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Keeping a Budget

10/20/2012

I can’t say that I’m the best person in the world to talk about keeping a budget. I have such a low income that it makes paying for things like rent and food during the off months (summer) very difficult. It is possible to live off of $1000 per day. It would just help if I got paid about that much a full twelve months a year.

Complaining about my current lot in life aside, budgeting is more important for me because I can’t rely on an income for about three months per year. It means that I have to bite the bullet and live with my parents, and I take in unemployment during my yearly layoff. I also save like crazy so that I can pay for my car insurance, health insurance, and AAA Roadside Service, all of which seem to come due at the same time about a month before i go back to work.

The first thing I do is I have two bank accounts – one checking and one savings. They are not connected. Should I overdraft, I’d rather have to pay a $35 fee (or whatever it is these days since I haven’t actually overdrafted in a long time) and then be notified by my bank of the overdraft rather than have my two accounts connected and suddenly find that all of my money has drained away from charges when I wasn’t looking. It’s too much of a liability to have them connected. A friend of mine couldn’t pay me for her share of our theater tickets because that happened to her.

The second thing is to not touch your savings. A savings account only gives you less than 1% interest, so you aren’t really making money off of it. That money should be kept for your future, or, more likely, an emergency. Try to put some of your paycheck in there regularly, even if it’s only $10 each month. The money you need for bills should be kept in your checking account, which is the account you should allow yourself access to. That’s the account that usually recieves the direct deposit, so I can keep the money for my bills and expenses in there and only bother to transfer out the money I need for cash or whatever I can put into savings.

The third thing is to always carry cash. Pay for gas in cash because most of the less expensive gas stations like Valero and Arco charge you an extra fifteen cents per gallon if you use a debit or credit card. Also, cash is free spending money. That way, if you want to go do something, you know exactly how much you have to spend and you’re less likely to have a particularly unmanageable credit card bill or an overdraft. If you don’t have the cash then you can’t spend the money. That way you litterally can’t spend money you don’t have.

I like to keep my spending cash separate from my gas money. When I’m working I know I’ll go through a tank of gas every week because I live far away from my job. When gas is $4 per gallon I spend about $40 per week most weeks, which is about $160 per month. That money is non-negotiable, because if I don’t have gas I can’t get to work. Spending money can’t be mixed with that because I may accidentally spend too much. It’s like magic how money can disappear from my wallet. If only it were purple wallet monkeys and not my own desire for lunch!

The fourth and final thing is to use your credit card sparingly, and you should only have one. Use it for Netflix, World of Warcraft, and for paying your college tuition, and never for food. All of your other bills should be paid physically with a check so that you have a record of payment. Also, I have a hard time with the idea of signing up for online bill payment. Not only is there a higher risk of a security breach, but it helps prevent overdraft.  My online banking only allows me to look at my balances, so if I want to move money I need to either write a check or go in to the bank to move it.

The reason I am trying to have you set up such a complex financial system is that I feel a lot of people don’t keep very close tabs on how much they spend because everything is automated and funnelled into one or two accounts. With so many people having access to your money, it’s hard to keep track of where it goes and, more importantly, how much goes where.

After you’ve decided where to keep your money and with which medium you are going to pay for particular things, now its time to figure out how much you can actually spend. This means that you need to have a list of priorities on what gets paid first.

Rent – Nothing else matters if you don’t have a place to live. My parents charge me for room and board, but when I had my own apartment a majority of each of my paychecks went directly to the rent fund. In this day and age, if you have only $1000 to spend each month, get a roommate. It cuts the rent cost in half and allows you to eat, pay bills, and sometimes have fun.

Food – Second priority because you can choose to eat less. I know it seems more costly, but cooking for yourself will save you money over the long haul. $300 will fill your pantry with all of the staples you only have to buy once – spices and seasonings, baking supplies and oil and vinegar etc. After that you can easily spend under $100 each month on food to cook with, especially if you are willing to cut back on expensive things like meat and cheese. Cooking with a lot of fresh veggies isn’t as expensive as it sounds, especially if you find a good local farmers market or go to a bulk store like Costco or Sam’s Club. Its even less expensive if you stick to food that is in season. Be careful – some stores that are super cheap in produce are super expensive in canned food. Don’t be afraid to shop around. Most people who eat out probably spend over $5 per person per meal. And no, that doesn’t come from a reliable source. That’s just me noticing that unless you always eat off the dollar menu it’s hard to spend under $5 on a meal.

Bills – Rent and food are hard to live without, but it is possible to live without electricity or a car. Preferably you won’t have to, though, so keep tabs on how often you leave the television on when you aren’t watching it and how many appliances and lights you have on at one time. If you can, only operate one piece of machinery at one time. How likely is that to happen? Not very. But it’s worth a shot. I also lumped car insurance in the bills category because, no matter how much we like to think otherwise, having a car is not a right or a necessity. I could probably make out pretty well if I sold my car and moved closer to work. It would only be a little more expensive.

Health Insurance – If you get sick alot, it’s more cost effective to just pay for health insurance. $150 per month and $30 for doctor visits, plus free birth control, check ups, and teeth cleanings with an 80/20 emergency plan is well worth the investment. Would your rather pay $150 each month and a $30 copay with $10 for the prescription antibiotic, or a $100 abulance ride and how many thousands of dollars in hospital fees?

Loans – Student loans are rediculous. So are credit card bills. But it’s honestly cheaper to pay them off rather than have the interest roll over into the next month. With credit cards you may receive points, but you don’t receive them until you pay what you owe. Do your best to pay them off, so your debt goes down instead of up. Same with Taxes. If you owe, then do your best to pay it off as fast as you can. It’s cheaper.

Everything Else – Everything else is fun, and when you can’t afford it then you shouldn’t pay for it. As much as I live by my WOW, and no matter how many friends I have there, it is still something I pay for that I don’t have to have (although I just got good at Tanking, so it has definitely become like Crak to me, and giving it up will be nigh on impossible). Netflix, too, and donating to certain charities. I can’t give to others what I don’t have for myself, so if things get really rough I can – with great hesitation – pull my monthly donations. And dance classes and gym memberships and Midnight Margueritas.

Investing – Obviously if you can’t do Everything Else, then you probably can’t invest your money because investing is part of everything else (in my mind at least). Roth IRAs or regular IRAs, CDs, Pensions, 401K… they are all solid ways to invest your money. The Stock Market I’m not too familiar with and it’s more of a gamble, but it’s your money. But whatever you choose to do for your retirement, do it now rather than later. A regular input of money into a solid savings plan with good interest or dividends can create quite a nice Nest Egg for when you retire, especially since you can’t rely on Social Security being there when you’re ready for it.

Yes, this is a simplified framework for making your own budget. This is just what I do to keep my finances in order. What do you do that seems to work?

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