Friday, May 26, 2017

Budgets and Budgeting

Recently, I have been thinking more about budgets and budgeting, as I have been helping a friend with setting up a budget. 

I haven't always budgeted.  I had always been very careful with my spending, but I never actually allocated $X towards this and $Y towards that.  I became interested in budgeting only after I read several budgeting related articles in magazines.  They had enticing titles, such as: "How We Saved $50,000 in One Year", or "Paid off $80,000 Debt", or "Slashed Grocery Bills in Half", etc.  I was intrigued and wanted to see how I compared.

At the time, I had a fairly good idea of how much I spent on various things, but didn't know for sure.  I knew what I paid each month on mortgage and on childcare, for example, but how much did I really spend on groceries and eating out?  Or gas for the car?  Or clothing for myself?

So, I kept a spending log for 3 months, recording each and every penny spent.  Next, I went through my check book for those once or twice a year type of expenses and figured out a monthly amount for those expenses.   Then, I came up with a very preliminary budget, based on what my spending had indicated. 

I decided I would base my budget on my net, or "take home" pay, after deductions for taxes, etc. that were deducted directly from my paycheck.  Mainly because this is the actual disposable income I had and it made it easier for me to not to keep track of the direct deductions.  Based on my spending habits as indicated by my spending logs, I decided that I would save 30% of my net income and live on 70%.
 
For me, as a single parent and sole income earner, having a sizeable savings account/emergency fund was important.  At the time, in the early 90s, people were encouraged to have at least 3 months worth of living expenses in an emergency fund, but single parents were urged to have 6 months worth of living expenses saved.  Later, when the recession hit, a 3-6 months worth of living expenses savings were found to be insufficient as people found it harder to find another job; it took a longer time to find a job, or they had to settle for lower paying jobs. We were urged to have one year's worth of living expenses saved.
 
I think I initially had about 10 or 15 categories in my budget, and they were very broad and general: House, Utilities, Car, Daughter, Groceries, etc.  But then, I discovered my inner accountant!  LOL.  My categories were too broad for my liking!  I wanted more details!  So I broke down the bigger categories into sub-categories.  For example, under House, I had mortgage, insurance, property taxes, maintenance, garden; under Car, I had insurance, maintenance, gas, etc.  This level of detail has actually worked out quite well for me.
 
Over the years, I have adjusted my budget and categories as needed, such as during the recession, when I had to accommodate a 25% pay cut!  I revised my budget, cutting back where I could, including decreasing the amount going into savings. 

Cutting back on a budget that is fairly lean to begin with is an interesting exercise!  One can't eliminate the cable bill, for example, when one doesn't have a cable bill to begin with.  No eliminating buying lunch/coffee/muffins/soda, etc., daily, when one doesn't buy lunch or any of the other items (both daughter and I took our lunches and snacks to school and work).  No stretching out the times between visits to the hair salon for cuts and coloring when one didn't cut ones hair or color it.  So where does one cut back?  I reduced the Christmas/holiday gifts budget from $25/month (or $300/year) to $10/month (or $120/year).  I decreased the grocery and eating out budgets, my clothing allowance, household supplies and gardening budget, eliminated the books and crafts supplies budget, and made many such tiny adjustments where I could.
 
I even worked out what I called a "bare bones/no frills" budget, in case of layoffs at my work place and I had to live on savings or on a minimum wage job.  I discovered that even with a bare bones budget, I'd still need to work two full-time jobs at minimum wage to make ends meet, as I still had a mortgage to pay.  

Then, daughter went to university (undergrad) and we had her tuition and fees to pay and expensive text books to buy (even second hand, they amounted to several hundred dollars each quarter).  I revised my budget, again; this time, I was living on practically 100% of my net pay and very little, if anything, was being saved.  But that was OK.  I was determined she wouldn't have to take out a student loan.  We cut costs where we could.  Daughter lived and commuted from home in order to save $15,000 a year on the room and board she'd have had to pay if she lived on campus.  I stopped giving her an allowance and money for clothes.  She worked part time at 3 jobs in order to earn some spending money. 

