Fearless Money » Budgeting

Meditation retreat

Bruce Kroeze — Sun, 15 Jul 2007 04:46:37 +0000

I’m home for the evening from a weekend Buddhist meditation retreat, and I was thinking about how unlikely it was that I’d have much to post on this blog about it.

But then I realized that there is something of value for my readers. I’ve blogged before about giving gifts and feeling better about spending money, due to budgeting, but I’ve never talked about the education fund. In our "freedom account", I set aside money for adult education, along with a separate account for education intended for our kids.

That very important bucket of money goes to whatever educational opportunities we want. I’ve taken Spanish classes, bought books & CDs, and now paid for a weekend meditation retreat. My wife has taken language classes of her own, and paid for roller skating lessons.

Why?

You may be wondering how this is different than just buying these these things straight out. It is remarkably different, actually. There’s no hesitation, no quick balancing the checkbook to make sure we can afford it. No guilt or discussion about spending the money. That’s what it is *for*, and the money is already set aside.

I hope that makes sense. If you were raised with a frugal mindset as I was, you’d understand how liberating this freedom from spending guilt really is. Budgeting is such a help in this area, in ways that I never expected when I started a couple years ago.

Technorati Tags: budgeting, education, meditation

Over a year on the budget

Bruce Kroeze — Fri, 07 Jul 2006 16:45:44 +0000

Hey, it has been over a year and my family is still going strong on our budget!

I just realized that we started keeping a formal budget last June. What a difference a year makes. A year ago, we were still operating on the “quick check method”. You know what I mean:
“Bunny, do we have enough money to get that xxxx I want?”
(takes a look at online balance)
“Sure, keep it under $300″

As a direct result, we had huge ebbs and flows of income. Occasional windfalls would save our bacon when we got too close to the wire, but more often we’d just go “onto the credit cards” for a while, always intending to pay that off when we had a little to spare. That would happen every year or so, but always as a losing battle. The cards would inch up from their previous low point, every time.

It was depressing, and worse, it was provoking panic attacks in me. And why wouldn’t it? We were outspending our income every month, and on some level I knew it. I was deeply afraid of confirming what my increasingly upset stomach knew to be true.

Last spring, after a ridiculous run of overdrafts for no reason other than sloppiness, I got serious. I had adopted Paul Allen’s Getting Things Done methodology, and I went to it with a vigor. It took about two weeks of work, every night and on the weekends, to get through the daunting pile of documents, receipts, and bills. But I did it.

I knew where we were, and it was bad. We had 9 (!) credit cards, with balances ranging from $0 to $12,000. We were overspending our income by about $500 per month, sinking fast.

I set to making my first budget. It took days to create, it was huge and unwieldy. I tracked everything we spent, to the penny. I guesstimated our budget for June and forced it to conform with our estimated income. My wife was extremely unhappy, but agreed we had to do it, when I showed her the truth of our last year’s decline.

Reconciling those first few budgets took around 10 hours a month. I slowly modified my spreadsheets, and stopped tracking into such tiny categories. For example, who cares how much is spent on literal “you can eat it” groceries vs. household supplies such as laundry detergent. Today they are lumped into a combined “groceries” budget and I don’t have to dissect Winco receipts to figure out how much to take from each account.

More importantly, I set up “freedom accounts” to handle irregular expenses. We have 8: Car, Clothes, Hair, Education, Home repair, Pets, Utilities (for non-monthly bills, like water), Vacation. We put money into these accounts every month. This money shares the same account as our primary household, so it provides the buffer to ensure we don’t overdraw even when we spend much of our budget in the first part of a month.

Today it takes about 4 hours a month to do the budgeting and reconciliation. We’ve paid off and closed 7 of the credit cards. One retains a balance of about $5500 left to be paid, and the other is a cash-back card that is paid off monthly.

This year has been a great stride forward for my family. From fear to growth and understanding, dropping the foolish belief that “budgets don’t work” and actually trying one has made all the difference.

Technorati Tags: budgeting

Windfalls, a happy challenge

Bruce Kroeze — Fri, 09 Jun 2006 15:45:10 +0000

While playing the Prosperity Game, I got to thinking about my personal rule-of-thumb for handling real-life windfalls.

This has definitely changed over time. When I was younger, I would simply split the money in halves. 50% to pay down debt (which always needed paying down), and 50% for "something nice." That was nice, but had the effect of making the windfall disappear very rapidly, with little to show for it.

Small Windfalls

My new technique for small windfalls, especially ones happening toward the end of the month, is to simply add them to my monthly budget. Likely this will make me have a "rollover" to next month, where I’ll allocate the money for something the family needs. This can be fun as well, since we may get to buy something we’d expected to have to wait longer to afford. Of course, much of the time the money simply gets allocated to pay down our rapidly shrinking credit card debt.

