Sunday, 21 August 2011

Budgeting - the long and the short of it

In living a simple, frugal lifestyle I cannot stress the importance of creating and living by a budget.  Most of us out there have some sort of budget but I ask you is it really working for you?  Have you got everything covered in your budget and are realistic about the amounts you are paying out? Have you got an emergency fund or 'rainy day' money? Or do you constantly find yourself tying up loose ends?

If you aren't sure whether your budget is working for you, ask yourself how many times you have to swipe the credit card to fix up little bills and expenses you haven't taken into consideration or have the money aside for. Don't get me wrong, life is unpredictable and you never know what is around the corner, we are all to familiar with that in our house, but if your budget is working for you, you shouldn't have to resort to this unless in an emergency - cue the emergency savings fund.

Your money should work for you, not you working for your money.

We are in debt, it's our fault and only we can solve it, but life is all about learning.  We have learnt through some hard lessons that money is not disposable - if you don't have it coming in, you shouldn't be spending it! It has taken us a long time to learn this lesson properly and gain the skills to sort this out, we started a journey with a plan about 4 years ago to really get our debt sorted and cleared.  Correct me DH if I'm wrong but even though we sorted a budget and thought it was working for us, it really wasn't.  We also WEREN'T working to the budget! We fell off the wagon so to speak to many times for our liking and that equates to increasing debt not decreasing debt. But now we are absolutely committed to sticking within our means, we are living frugally so that we can clear our debt and save for our own house.

Do you get to the end of pay week thinking you should have money left over but don't? or worse racked up a credit card bill, and you have no idea where it went?  We used to.  
To help with sorting this out start yourself a spending book.  By this I mean, dig out an old notebook or just staple a few pieces of paper together (a frugal notebook :) ) and every time you buy something write it down.  If there are two of you spending, both of you should be doing this.  Write every single thing down, even if its just a 10cent lollipop or a $300 power bill.  Every outgoing of money needs to be recorded. Then at the end of the time you can sit down and get an accurate picture of where your money went.  I bet you'll be shocked!
From this you can work out what you need to cut out of your spending or find ways to reduce it or manage it better.  Then you can start on an accurate budget and start living by it.  Budgets are working items, they can be tweaked as you feel it requires, but be realistic with it.

To create your budget, using your spending book and either an old budget or bank statements create a list of all your expenses, make sure you take into consideration bills that get paid six monthly or yearly (such as Car Registration, Rates and Water bills).  What are your needs/essential and fixed expenses (such as Rent/Mortgage) and what are your wants/non-essential expenses.

Make these up into two categories, essential and non-essential expenses.  What can you reduce in here, or better still remove completely? If you are struggling and drowning in debt or trying to be as frugal as you can to save, you have to be really realistic.  This means you have to make sacrifices. Work together and decide what is really important in your non-essential expenses, choose only one if you can.  DH absolutely loves motorsport and is a huge fan of Formula 1.  In NZ you can only watch this on Sky TV.  However this is not enough of a justification to fork out the money to pay for this. Sure we would all get use out of it, the boys could have cartoons, I'm sure I would get lots out of the cooking shows and it would be nice to have movies and record the programs we wanted. But it's not enough to justify having Sky TV, its to much of a luxury. We have a DVD player and TV that can record things if we wish.  All four us in some way or another use the internet.  It is a well used resource in our home and always will be, so we decided that our one real luxury expense that we wanted to keep was our internet plan. It is a chosen expense, it's our form of entertainment if you will, but it is important to all of us. There is no way we would also couple this with paying for TV, that is our sacrifice.

