balancing budgets and budgeting styles

I've been keeping careful track of what I spend money on since about 2002. I've got an Excel spreadsheet format all worked out to my liking, and I try to enter receipts weekly (sometimes more often, oftentimes less). I think I miss some small cash expenses, but I generally have a very good idea of how I (now we) spend money.

For most of my relationship with Jon, I have been the money manager. We've been a 'financial unit' since about 2005. We're both responsible with money, but over the years we've learned that we have different strategies for managing it. Jon has little interest in my money management system, but developed a different system for our several months of travel abroad. We took all of our money allocated for our travel, divided it by the number of days we expected to travel, and came up with an average daily budget. Every day we entered our expenses and income and if we overspent, we watched our daily allowance go down. This system was great for knowing exactly how much money we had to work with.

This week we he and I have had some discussions about money. Our money is pretty complicated, and I'm the one keeping track of it closely. Jon is trying to save for a new computer and we're trying to save for our wedding in April. Both of us have to set aside money for taxes because it isn't taken out of our paychecks. We're making ends meet, but we're not able to save much once the bills are paid. We had to find a way for both of us to pay attention to our spending habits.

My approach would be to make an allowance for each major expense category (food in particular) and stick to it. Jon doesn't like this approach as much, so we've just re-implemented Jon's daily average system to be sure that we meet our spending and saving goals from paycheck to paycheck. Setting aside for rent and other known expenses, we've got $15.41 per day until December 2!

What's your system?

Fees, Textbooks, Supplies, Oh My!

So classes are starting back again. That also means it's bill-paying time!

Various schools have all sorts of fees, an increasing trend as the price of college at state-supported school climbs. They have to do something to keep the "tuition" down, so let's have a bunch of mandatory fees. Some fees fall under the usual suspects: technology fee, student activities fee, health services fee, lab fee, etc. Other fees fall under the "you've got to be kidding me" category. I recently heard about a fee called the "graduate student differential fee." Also, sometimes graduate assistantships cover fees, but the key word there is "sometimes."

Textbooks can be another thorn in a student's side. I think my worst semester of damages was $700 for books alone. (Yes. the joys of taking 4 engineering classes at a time....)

School supplies fall under the category of "highly consumable and/or misplace-able."

I generally approach the crazy "Back to School" budgeting using every trick in the trade to develop a good estimate so I can siphon my funds off into a designated account in the previous semester.

Questions for the comment leavers:

• The most ridiculous fee ever
• Favorite ways to minimize textbook and supply expenses
• Creating your "Back to School" budget
  

Gas Prices

I know we are all feeling these. However, I came across this graphic from the NY Times that puts the issue in striking contrast. As we've discussed before on budgeting, entertainment usually garners 5% of a person's income whereas housing can fluctuate between 15 and 30%

For my part on gas prices, I have been lucky. My car gets very good mileage, I keep my car maintained, and I am able to walk to work most days. I also do not mind slowing down on highways and enjoying the trip. I have an upcoming conference where I have decided to drive; we'll see how my gas budget fares.

How are you dealing with gas prices?

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.

The 60% Solution

I really like this article by Richard Jenkins at MSN Money. Instead of having a strict itemized budget, Jenkins advocates The 60% Solution, whereby you limit your committed expenses to 60% of your income and save the rest. He contends that if you spend more than you make, it doesn’t really matter what you overspend on, so there’s not much point in agonizing over each purchase. Instead, he recommends getting your fixed expenses – things you spend money on every month whether they are essential or not – to a manageable amount. He suggests the savings be allocated equally among retirement savings, long-term savings/emergency fund, short-term savings for irregular expenses, and fun money. The short-term savings gets used up over the course of a year and the fun money gets used up over the course of a month.

I evaluated my own budget to see if I could use The 60% Solution. I currently save about 25% of my take home pay. I could probably get it higher, since rent is about 30% of my budget and everything else* is another 30%. That everything else, however, doesn’t include things I spend money on like clothes, haircuts, entertainment, real car maintenance, local travel, etc. While I don’t spend money in every one of these categories every month, I do buy something in at least one of them each month (i.e., I don’t get my hair cut every month, but if I don’t do that I might go to the movies or buy jeans). It took writing this post for me to realize that those items could fall into the fun money category, which by Jenkins’ rules is 10% of my income. In that case, I’m not doing so badly.

The thing that sucks, though, is seeing the short-term savings money -- that 10% that you expect to spend during the year -- get spent. For example, I know I have some major car expenses coming up and I’m secretly putting it off because it will be so sad to see the balance in my savings account plummet**.

A year ago, I didn’t have much money saved and I had a bunch of debt. These car expenses would have made me a nervous wreck. I probably would have scraped together part of it and charged the rest on my credit card. While it’s sad to see my savings go to something I don’t really want to buy (clean transmission fluid and new struts), at least I have the money to cover it.


*Insurance (car, renters), car stuff (gas, minimal maintenance), food (groceries, restaurants), utilities (gas, electric, phone, internet, netflix).
**That’s a bad attitude because the suspension problems my little car has after a winter of devastating potholes will probably just get worse if I don’t get them fixed -- alignments aren’t cheap!

Funding the Fuel Tank

Apparently, gas prices have hit yet another record so I thought it appropriate to share some fuel-saving tips from my own experience.

Practically, it is wise to find the cheapest gas station that carries reputable gas. I tend to steer clear of the "discount" chains because their gas can have some unseemly additives that affect engine performance. Here in the South, there is seriously a gas station chain called "El Cheapo" However you do not want to drive around wildly when looking for gas prices. I have found Gas Buddy to be a very helpful resource when trying to find good gas prices. Additionally, keeping your tires properly inflated improves your gas mileage. You can get a cheap tire pressure gage or stop at a place like Jiffy Lube and they'll check your tires for free.

Acceleration habits are the next place to analyze. It is the whole F = ma phenomenon. The faster you accelerate, the more gas you'll use. Similarly it is advantageous to maintain a constant highway speed as opposed to fluctuating. Speaking of highways, studies in the 1970s showed that a speed of 55 mph is a speed that allows for highest fuel:energy ratios. Fuel efficiency decreases steadily after that point, so if you are doing a lot of highway driving, you may want to reconsider your "travel over the speed limit" thinking.

The next thing I encourage people to know their car. My car's fuel economy appears to decrease if I let it go much below a quarter of a tank. Another oddity is my old car would not start in Northern winters if I let the gas get below a quarter of a tank, so it could be that this habit has remained with me today. I have also observed that my gas mileage seems to be at its prime during the first quarter of the tank, but I have yet to calculate this hypothesis.

Servicing your car regularly also improves your gas mileage. I know that this can be costly for a lot of us, but many chains like Jiffy Lube and Meinke offer discounts to make this more affordable. I tend to view service as preventive so I personally feel like I save more money by not having to undergo costly repairs later.

Another thing to think about is that some major chains have 1- to 5-cent per gallon discounts if you use a store credit card. If you find yourself constantly at this type of station, it may be worth considering this option.

Other thoughts?