or buy that shirt, or something. "How much do I have in my fun $ left this month? Is there something I'm going to want (a new CD) later this month that I'll be going over budget for if I spend money now?" And you also want to decide if what you want now is worth the worry and pain later if you don't have any savings, or you're in debt. And if you're planning something long-term, like a trip (to Maryland, eh, Kate?), that doesn't have to be paid off this month but will be costly in the future, don't forget about that! You have to think long term sometimes too.
When you think, "Gee, this DVD set would be cool to have, but if I don't spend all of my fun $ this month, I could pay off some of that credit card debt and start saving money instead," you'll be using your budget to improve your finances. You may not be able to use your willpower to have extra money every month. But I'm sure you can do it every other month, or better. But if you're in debt, whatever you do, even if you don't save money, DON'T spend over your budget, because you'll just be adding to your debt, and thus adding to your expenses with those credit card charges.
Now, somewhere I read that it's best, if you have money left over, to use part of it as savings, and part of it as debt payment, if you have debt. In other words, don't use all of it to pay off debt, unless you have MASSIVE finance charges. Put part in the bank. This gives you a cushion to keep from adding to your debt if something goes wrong. If you tend to spend all the money in your checking account, open a savings account and put some money in there, and don't touch it unless you HAVE to, for medical or car bills or something.
I also read that, if you can’t afford to pay off your bills right away, just be sure to pay the minimum on all of them at least. The only exception to this is student loans. Student loans should always be paid in full, before ANYTHING else, because student loans are really important in your credit history, and because the loan companies often decrease your interest rate if you pay on time, in full, every month. Anything that decreases your interest rate is good.
Yeah, money sucks, but managing your finances is absolutely the MOST important thing you can do. Essentially, things like your credit score and your financial history are uber-important, because banks and loan companies look at that information when they determine the interest rates they’ll charge you on your loans, including car loans, home loans, and even things like rent, where you may not be able to find an apartment because the owners think you are too big a risk. Someone told me that a credit score is the adult report card, and it’s actually not that hard to get a good grade, but that most people have no idea how to keep track of their finances, which is the first and most important step to a good credit score.
So anyway, this is the KJK method of saving money and not freaking out when the bills come due. It’s really long, but not that complicated in the end, I hope! Good luck, and feel free to ask questions, although it’s not like I really know what I’m doing, I’m just repeating what other people, especially my MBA mom and self-employed dad told me.
Next time (several years from now once I’ve figured it out): INVESTING 101!