A big area where most families can save on is groceries.  I will work on some posts about this soon, it is the one area we have been able to make the most savings on.  We used to spend $350 a week which went onto the credit card, we weren't operating a budget properly then and thought that having two babies, both in nappies and one on formula warranted this spending - it doesn't!   When we started on our grocery budget and changing our mindset we reduced it to $250, so the $350 was just unrealistic spending on luxuries - I wasn't cooking from scratch.   We currently have a budget of $230 per week which we always have a reasonable amount of money left over from.  The amount leftover is what we term our grocery surplus. Once the fortnight is over and we start again this becomes our emergency savings fund.  I am now working at changing this to lower it, by starting a stockpile and the savings are starting to kick in now I'm making all our own cleaning products etc. Our cat had to go to the vet a few weeks back, it cost $100 - money we didn't have in the budget that fortnight, but with left over grocery money I'd put away, I was able to pay her vet bill without adding extra stress to the financial load.  But like I said more on the grocery and emergency fund later.

Try and be wise about your petrol savings and have some carless days if you can.  I have changed what we do in the week now so that I can give ourselves 3-4 carless days a week.  Although we walk to school, our closest Kindergarten is in town so I go in three times a week for that. I run my errands when I drop Master 4 off so I'm not going in at other times for one or two things.  It's about prioritising and creating sacrifices to make your money work effectively.

Give yourselves some pocket money or an allowance, even if it's only $10.  This has made a huge difference for us.  Previously we didn't give ourselves any money, it was all about putting everything towards the debt.  Good in theory but it's no fun if you don't have a little sanity money - hence why we fell off the wagon.  It's a long road to not be able to spend anything or try to just have little tiny treats together.  Once you spend a little bit, if you are like us, it becomes a little more and a little more and next thing you know your completely blowing your whole budget.  It creeps up on you.  By giving yourself an allowance you still feel like you have a little freedom and you are in control of it.  You could save it up to buy a nice treat for yourself, or buy little craft things from time to time.  Or if coffee is important to you and you have a favourite coffee shop, your coffee can become a guilt free treat. That way if you want to buy yourself a coffee regularly its out of your own money and not the house money which needs to go towards more important things.  If you get three coffees a week at $4 each that's $624 a year just on coffee!  It may seem a bit strange at first having pocket money but it really works.  And draw it out in cash.  It's harder to spend the money you hold in your hand then it is to spend the money thats literally virtual and you swipe a card for.  It's easy to lose track of how much your spending that way.  With cash you know exactly where you stand!  My DH LOVES the boy toys like Playstation and Computer Games - he now saves his pocket money to get his games - Well done honey :) these things are expensive luxuries!  My pocket money at the moment goes on anything to do with what I am making, like essential oils, jam jars from the Op-Shop for jam making, extra petrol if I want to go visiting friends up in Auckland, material to make things out of and I've paid for my latest haircut.

Our takeaways come out of our pocket money, we normally chip in half each.  We used to do it out of the groceries, however, when I have already gotten all the groceries for the week and enough meals for every night should the takeaways really be coming out of the grocery budget? No its a total luxury!

We also have created a small allowance to cater for the boys and their needs.  We get out the cash and keep it aside to pay for things for them.  If we want to take them on a special outing once in a blue moon and its not free this pays for it - like their entry into the hot pools.  It also there to pays for school things like school trips and calf club fees have recently come out of it.  Kindy trips are the same. If I take Master 4yrs to Mainly Music the $3 donation is taken out of this.  If they have been really awesome I take them for a walk down to the dairy to pick out a little treat.  The money is catered for this way and we don't just swipe the card or 'borrow' it against something else or have to try and fit it into the budget.

We work on a fortnightly budget, so everything is divided up into 26 fortnights over the year and then paid immediately each pay.  Our power bill was fluctuating constantly particularly in winter, sometimes our winter bills were over $300.  We are working to obviously reduce this but to cater for it in our budget we took a years worth of bills, added the annual total up and divided it into 26 fortnights.  So every fortnight we've been paying $100 (it was $115 but we've re-evaluated and reduced it) into our power account.  We have now built up a large credit so we don't have to stress about the extra on the bill in winter, it's already there.  The best thing about doing it like this is we will have enough credit by Christmas time to not have to pay the power during December - that's a whole $200 for the Christmas fund!