When she went to grad-school, however, and needed to live away from home, I had a budget shortfall and had to withdraw from savings to pay for her tuition and rent.  And, again, it was OK.  I had just finished paying off my mortgage, so I had that amount available towards her tuition.  Plus, I had been frugal and saved for this purpose.  Again, she worked part time to pay for her groceries, utilities, and other items she needed, and I helped her set up her first budgetOnce daughter graduated and started working full time, she assumed paying for her rent and most of her other expenses (I still have her on my cell phone plan and pay her share of the bill and I pay for her tickets when she flies down to visit me).  Her rent is going up in July when the new lease starts, and she doesn't have a corresponding increase in her pay, so she's needing to review her budget and make adjustments where she can.  
 
This past year, since I no longer had to pay for daughter's tuition and rent, etc., I have been saving a larger percentage of my pay check.  I'm in  what I call savings replenishment mode!  But I will be taking another look at the budget in June.  It maybe time to bump up a few spending categories, again, to pre-recession levels!   
 
How do you budget?  How do you decide how much to save, how much to spend, etc.?  Do you save off the top, before spending, and then, budget with what you have or do you save what is left after spending?

14 comments:

  1. Firstly, you and DD should be really proud of what you've both achieved. Running a household and putting your daughter through college on a single wage is no easy task.

    I'm pretty good with knowing what goes out of the house for bills etc. it's my personal money I'm rubbish with. No idea what that goes on, although I suspect it's bits for the children and wool and crafts.

    I'm amazed you coped with a 25% reduction in wage, a cut like that would send a lot of people under but I suppose it's a case of having to isn't it. Very hard though. We rarely eat out, don't buy lots of coffees or alcohol, visit the cinema regularly etc. so we'd struggle to cut down on things like that but we do have hobbies so if needs must those could be pared down. Plus we run 2 cars and have a van so savings could definitely be made there. When I think about it we're very lucky to have those safety nets.

    I've said this before but I start off really well at the beginning of every month tracking my money, then by the end of the first week it's all gone to pot. I have a sneaking suspicion it might be because I don't want to see written down in black and white what I've spent it on! xx

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    1. Thank you, Suzanne. To be quite honest, it helps to have a well-paying job, which enables me to support my daughter and myself on one salary, in the first place! Then, it helps to have always lived a little bit below my means, so I could save more.

      I think, one is free to spend ones personal allowance on whatever one wants and it should be fine as long as one keeps to the spending limits. One doesn't really need to account for how one spends ones personal allowance.

      However, if you do want to see where it all goes, an easy way to do it without keeping a detailed spending log might be to take out the budgeted amount in cash at the beginning of the month, divide the cash among 4 or 5 envelopes, each labeled with a spending category based on what you know you are most likely to spend it on: "children" (or, if you want to be more specific, a separate envelope for each child), "crafts/fabric/wool", "toiletries/cosmetics for self", "books", "treats", etc. Then, pay from the envelopes and you'll soon be able to see which envelopes empty out first!

      I allow myself $20/month in my budget for a personal allowance. I arrived at this figure because it lets me spend $1 per day each work day for a snack if I want to buy one or $5/week on a lunch out. Half the time, I don't spend it, but it is there, should I want it, especially since I no longer have a "crafts/books" category in my current budget.

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  2. Very smart budgeting! And smart to begin with, since you already didn't have cable, etc. I enjoy reading your grocery budgeting because I need to start doing that! Andrea

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    1. Thank you, Andrea. I love grocery budgeting! Will you be making a grocery budget for June? Let me offer you a few questions to ask yourself - I don't expect any answers, but they are meant to be helpful when preparing a grocery budget. Do you have a spending goal? A dollar amount you'd like your budget to be? Do you know what you are spending on groceries currently? Do you want to keep to that amount? Reduce it? What will you be including in your grocery spending? Is it for people food only? Will it include pet food, too? Will it include household supplies such as paper towels, laundry detergent, cleaning products? How about toiletries such as shampoo, soap, etc.? My grocery budget includes people food, only. Pet food is a different category; household cleaners is a different category; toiletries are a separate item. I just want to know how much I am spending on feeding myself (and, sometimes, my daughter!) Good luck with making your grocery budget!

