Budgeting Basics

Setting up a new budget can be hard, painful even, especially when you consider the rapidly increasing price for energy. However, too often we lose sight of the essentials when planning for our extras. What are the essentials anyway? How do we account for them? I consider four categories necessary for financial independence: home, food, transportation, and debt.

Home: this includes your base rent or mortgage payment and utilities. You cannot live in a building typically without having to pay for electric, gas, water, sewage, and trash. One money saving option for the electric and gas companies is to ask about budget plans. On budget plans, you pay a flat rate each month, independent of your usage. Your meter is still tracked every month; you may get a bill or refund at the end of the year depending on how you did relative to your yearly allowance from the company. Knowing the amount every month helps to stabilize your cash flow even in the less than temperate times of year.

Food: we've discussed this before on this blog, but it bears repeating. You can save money on food. Consider where you shop, when you shop, and what brands you're buying. A random realization from my own experience suggests that proteins in the morning make for smaller meals at night.

Transportation: I know, this is a sore spot in anyone's budget right now. One way I make things more bearable for myself is to budget according to the number of tanks of gas I need. When I am driving at my maximum amount, I use 4 tanks a month. Considering how I can limit my gas use allows me to adjust this figure without feeling too constrained. Also, do not forget to include your car insurance if that is how you get around.

Debt: Remember, I'm speaking from a position of financial independence. If your situation requires you to get a loan, get a loan. When managing payments, consider the loans with the greatest amount of interest generated in your payment cycle and the interest rate. It may behoove you to submit additional payments to free yourself from the loan faster; the interest you are paying is money that goes straight to the bank. If your highest amount of interest generated does not come from your loan with the highest rate, then consider splitting your additional payment between those two loans. Most of the time the amount that the principal creeps down is minimal at the start of a loan, but if you can make a couple of larger payments towards the beginning, you could wind up saving thousands of dollars in the long term.

Extra cash

For a variety of reasons, my boyfriend, Ecogeoman, and I ended up with a bigger apartment than we really need. It's great when our friends and family want to visit, especially EGM's family from Far Off Land who stay for many weeks at a time. But mostly our extra bedroom sits unused. We have, however, rented it out several times to the tune of $100/week (don't tell my landlord!).

EGM and I are students in the same department but we both do our research at big institutions outside the university. That means we frequently know of a visiting scientist looking for temporary housing. These people usually come with funding, but not enough for a hotel or maybe they just don't want to stay all alone at a hotel. We've had people stay with us for 2 weeks to 3 months while they collaborate with someone where we work. Sometimes it can be really fun and it's usually intellectually stimulating at least. I think in some instances it has forged strong connections, even collaborations, with scientists we would otherwise only know casually.

Having people stay for short terms is better than a roommate. If you don't get along well, they're gone before you know it. We don't have to do much to accommodate them. We clear out some space in the kitchen and bathroom, but it's not like they are moving in to share equally in all the living space. Plus we decide when we want someone so if we know that say, EGM's parents are coming to visit, we don't rent the room. If you have extra space, it's a great way to get extra money while building your network and helping someone out.



You can read about another way to get extra cash at my blog The Happy Scientist, where I described how I participated in a focus group.

Getting the most out of craigslist

I love craigslist. It works because it's just so darn simple. If you haven't made craigslist a part of your life yet, go find your city and spend some time perusing the listings. Or better yet, start searching for something you need.

When I was apartment hunting before starting grad school, I searched for apartments exclusively on craigslist. We found plenty of listings and ended up with a great, affordable apartment. We also made it a goal to spend less than $100 on furniture for our apartment by using craigslist. We ended up spending nothing. The trick with craigslist is that the in-demand items go fast-- whether it's an awesome apartment in August or free beer. Free things go especially fast, so you have to be ready to act quickly.

Assuming that you have better things to do with your time than check compulsively for a Wii under $300 in Houston, you should use RSS feeds to find things on craigslist as they're added, just like you (probably) do with blogs. Craigslist is probably the single best use for RSS that I've ever heard of. Craigslist is perfect for things that you would like to have but don't need immediately, and getting things second hand can save you a lot of money.

Here are some examples:

You would really like to replace your couch that is older than you are. You're willing to spend up to $100 for the right couch. You search Lexington craigslist for couches up to $100. It also never hurts to check for free couches. At the bottom of any search, you'll see a little orange RSS icon. Click on it, and it will take you to the feed page for that search. You can subscribe using whatever you use for blogs, or you can bookmark the page. All of my RSS feeds are in my Safari toolbar so I can easily see whenever something new is posted for one of my searches. It works similarly in Firefox, but I think Safari is better.

For big cities, you can search a specific part of the city. For example, if you live in Washington, DC you can restrict searches to the District of Columbia rather than the whole Washington metro area. Let's say you're looking for a cheap desk, but you live in Georgetown without a car. You have some strong car-free friends who could carry a desk for a few blocks if someone nearby was getting rid of one. So, you search for desks in Georgetown under $50 and free desks in Georgetown and then RSS them. This is the kind of thing that won't come up very often, but when the right one does you'll want to know about it. Also, you'll get some posts that aren't offering what you're looking for, such as the "free desk" in Georgetown right now!

