Thursday, May 31, 2007
My wife had an asthma attack last night.
For a family budget, expenses associated with this would fall somewhere between recurring bills and emergency fund. Most people are good at the recurring bills, you pay the same (or similar) amount every month and forget about it.
The Emergency Fund is different.
First let's get a definition: The emergency fund is an area of liquid assets that is used only for unexpected expenses in regards to health, property damage, loss of income, or other similar emergencies.
The Emergency fund should be one of your first steps towards a sound financial picture for your family. Set aside quite a bit every month until you have roughly 3-6 months income put away. Then put that money to work in a money market account where the interest is higher than a savings, and where penalties for too many withdrawals will help you to think twice about accessing those funds.
The emergency fund is also helpful during times of family transition, for example: Say a new father wants to take some time off to spend with his wife and new baby, but his company only provides leave for women. The couple could access the emergency fund to provide that extra income for a few weeks and to help with the countless new expenses associated with baby. What if they didn't have an emergency fund? Those expenses tend to make it onto credit cards, which leads to more bills, and paying later for something you no longer have (ie. food).
As far as paying down debt, some people say to pay off the credit cards and unsecured loans first, others say build the fund first. It really doesn't matter, just make sure your plan will work for you. If you have a habit of paying only minimum balances, then you should pay the cards off first. If you always pay the full amount on your card and never even have to pay interest, you don't have to worry since you don't have that kind of debt. Consolidating that debt is another option which could bear fruit for you by letting you pay off the cards completely (hide or destroy the cards for a while after this or you'll run them up again). Then you are back in the easy recurring bills part where you pay the same amount every month.
So how do we cover an emergency like asthma? We use the emergency fund!
Tuesday, May 29, 2007
Sit down and have a chat with your family:
- What do you like to do?
- Where would you like to go?
- Do you want to buy a house?
- Do you want to have children?
- If you have children, do you want to pay for them to go to college?
The Written Word is key
The possibilities are as unique as every person, and this should be a discussion where all ideas are open for consideration and get written down. Dad wants a new Porsche? Write it down. Little Jimmy wants a bicycle? Write it down. Everyone wants to take a trip to Six Flags? That's great! Write it down. New couple wants to know the joys of home ownership? WRITE IT DOWN.
So let's drum up a sample list of different financial goals.
- Jimmy's new bike
- New House
- Ice Cream every Sunday
- Go out to eat twice a month
- Retire at age 60 and be able to live to be 160
- Put Jimmy through college
Now these are 7 general goals (this is an example, you could come up with hundreds fairly easily). Obviously some of them are more pricey than others, some are more specific, some are very general. Now it's time to prioritize.
Break the goals up into short-term and long-term.
- Jimmy's Bike
- Ice Cream every Sunday
- Going out to eat twice a month
- New House
- Jimmy's education
Now you just need to use the short-term goals to drive your long-term ones. I'll use the Porsche for an example.
Let's say that it costs $60,000 (I have no clue what a Porsche costs)
$60,000 becomes your big savings goal, your short-term goals should motivate you to continue to save. Just make milestones in your savings. So, if Ice cream for the family costs $30, set a goal that everytime $130 is added to the savings account, everyone gets ice cream. The result is that everytime you've saved another $100 you get rewarded for saving.
That about sums up this article, anyone want to clue me in on how to post an excel document I could chart this for you.
Monday, May 28, 2007
You will learn things like:
How much going out to dinner costs you a month (when we did this it was over $400, or about 1 fifth of what we make in a month).
How much do we spend on groceries.
How much do we spend on things we don’t need.
Who has the most expensive shopping habits.
Categorize the expenses, make the categories important to you, and figure out the percentage of your income that each expense category covers. Compare it to my personal percentage goals.
20-30% Housing (rent or house payment)
10-20% Savings / paying off debt once you’ve saved 3 months pay.
10% Giving (church, charity, etc.)
5% Gifts (friends relatives loved ones)
25-30% Living expenses (food, bills, cars, insurance minimum debt payments)
Anything left over can go towards fun stuff, or paying off debt
This is a general guideline for an effective spending percentage, and it will be a good comparison to your own expenses.
Also, a greater income could skew these numbers a bit because there is only so much money one can spend on food, living expenses, etc.
Post and let me know how your numbers compare, I may be able to see things that you gloss over.
Saturday, May 26, 2007
Friday, May 25, 2007
My grandmother asked me this question about a week after the wedding, and I am glad that I had an answer for her, I do. Of course, she asked me why my wife didn't have control too, and in our case it is because she is afraid of money. The important thing here is that we figured this out before we got married. We tried to combine our budget about 3 months before the wedding, and had more arguments than ever before or since (So far).
What we learned about ourselves.
- Our hot button issue is money
- Our financial discussions end in stalemate (a tied argument)
- Budgets really stress my wife out
- Allowances do not.
What did we do?
Since I worked at a Credit Union at the time, I was getting a large amount of financial planning advice, budgeting tips, strategies, etc. This made it clear to both of us that when it came to handling the finances I would be the better choice, especially long-term. However, since I can decide to spend large amounts of money rather randomly, as part of this control, I am required (it's in writing) to inform my wife about these purchases and show her that we can afford it.
Before we got to this point though, my wife had to get past the idea of not having control over her money, and this should be key to any family: You don't get paid anymore, your family does. This doesn't mean give your kids everything they want, it means that your family controls what you earn. Even though one of you earns more, all the money is equally everyone's.
Once we had figured out how much we spend on things (WOW we dine out a lot!) and where our sources of conflict are, (You spent HOW MUCH? on a new computer!) we were able to get on board with the idea of a combined budget designed to meet the needs and some wants of our family.
Ways to get on board
- Have the hard money conversations immediately, letting them go leads to bad things.
- Look up statistics for divorces caused by money problems (You don't want a divorce do you?)
- Plan on doing something both of you enjoy after you talk.
- Discuss things you would both like to do and promise to plan for those things in the future
- You love each other, and this is the simplest way to get the best for each other.
- Remember, a budget is not a law it's a living document subject to change.
What are some other ways you use to get excited about budgeting?
Thursday, May 24, 2007
This is a question my wife and I were recently asked when we purchased a Nintendo Wii.
Before I get into the hows of our material gains, it's important to realize first that my wife and I don't make much money, but we do work full-time 35-40 hours a week. I will now outline our spending plan strategy for getting out of debt without losing your mind.
1. Know Yourself (Get on Board)
2. Know What You Spend
3. Know What You Want
4. Eliminate the 'Debt Factor'
5. Rewards and Punishments
6. Dealing with the unexpected
7. Learning to do without
8. Learning how to do yourself
These 8 topics are just the tip of the iceberg right now, I hope you find this blog helpful in the future. Check back often as I will update a lot on my days off and space it out over the work week.