Large Windfalls

I don’t really have much history with larger windfalls. The biggest one ever was the sale of our last house, which netted us about $50,000 profit. That all was rapidly sunk into our new house, and into completing the adoption of Clio. We didn’t really have a plan, and the money evaporated. We can do better by thinking through a better rule for handling such influxes.

The last big windfall we had was about $10,000 from tax refunds this spring. We allocated that money in approximate thirds. 1/3 went to the business startup costs, 1/3 went to pay down debt, and 1/3 went into our "freedom account" to be spent on home improvement and education. (I was going to link an article I wrote about freedom accounts, but I see that I never wrote it. Blog post soon on that topic!)

I think that three-way split was pretty good, but I want to try a small tweak for next time. I think my rule of thumb next time will be:

First, take out taxes and set aside in savings account. The percentages are for what remains.
50% debt, if any
25% house repair and education accounts
15% Retirement
10% Vacation & mad-money

I’ve been thinking for some time now that it feels like a windfall on the order of another $50,000 is going to enter my life in the next few months, so having a general plan in place feels like a very wise idea. Crossing my fingers. I love windfalls.

Technorati Tags: windfall, budgeting

Great laptop, happy wife, no debt

Bruce Kroeze — Sat, 29 Apr 2006 14:31:55 +0000

Yesterday was my last day at my old job, and a simply outstanding day for me. We got our final paychecks and severance pay as a “live check” at 11 o’clock. Work was basically over at that point. I went to lunch with some friend/coworkers but left before the massive drinking started, since I had a mission. Time to get my wife a laptop that was created after the stone age.

Her iBook G3, one of the original “white books” had died a lingering death in the first quarter of the year. Since then, she’d been making due with my cruddy old Dell C610. That thing doesn’t close anymore, since it has a broken hinge repaired with duct tape and bent plexiglass. You get the idea. Plus, it runs Linux, so was not the best move for a Mac girl.

Macbook Pro Time!

Yup, we took an enormous step forward in time. I got her a 1.8 Ghz dual-core Macbook 15″ laptop. I had it all set up and sitting by her favorite chair when she came home from work. “What did you do?!?!” was the only thing I heard when she came home. She’s in heaven, as well she should be, since it is the single nicest laptop I’ve ever touched.

No debt incurred

I’d wanted a new laptop for her for months. But, it is not a “debt-worthy” event for me, not even as a business expense. I had to wait until I had the money free of other obligations. The severance check more than covered the laptop, so no worries there. It really felt good to stick to my “no new consumer debt” resolution.

Dustin is the art director for our business, so she really does need the laptop for business purposes. Accordingly, I bought the laptop like so:

Deposit severance check in personal bank account.
Buy laptop with AmEx business card.
Transfer $2500 from personal bank account to business account as “owner investment”.
(when the transfer is complete), pay off AmEx.
Depreciate the laptop on a three-year straight-line schedule. That is approximately $800 per year deducted from business profits, saving me approximately $250 per year in taxes, netting me a total discount for the laptop of $750.

Did you see how much I saved from the total price just by buying the laptop through my company? That’s quite the savings for doing a little paperwork. Anyone with any legitimate excuse to have a business is simply insane to not take advantage of this tax savings.

Technorati Tags: macbook, laptop, business expenses

Valentines day gift giving

Bruce Kroeze — Sat, 04 Feb 2006 06:57:54 +0000

One of the parts of our family budget which has been working the best for my wife and me is our gift budget. It is a simple scheme, every month we put $50 each into 2 manilla envelopes in the house safe. “Dustin Gift Money” and “Bruce Gift Money”.

I don’t peek in her envelope, and she doesn’t peek in mine. The money just accumulates in there, and it doesn’t need to be tracked anywhere else. No notes are kept, and the money is just a straight debit in the budget each month. If we buy something online as a gift, we take money from the envelope and put it in the petty cash envelope for later deposit back into the bank.

As I said, it is a simple scheme. But it works out so pleasingly. We get to have secrets, even in an environment where “every dollar has a purpose” so every dollar is planned. For us, the secret-super-cool-gift is the only fun kind of gift. We don’t give cash or certificates. I’ve always thought they were tacky, to be honest.

Beyond the secrecy enabling, there is also the guilt-freeing. If I want to buy an expensive gift and I have the money in the envelope, I buy it and don’t think twice. If I don’t have the money, and I’m unwilling to kick in money from my monthly “mad money”, then I just don’t get it. Simple, no agonizing involved at all. Plus, as many people have discovered many times in history, having your choices constrained forced you to be more creative. Too many options and it is somehow harder to come up with ideas.

Technorati Tags: Gifts, valentines day, valentine, budgeting

Starting a Roth IRA for your kids

Bruce Kroeze — Sun, 08 Jan 2006 22:52:01 +0000

Did you know that starting a Roth IRA or similar investment for your ten-year-old will pay off 24:1 assuming an average and reasonable investment return of 7%? It is true.

