Month: April 2020

Did you know budgeting can be easy? In part one of this series I discussed why you need to budget and a little bit about my journey. Check out my prior post here.

I also introduced Dave Ramsey’s baby steps. (I am not affiliated with Dave Ramsey) As I mentioned before I do not follow his advice fully. Dave Ramsey is very opinionated (check out his YouTube channel) and feels his way is the only way to budget. There are many ways to budget, some work, some don’t. Budgeting does come down to how much self-control you have.

I’m not going to say that I’m perfect at budgeting I have had my slides, but I have been able to eliminate my debt and monitor my spending without Dave Ramsey’s methods.

Disclaimer: I am not a professional; I just have had years of experience creating and using budgets for my family. You may need to consult with a financial planner depending on your needs.

Key Ideas before creating your budget

Before you even start to budget you’ll need a plan. Dave Ramsey discusses not using any credit cards, cutting them up or destroying them. I do have credit cards, a few of them. In order to pay some of my utility bills they require credit cards for payment. I use mine more as a debit card. And I never carry a balance on the cards.

Another idea is to use cash only. This works great if you love to go out to the stores and shop. I don’t! Most of my shopping is on-line including my grocery shopping.

Shopping online saves me money, as I am not tempted to make impulse purchases. Whenever I do online shopping I have a specific purpose, I can comparison shop without wasting gas driving around to various stores. And I never make a quick purchase I put items in the shopping cart and will wait a day or two. If I still want them I make sure I have the money and then complete the transaction.

Ready to start

Once you are ready to create your budget you will want to collect bank statements, bills and any other information regarding bills or debts.

Review your bills are there any you need to get current on right now? Have you put $1000 away for an emergency fund?  Review these first.

You can start your budget even if you don’t have $1000 set aside. As you budget you will find areas that you were spending money when you really could have saved.

As I created my most recent budget I went back a year to review all my spending, go back as far as you want.

Budgeting tools

There are many ways to record and review your budget. There are many apps available. I don’t recommend any of the ones that you have to pay for; it’s really not necessary. I am currently using two tools one is an excel download and the other is Dave Ramsey’s Everydollar app. They essentially do the same thing, but there are pluses and minuses to both.

The excel sheet has you just put in information, but you need to do your own totaling and there isn’t away to monitor exactly where you are doing the spending. I actually added another page to the sheet to record individual expenses.

I like that I can see exact income and expense. This occurs when I have an extra paycheck come in, it automatically adds this in. On the Everydollar app you can put the added income in, but it doesn’t add it to the total income.

I like the Everydollar app for setting up sinking funds. There is also a chart where you can review planned expenses, Spent and Remaining.

It doesn’t really matter what app you use to budget, so choose what works best for you.

Break down of categories

A big key to budgeting is telling your money where to go and not the other way around. You need to be in control of each expense.

When I created my budget I used the following categories, you may need to add additional categories depending on your needs.

Saving: Emergency fund, retirement, house repair expenses (this could be under housing if you prefer) etc.

Housing: Rent/Mortgage and Utilities

Transportation: Gas, maintenance, and licensing

Food: Groceries and dining out

Personal: Clothing, gym membership, haircuts, entertainment, personal products, etc.

Lifestyle: You could put gym memberships here if you prefer, I included vet expenses, and fun money

Health: Insurance, doctor/dentist expenses, medication

Insurance: Car and home insurance. Again you can include these under car and housing if you prefer, I just like to quickly see where the expense is.

Debt: This could be credit cards, medical bills, car payments anything that you owe.

How much should you spend?

Again there are many thoughts on how much to spend in each category of expenses. Most suggestions are pretty close in range.

Housing 35%

Utilities: 5% (I actually count this in my housing expense)

Food: 10-20%

Transportation: 12-20%

Clothing: 3-5%

Medical: 3-5%

Entertainment/ personal: 5-10%

Savings: 5-10%

Debt 5-15%

Reviewing your expenses from the previous year you can tell if you are over spending in any of the areas.

My Breakdown

To show how every family is a little different here is a break down of my expenses:

Housing: 28% (I add my utilities in this category, home insurance is part of my mortgage and additional mortgage payment)

Food: 19%

Transportation: 3%

Personal 17% (I have clothing, gym membership, entertainment, haircuts, personal supplies and cell phones in the category)

Medical: 2%

Lifestyle: 3% (This is vet expenses for 2 dogs, 1 cat, 2 birds and 1 rabbit, and fun money)

Insurance: 4%

Debt: 2%

Savings 23%

I’m pretty much in alignment with the suggested guidelines, although the food budget is the area I personally can see could use some improvement.

Now what?