Christmas is another big trip up for families, unless its budgeted effectively for. We tried to build some savings last Christmas but it was a messy year and we didn't have any come the time.  I was working though so we had extra income but we still wracked up extra money we shouldn't have.  So from early this year we introduced two savings accounts one for Christmas Savings and one for Holiday Savings for a camping trip at Christmas and to cater for the petrol money to visit Grandparents as both sets live far away.  Each pay we put a little bit into these accounts so that we are building it up.  Come Christmas time along with the $200 from the power credit, we won't have any financial stress and it'll be paid for.  But in saying that, this year is all about the Frugal Year for us so we shouldn't be spending much anyway :) 

And lastly in our budget we have accounted for things like our Car Warrant, Car Registration and our Water bill. In a seperate account we put $50 a fortnight to cover these things, so its not a burden when these expenses need to be paid. This is based again on the annual total of these three expenses and divided into 26 fortnights. It's working really well for us as we've always stressed when we have had to pay them and it used to result in pulling the money out of thin air.

I've been managing the budget and paying the bills in the past, but to be honest it's always stressed me out - I'm a worrier.  So we've changed it and have split the responsibilities, DH is managing the budget now, paying the online bills and keeping an eye on our debt levels.  I get the cash that I need each fortnight for the portions of the budget we operate using the cash and envelope system and I manage this.   We are both actively working the money, consulting with each other and know where we stand.  We leave the amount left over in the account until the end of the fortnight and when we have extra expenses like fish tank filters or items of school uniform in a fortnight, this amount get deducted from our amount that we have left over.  Then the rest of this goes straight on the debt and the cycle starts again.  The credit card is not used, unless I need a one off urgent expense and DH has the eftpos card so I can't withdraw the money or I haven't the cash on me, but immediately when I get home I pay the bill.  If it isn't really urgent I try my hardest to stretch getting it until the next pay period and slot it in there.

So I hope this gives you a few ideas and maybe even if you haven't got a working budget formed a place to start from as this can often be the hardest step.  It's really important to know where your money is going and where you need to slow down the spending. There are many different ways to manage your money and how you pay things out etc.  Some operate bills accounts, where instead of paying it directly onto the bill like we do with our power and phone accounts it goes straight into the bills account and then when the bills come in, it's paid directly out of there.  For us however in the past we've 'borrowed'  against this money and gotten into trouble with it, so we find it easier to pay everything directly to them so it's not in our hands anymore.

I'll write more on ideas of managing money and how we do it, in particular running a cash budget and operating the envelope system soon.  So that like us, you to can pay off your debts, reduce your spending and build up an emergency fund, without swiping the credit card!

For more help on budgeting and managing your money wisely you could try 
http://www.sorted.org.nz/

There is also a website to see if you are getting the best deal with your power company it's
http://www.powerswitch.org.nz/powerswitch

2 comments:

  1. Wow - you are such a prolific writer! I have to go back and re-read this (and other posts). Just wanted to say that I've just found your blog and will be following it. Love the posts I've read to date - particularly the extended milk one. Never thought of that, but it makes so much sense. I have often thought that the cheaper milk is watered down. So much better if we do it not them! Plus the 'lite' versions seem to have lots of added things.
    Keep up the good work - cheers Wendy

    ReplyDelete
  2. Hi Duchess_Declutter, hmmm as the old saying goes I can talk the hind leg off a donkey at times :) Can't help it, to many years as a hairdresser :) Actually I really used to enjoy writing when I was at school, so this is re-sparking my interest in writing. I am honored that you are following my blog, it is surprising me how many people pop in to have a look and say hi. As for the milk, yup the light blue non-fat milk basically is just watered down with a few extra things added, so I like to do it myself and that way gain more milk in the process for less :) Hope to see you back soon

    ReplyDelete

Hiya, thanks for taking the time to comment on my post. I can't wait to read your comments and to share ideas, I am a busy mummy with 2 boys to run around after so I will try and get to comments as quickly as I can...if there is a delay in seeing them published this is why, not because I don't care, I'm just taking some time to smell the roses :)

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