Don’t Feed the Alligators

A Personal Finance Blog from a Small-Scale Landlord’s Perspective

Archive for May, 2008

Click here for actual spreadsheet.

“Budget” is a dirty word in many households, and it’s no surprise why. Budgets are hard to create, hard to keep, and nearly always imply sacrifice. So for the sake of being pleasant, I will refer to budgets in this post as Spending Plans. A budget is, after all, simply a way to spend and earn money on paper before you actually spend and earn it, and therefore the term spending plan makes more intuitive sense to me. Answers.com defines budget:

budg·et (b?j’?t)

  1. An itemized summary of estimated or intended expenditures for a given period along with proposals for financing them: submitted the annual budget to Congress.
  2. A systematic plan for the expenditure of a usually fixed resource, such as money or time, during a given period: A new car will not be part of our budget this year.

The creation of a working spending plan frustrated me for many years, primarily because I was trying to create one using Quicken’s Auto Budget creation feature. The problem I had with it was similar to the problem I had with tracking spending in the past: Too many categories. I was being asked to figure out how much money I would spend on small things like a pair of sneakers simply because I had a Clothing:Men’s:Footware category in Quicken. So if I buy (1) $75 pair of sneakers per year, Quicken would fill in $6.25 per month for sneakers. Multiply this by dozens or a hundred other detailed categories and very quickly the whole thing become unruly.

As discussed in one of my first posts on Getting Out of Debt, one must first understand where his* money goes every month. Some things are easy to figure out: gather up your mortgage (or rent), auto loan, student loan, credit card, insurance, cell phone, and any other bills that are fixed monthly expenses. My list also includes things like Netflix, water, and internet access. List each of these items with the associated monthly payment. I use a Google Spreadsheet for this. You will notice that there are some discretionary expenses in here, and that’s okay for now.

Next, I went through the last few months of expenses in Quicken, and pulled out other essentials that aren’t necessarily the same cost from month to month or even year to year: food, fuel, pet care, utilities, etc. I put 4-6 months worth of each of these items on separate lines, and then averaged the each line to get a monthly expense. Utility bills usually have a 1 year rolling history of usage, so this can also be used to predict upcoming usage. Entering all these average or estimated expense creates a starting point.

The next thing I did was to look at expenses that occur on an annual basis: excise taxes on my vehicles, life insurance premiums, disability insurance premiums, Christmas presents, etc. I took each of these annual amounts and divided by 12 to figure out how much I need to allocate to each of these each month. I listed these next.

Last, but certainly not least, I have included my savings contributions. The last place inclusion should certainly not indicate the relative importance of these entries. Indeed, these may be the most important entries in the list under the “pay yourself first” mantra. If you already contribute to a 401(k) plan through payroll deductions, you may not need to even bother making an entry here.

Having entered most of your expenses (most discretionary expenses are still absent), it is now time to enter your income. For most of us, this will be rather easy since we get paid a fixed amount on a set period from few sources. Others with irregular and/or multiple source incomes will have to figure out a way to average this income to create a starting point for now.

Now add up all of the incomes and subtract all of the expenses. What’s left is what you can afford to spend on discretionary items. Is this number negative? If so, you had better go back through your expenses and start trimming until you get to at least zero. If you have an option to earn more income, that can help too. If the number is positive, then you’re already doing better than many people today. Now you need to decide if it’s positive enough to satisfy your wants during the month. The only way to change this number is to decrease other expenses or increase income. You have to weigh priorities against each other, and I strongly suggest that you contribute as much as possible towards consumer debt and savings. My sample budget spreadsheet includes a post-tax savings percentage calculator.

Congratulations! You have now created a budget! Next time we’ll look at how to tweak the budget to be closer to reality, as well as how to manage your budget going forward.

Please see Part II here.

*Too many Web 2.0 contributors would have written “their” (or worse “there”) here because of a political correctness fear of being labeled sexist. Personally, I prefer to use proper English, and “his” won the coin flip. In all likelihood I have made a grammatical or spelling mistake in this aside simply because it would be ironic.

05.13.2008
Carnival at Night

Creative Commons License photo figure credit: StuSeeger

This week I participated in 3 Carnivals:

I also added my blog to the World of Personal Finance Bloggers map at Part Time Money. Check out the distribution of bloggers around the US and in the rest of the world.

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Bonus

Creative Commons License photo figure credit: solarnu

I’ve written about snowflaking here before as it relates to debt reduction, and I want to add another thought on the subject. As I discussed in a recent post, ScrapperMom got a raise AND missed a paycheck due to some personnel problems at the payroll service that her company uses. ScrapperMom gets paid bi-weekly, and when she missed her paycheck, the fix was to pay her for 3 weeks on the very next week, rather than for 4 weeks on her next regularly scheduled payday. The result of this was to shift her pay schedule by one week.