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    2. Thank you for those suggestions! No pets so that saves money right there. I think the trouble is that we go to Costco and stock up which is hard to calculate because their large qualities cover more than a month...and then Walmart locally We shop way too often. My first goal will be to not waste food. Second will be to quit reading new recipes that take ingredients I normally don't buy! Andrea

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    3. Ah, yes, those Costco stock up trips! LOL! I used to go to Costco maybe every 3-4 months to stock up on various things, such as toilet paper, laundry detergent, rice, etc., or when I was having a party. Eventually, however, I found out that I was going less and less frequently - maybe once or twice a year! Finally, I let my membership lapse! My last Costco trip was in December 2015! These days, I buy smaller quantities from other stores and it seems to work out well enough, and I save on that membership fee, as well.

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  3. We don't budget formally on paper, although we do review expenses from time to time. We have been lucky that one of us has always had a job and we have always lived below our means. Meaning we always have a smaller house or car than "they" say we can afford. That way we've been able to put maximum amount into savings to use for retirement and a rainy day.

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    1. It sounds like you are doing the right thing when it comes to budgeting, Live and Learn. Yes, I, too, have lived below my means and that's what has made everything possible, for me. :)

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  4. Wow! I am full of admiration for what you have achieved Bless, through determination and hard work. It must be very satisfying to have paid off your mortgage and begin to replenish your savings. X

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    1. Thank you, Jules. I've had a total of 3 debts, all my life - a student loan which I took out to help pay for grad. school, a car loan which I took out when I bought my very first car, and the mortgage when I bought my house. I've saved and paid cash for everything else. It is a good feeling to know I am completely debt free. :)

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  5. Your budget ideas are great Bless.
    Like you we helped ouf children with University fees, and both studied some distance from home and are now proud owners of MsCs. Our children also went to private school for 7 years each, which truly broke the budget.
    As they are now independant and working, we are able to save again and have been amazed at saving £40,000.00 in the last financial year. This means I am reducing my working week to three days, and when we find our new home in the country I will stop paid employment totally. We also hope to give both children deposits to buy homes of their own. Feeling very blessed and adjusting the tithes we give accordingly . Am making a donation now following the horrors in Manchester this week.

    I send a wave from a very hot Uk
    Siobhan

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    1. Siobhan, I was so very sorry to hear about the tragedy in Manchester.

      It sounds like you've practiced some excellent financial management of your own, over the years! Well done!

      I have some future retirement plans of my own. It's the next thing for me to look into. Much depends on the state of my health, of course. My health insurance is through my employer, as we don't have the equivalent of your NHS and the current administration is revising the health care provision we currently have. Enough said!

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  6. Oh Bless you have done very well! Like you said living below your means is a life saver when uncertain times come. Hanging my head in shame I was never a good budgeter and let my husband do it! However since he passed a couple of years ago I have had to budget and am surprised to say I am beginning to enjoy it! it must be the inner accountant genes coming out (my father and my mother's father were accountants). Having saved all my life, even when I was a student has meant that my retirement is comfortable and even now i am still saving.(at present 10% ) My Dad used to tell the story that if they gave us kids money that I would come back with most of it and salt it away while my brothers and sister had spent all of theirs.
    I tend to have all my outgoings and savings as automatic payments that are taken out on pay day, so the rest is budgeted. It helps to be debt free, I know when I became mortgage free last year it was a weight taken off my shoulders!

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    1. Sharon, you have no reason to hang your head in shame at all! It sounds like you've always been very mindful where money was concerned. As long as ones bills are paid and there is something put aside for retirement and that proverbial rainy day, then, I think that's all one can ask for. :)

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