Scoring free or cheap furniture on craiglist can be a real deal. The biggest problem is usually figuring out how to get it home (especially if you don't have a car). If you are moving and renting a moving truck anyways, it might be a good idea to plan your move so that you have an extra day or afternoon with the moving truck so that you can go right away to pick up free furniture (which you have found out about right away from your RSS feed). This is what we did because we had the moving truck for up to 4 days at no extra cost (we used three for moving). We were able to pick up two large bookcases.

It also might be worthwhile to keep tabs on free things in your neighborhood by searching for your town/neighborhood name in the free section of your city (eg. Lakewood, OH). This is a way to get things that wouldn't be worth it if you had to go across town, but if someone nearby was giving away pink flamingo lawn ornaments...

Remember you can also use craigslist to sell or give away your own things! This could be a source of extra cash if you find there are some things you just no longer need (or perhaps never even needed in the first place).

One final note about craigslist etiquette: If you've told someone you're going to pick something up, you should actually do it when you said you will, or be sure to tell them otherwise. It is really annoying to wait around for people who never show up. This is why many listings say they won't hold items for anyone and it goes to the first person who shows up. Be sure to heed the scam warnings as well.

Happy Craigslisting! What have you found?

Ads steal my money

Do you find that you spend less if you limit your TV time? I used to watch lots of TV and the commercials made me want things. I need eye cream! I need crab legs! I need diamonds!

Except for watching a few favorite shows, I now mostly spend my evening down-time blogging. There are ads on websites, of course, but I don’t notice them in the same way. I bet that TiVo has a similar effect, but I don’t have it.

How I Saved $3000 as a Recent College Grad in NYC

I moved to New York during the singularly inauspicious year of 2002. The city’s economy was in the dumps, and I was lucky to have a job at all. It was an academic job, and so I made a whopping $28,000 per year.

In a city where the average rent is (today) around $2,553 per month and a renter is usually required to earn 40 times the rent, my salary didn’t go very far.

Here’s how I managed to save $3,000 while getting by.

I used the envelope system ruthlessly.
I budgeted every single penny at the beginning of the month. Because I got paid only once a month, this made it pretty easy to see where all the holes in my budget were.
I paid off my credit card every month in full.
I ate a lot of pasta, bread, tofu, and vegetables – all cheap.
Only once did I call home and ask mom for money.

Last weekend I found one of my old envelopes. I don’t think I want to go back to that system again; it was pretty unforgiving, but it’s a good reminder of how comparatively luxurious my life is now. Here’s a breakdown of my average budget:

$1800 monthly after-tax income
$600 rent (for a 600 square foot apartment split between 4 people)
$300 student loans ($250 minimum payment)
$200 savings
$50 utilities, laundry, etc.
$100 credit card
$150 food
$400 spending money

I had $100 per week to do anything I wanted with. I bought clothes, I went out with friends, and when the money was gone, I stayed home. Sometimes I spent $300 in a week and spent the rest of the month bored. Those months were long, but they taught me to think of my credit card as a lien against future earnings. Whatever I racked up on my credit card I had to pay in full next month. Things happened, of course: sometimes I had to raid the savings account to pay my credit card bill, but I treated my savings account as a bill to be paid over the next couple of months. Any windfalls and interest went into the savings account too.

The only time I called home for money was when I found out that I would have $300 to get me through an entire month before my full paychecks kicked in. Sometimes there's just an impossible situation to budget around.

And the discipline pays off. It keeps a lot of options open because I don’t have to keep chasing the next raise to keep up with bills. So if I have any advice to recent grads, it is this: don't move to an expensive city on a whim, and make a budget you can live with before you get your first paycheck.

Does anyone else remember their post-graduate budget? Or was everyone smarter than me and started out in cheaper cities?

Every little bit counts

Sometimes when you're on a tight budget, it can feel impossible to find any money to save. But even socking away small amounts can add up over time. Having even just a little money set aside can save you from using your credit card for unplanned expenses. I have read elsewhere that anytime you end a pay period with more than $10, you should transfer the left overs to your savings account and patiently watch it grow.

*****

Sometimes I get to the end of the month and think, “who took all my money?!” Occasionally, I run out of cash because I had some big irregular expense. More often, I look at my bank statement and see a bunch of $15 debit card charges. Individually, they are no big deal. Unfortunately, all that little crap adds up fast.

Here are some things to do to avoid those small, insidious expenditures:

• Don’t go shopping unless you truly need something.
• When you’re about to buy something, really think if you would miss it if you didn’t buy it.
• Always pack a lunch. Bring enough to actually get you through the day, including snacks. The days I don’t pack enough or bring an unappealing lunch are the ones I’m most temped to buy junk food from the vending machine or go out. The bonus is that since you take a shorter break for lunch, you can leave earlier at the end of the day!
• Only eat out (including take-out) if it’s with friends. As much as I’ve tried, I’ve learned that it’s unrealistic for me to avoid restaurants all together. I feel better about it if it’s part of a social event.
• If you meet friends out at a bar, eat before you go. A beer or three isn’t so expensive compared to dinner plus beers.

I can’t say that I always do these things. But the months when I keep these tips in mind are the ones where I end up with the most money left over.

What tricks do you use to avoid small unnecessary expenses?