If you have debt, see my previous article about the snowball effect for paying off these bills. This is a mental strategy for paying off debt. The key though is to pay off debt as quickly as you can.

I know some people that sold off things they weren’t using any more. Got side jobs and basically scrimped by to get out from under debt.

I can’t remember how I paid off all our debt, I just remember waking up one day deciding I wanted no more debt and worked on paying off all the bills.

Let me know how your budget journey is going?

I was planning on talking about budgeting this week. But here I sit trying to grocery shop for the week and finding myself purchasing more than usual and no meal plan. I have no idea what will be available at the stores. Because of COVID-19 people are hoarding food, leaving the supply chain struggling to keep up. These are unprecedented times most of us haven’t lived through anything similar.

This got me thinking can you be frugal in times like this?

Yes you can!

Yes, is the short answer. The long answer is it takes planning you need to make sure that you have well stocked pantry shelves. Right now the grocery stores are empty and it causes people to panic and buy more than what they need. So to be able to just go to the store or order online is becoming an impossible task.

In order to be frugal during a pandemic like this or any other emergency the key is to buy ahead of time make sure you have a pantry that is well-stocked for at least three months and you don’t do that overnight. You do it by shopping over a period of time.

How Do You Stock a Pantry

Creating a stocked pantry you want to shop when items are on sale and buying food that your family will actually eat.

First decide what type of meals your family likes.

In my family we like Chili, pastas and soups. We also enjoy fruits and vegetable and having fresh on hand is a little more difficult.

Second decide how big of pantry you want. I usually buy groceries for two weeks, planning out each meal and shopping from my pantry first. This isn’t working out to well now as even the basic food items aren’t in stores. Can you stock for a year?, go for it. If not start out with a three-month stock.

Tips for stocking up

1. Organize your pantry: You need a place in your house where you can store food that is temperature controlled and easy to get to. Using bins and baskets that are clear or labeled so you can easily tell what you have.
2. Make sure to rotate food: You will be using this food not just storing and forgetting about. Have a system to move older food to the front after each shopping trip.
3. Take inventory: You will want to keep track of items and expiration dates. If you’re a bit OCD like me you may want a chart next to your pantry listing all items (or a spreadsheet on your computer)
4. Stock the freezer with meals: If you are lucky enough to have a large freezer like I do, start creating freezer meals. These will need labels with dates so that you can rotate and use meals before they expire.
5. Consider starting a garden: If you have the space start growing your own fruits and vegetables.
6. Don’t forget the refrigerator/freezer: It is a little harder to have a three-month supply of milk (I freeze mine), but you can stock up on butter, eggs (did you know you can freeze eggs too), bacon, cheese, frozen fruits and vegetable. Again make sure to label and rotate food.
7. Consider purchasing dried bean, whole oats, flour, and yeast. Buying canned or pre-made items usually cost more.

Have any other ideas of being frugal creating a stock of foods, anything to add to the list? Tell us your ideas below.

Exploring what it means to be frugal I think back to my own journey of saving and budgeting. Check out my post on being frugal. I really didn’t know what it meant to budget or if it was even necessary to budget. What strategies should I use to get started. Here’s my easy guide to identify your need to budget.

My Journey

My idea of budgeting was tracking my income and expenses.

Move into my first apartment, set some money aside, money for medical bills, put some money away. Have kids, put a lot of money away. Buy a home put some more money away.

I was budgeting, right! No I was only monitoring money coming in and out. When I really needed to budget I wasn’t sure where to start.

Without computers and Internet (This was the early 90s), finding ways to start and maintain a budget was limited. I came across a book at the grocery store, which had pages to record monthly income and expenses so I picked it up.

The book had tips for creating a budget this was an eye opener for me. I went from just writing down our spending to analyzing every purchase we made. Since I needed to write everything down it became apparent where the money was going and most of it was to things the family didn’t need.

Finally, I was able to create a spending plan. In a few short months I had the money I needed for a down payment and we went out house hunting.

I wish I could say that I was budgeting pro, but no. I kept sliding in and out of budgeting and only doing it when I wanted a big purchase and needed more cash to do so.

Budget Guide

1. Need to know how much you earn and spend?
2. Is big purchase in your future?
3. Do the kids need to go to college?
4. Do you want to retire?
5. Have the traveling bug?

If you answered yes to any of the above questions, then you need to budget.

Choosing a budget

There are many different thoughts on what is the best way to budget and save, but really as long as you have a plan that is all that matters.

I decided to use the Dave Ramsey Method. If you aren’t familiar with his work check out his website at www.daveramsey.com (I am not affiliated with his site, I just like his strategies). Although, I use some of the strategies I am not a die hard fan. There are a few things that I don’t use just because they don’t work for me an my family.