I just made a quick calculator to help explore the numbers. A few quick numbers from it are sure to open your eyes, as they have mine. $1000 invested at birth, netting 8% a year will be worth $178,000 at retirement. $4000 at age sixteen, perhaps from a summer job, would grow to $122,281 at retirement.

That’s just for one-time investments. What about if your child were to have $10 a month contributed to an account earning 7% starting at 12 years old, and continuing until retirement? $67,000 return on a total investment of $6360.

Enjoy the calculator, and start an account for your kids.

Article Inspiration: Free Money Finance

Technorati Tags: retirement, roth, calculators

An unexpected benefit of budgeting

Bruce Kroeze — Tue, 03 Jan 2006 05:31:59 +0000

When I started formal budgeting & tracking of my finances last June, I never considered that it would make me feel less guilty about spending money. Somehow, ensuring every dollar has a purpose, and tracking how they were actually spent calms me and makes me feel better about spending in general. An article on YNAB, “The Power of Planned Purchasing” talks about just this phenomenon.

Rest assured that a planned purchase is usually a reasonable purchase because of the thought, time, effort, strategizing, etc. mentioned above. Please donâ€™t feel bad if youâ€™re spending planned money!

It really works like that

For example, buying gifts this year was much less agonizing than usual for my wife and me. We had a set budget, in cash. We wrote a list of people to gift, and then we bought presents within our budget. It was so pleasant not to “upsell ourselves” and rationalize expensive gifts because they would be “so nice.” It is remarkably exhausting, the mental static caused by wanting to buy something more expensive and fighting back-and-forth in your head about doing it. Interestingly, I only really noticed how exhausting it used to be when I stopped doing it.

As another example, our home repairs have become less stressful. I put aside a set amount of money every month into a sub-account earmarked for that purpose. Then, if we need to spend some money on the house, we just spend it. We try to get a good deal, of course, but we don’t need to debate the priority of new blinds for the front window. We’ve saved for just that reason, and we don’t need to feel any guilt about using the money for that purpose.

But you do spend the money differently

Continuing the blinds example, it is unlikely we’d have ever bought the blinds we wanted if we were just looking at monthly bills, or (the nasty way we used to do it) our bank balance. “It looks pretty tight this month”, we’d say, every time we thought about it. We were leaking money from a hundred small-to-medium holes, yet we wouldn’t buy something we legitimately wanted because it was never the right time.

Budgeting my irregular bills and responsibilities into sub-accounts, what Mary Hunt recommends in her books “Cheapskate Monthly Money Makeover” and “Debt Proof Living“, changes that dynamic. Instead of worrying how we’ll afford expenses which happen irregularly, we almost happily spend the money we’ve set aside for just those purposes.

Believe me, it is a lot more pleasant this way.

Technorati Tags: budgeting, stress

Christmas declared a success

Bruce Kroeze — Sun, 25 Dec 2005 20:04:53 +0000

The two of my three children who can talk have declared this “the best Christmas ever“. This, despite it being by far the least expensive Christmas in the last ten years. It is an odd thing, but repeatedly proven to be true, that setting constraints often sparks creativity.

The way we did it this year was by budgeting “gift money” every month. The money, $50 each for Dustin and me, goes in envelopes marked “Dustin Gift Money” and “Bruce Gift Money” in the safe. That money accumulates month-to-month in the envelopes. It is not separately tracked or accounted-for, which helps keep the presents secret. We use it to fund all gift giving throughout the year, supplemented by whatever we feel like kicking in from our personal “mad money” allowances. Since we started the formal budget in June last year, there were a total of $800 maximum dollars in the envelopes. Due to birthdays and such, the total left was more like $500.

$500 really is not a lot to buy presents for the five people in the family, relatives, and close friends. According to an article I read the average spent per person is between $1000-$1500, which means that we spent significantly less than the average. We did this by setting our limits up front, and by not really buying any “impulse gifts”. Most presents were carefully planned and ordered online for significant discounts.

When we did shop for gifts at the mall, we took cash. That is an entirely different experience to shopping with a credit card. I found myself thinking things like “that is a nice shirt, Dustin would love it, but if I buy it, I wont have enough left to get that bracelet I came here to buy.” Exactly the point. Temptation is just easier to avoid when you are using cash.

Another big help was something I read on another personal finance blog (sorry I can’t recall which). It pointed out that young children really don’t have the attention to enjoy more than three or four presents. Very true, and helpful to assuage guilt at not getting them everything under the sun.

Favorite presents:
Dustin: Bracelet bought in Mexico on vacation from a vendor on the Artisan’s street in San Miguel.
Bruce: Buddha statue
Ian: Electric Guitar
Mia: Plush velociraptor
Clio: Stuffed kitty with fuzzy green sweater

Technorati Tags: christmas, presents, budgeting