Searching budgeting on the internet will result in many other strategies. Check them out and find one that fits your needs.

Dave Ramsey outlines 7 baby steps for financial freedom. If you are new to budgeting you should follow his steps to the letter, don’t skip over any (I’ll add some caveats here in a minute). Think about the baby steps before you create your budget.

Where are you in the budgeting journey? Are you in debt, have no money in your savings account, or living paycheck to paycheck.

Baby Steps explained

Step 1: Emergency Fund

Have a $1000 emergency fund. This isn’t fun money or something you should be taking from when you want a new phone.

This is for true emergencies such as a car breaking down or a leaky faucet.  Dave Ramsey recommends having this money in a separate but available account.

You don’t want this money getting lost in your other funds. I actually keep mine in cash hidden in my house, because if my husband sees the money in the account he will want to spend it.

In order to start your emergency fund try selling unused items or taking on a side job. Once you have your emergency fund money move to step 2.

Step 2: Snowball

Pay-off your debt with the snowball effect. At this time, I only have one debt and I could pay it off easily. I owe my orthodontist, but for some reason I don’t want to pay it off until my treatment is completed and the expense is less than $200 a month and will be paid off in a few more months.

There are many strategies around paying off debt such as, Avalanche, snowfall, balance transfers, etc. I prefer Dave’s way. Using the Ramsey method you list all your debt (credit cards, student loan, car payments, medical bills, etc. except mortgage payment) in order from smallest to largest.

Include the minimum payment and interest rate. You will start paying off the smallest balance first and minimum payments on the remainder. The only time you will worry about interest rates is when you have two identical balances, then pay-off the higher interest rate one first. Once you pay off the smaller debt, you will add this amount to the next bill and continue in this way until all your debts are gone.

Celebrate! Your debt is gone. Best of all the money you were using to pay these bills will be the money you use to create your step 3.

Snowball example

Debt	Min payment	Balance	Payment
Medical bill	185	935	185 per month
Credit Card	29	2000	29 + 185
Car Loan	500	32000	500+29 + 185

In the above example the medical bill is the smallest payment. First pay the $185 (and any other money you can pay by saving in other areas). Therefore the credit card and car loan will get the minimum payment.

Once the medical bill is paid off you add that amount to the credit card for a payment now of $214. Continue paying off the credit card until the balance is zero.

Then add that amount to the car payment. You are now paying $714 a month. Soon all your debts will be paid.

Step 3: Emergency Fund

Create a 3-6 month of expense emergency fund. This is for 3-6 months of living expense incase you are suddenly without an income because of loss of job or other major emergencies.

This is the step I am currently on. I do have a plenty of money set aside and we will be okay if either my husband or I lose our jobs, but I am also using this to cover any unexpected house repairs.

Step 4: Retirement

Invest 15% of household income toward retirement. My husband and I work for companies that provide matching retirement funds and we are contributing our maximum allotment. However, if your company doesn’t have a matching fund you need to seek advice on the best investment fund.

We probably do have 15% of our income going to retirement, but we decided that we will want to have a separate retirement fund, as we started contributions later then we should have and will fall short when retirement comes. Plus I would like to retire early due to health issues.

Step 5: College Fund

Save for children’s college fund. Just like in the airplane when they say take care of your oxygen mask first then assist your children, this is the same idea. Make sure you have done steps 1-4 before doing this step. In my case my children are grown and we have all completed our college careers. If you don’t have children or a need to save for college skip this step.

Step 6: Pay off Home

Pay-off your home early: I skipped some other steps to get to this one. I am already making extra payments to my mortgage even before I found Dave Ramsey and the payments were already allotted so I just see them as a part of my mortgage payment.

A home is probably the biggest purchase you will make in your life and will take anywhere between 15 and 30 years to payoff (See Dave Ramsey’s site for information regarding purchasing a home). Therefore, much of your money is tied up in paying off a home.

In our case we had circumstances that forced us into a 30 year fixed loan. This is why I wanted to make extra payments. At the schedule I have us at right now we will be paying off more to the principal then to the interest in less than two years.

I would recommend that you follow Dave Ramsey’s advice, as I’m sure he wouldn’t agree with the way we are doing things, but this works for us.

Step 7: Build Wealth

Build wealth and give. You have no debt; you own your home so now you can do whatever you want. Well not really, but that sounds so good. You still have other bills (Utility, insurance, and of course taxes); don’t forget to continue to pay those. You have developed wonderful skills by now and you know what you can and cannot due with your money.

In part two I will discuss Dave Ramsey further (this is the area where I don’t follow his recommendations) and how to set up your own budget, and ways to save on certain expenses.

Do you budget? Share some of your budgeting success or failures.