In making this shift, she ended up getting paid on the first of May, which sets up May to be a 3 paycheck month. As most people who get paid weekly or bi-weekly know, there are 4 or 2 “bonus” checks per year by virtue of the fact that there are really 13 months worth of weeks in a year (in the same way that a typical pregnancy is 10 months of weeks instead of 9…). Most of us understand that a month is 4 weeks, but a calendar month can be anywhere from 4 weeks (non leap year February) to 4.43 weeks (any 31 day month). Those extra fractions of a week per 30 or 31 day month add up to an extra “month” over the course of a year.

If you got this far, you may be thinking, “So what?” Well, so what is that most people are used to living on 4 weeks worth of paychecks per month, and that means that the “bonus” month worth of pay is just that: bonus. So what should you do with this bonus? Personally, we will be using all of our bonuses this year to reduce the balance on our car loan. Our debt reduction plan, as well as our budget, do not include these bonus paychecks. By applying them to debt reduction we will accelerate the payoff of our car. Later, these payments will snowball into paying off our final outstanding credit card, and later still into our savings goals.

By leaving these bonuses out of our monthly spending plan, we give ourselves a bit more breathing room if we need it and a faster route to getting out of debt.

Do you have a plan for your “bonus” checks? How will you spend it? Leave a comment below and let us know!

Google

Creative Commons License photo figure credit: fimoculous

My wife and I are big fans of Google Apps, a suite of office type applications that run in a web browser and provide such services as Calendar, Spreadsheet, Document, RSS Reader, Email, and more. We have been sharing a number of calendars for a few years now, which is a fantastic way to keep track of all kinds of appointments from any internet connected computer. More recently, we have been using Google Documents, including Spreadsheets to share all kinds of information.

Google Apps are fantastic for collaborating on a project. Anyone with a Google account can share a Google item with any other Google user. Each user can see the item, whether it be a calendar entry, spreadsheet, or Reader item, and depending on the level of permission, can also edit the item. Multiple people can even be working on the same document simultaneously, and Google will merge the concurrent changes as they are made and refresh the other participants’ views.

This functionality seemed perfect to become a key tool for tracking spending and budgeting. A major problem that we had with tracking spending was capturing odd purchases or dividing up single bills into multiple spending categories. Often ScrapperMom or I would purchase something online from a vendor whose name we would not recognize at the end of the month when I sat down with Quicken to review and categorize our finances. A Google spreadsheet seemed like the perfect place to record such a transaction, since it was accessible nearly everywhere by both of us. Some other typical entries include grocery bills that also include a cash back portion, or bank deposits that include multiple checks.

Another great use for a Google spreadsheet is a budget. I can view and reorganize our monthly budget from anywhere. At the end of the month, I simply copy last month’s budget to a new sheet, and then make some minor modifications, if necessary, to prepare the spending plan for the coming month.

Lastly, I use Google Calendar to alert me when bills, transfers, or paychecks are due. I also set up alerts to remind me to check bank balances to make sure that always meet my minimum balances.

What technologies do you use to keep track of your finances?

burning car

Creative Commons License photo figure credit: Jef Poskanzer

Tonight I took my dog out to his competition obedience training class, like a usual Monday night. We often arrive early since traffic can be unpredictable. I was killing time listening to Marketplace on WBUR, the local National Public Radio affiliate.

A late model Audi A4 pulled up a few cars down from me in the lot. I noticed a plume of smoke drift away from the car as it came to a stop. I thought to myself that this guy must have been driving this thing pretty hard, and had overheated his brakes. I watched for another minute or so, and then saw it: Fire! Through the wheel spokes I could see small tongues of flame coming from the bottom of the engine.

I threw open the door of my van and grabbed for my fire extinguisher. By now the driver was on his way into the pet store above the training center. I yelled for him, “HEY!!! Your car is on fire!” He turned and smiled and kept walking. “HEY!!!” I yelled again, “YOUR CAR IS ON FIRE!” He turned and took me more seriously this time. “No it’s not,” he said, “it’s just smoke.” (Just smoke?) There was smoke drifting out of the wheel well now. “No,” I replied, “I can see flames under the car.” I pointed to where the flames were.

The driver, having finally taken me seriously, scrambled to open the door again and pull the hood release. I Pulled the pin on my fire extinguisher and stood back, ready for flames to flare up as he lifted the hood. The hood came up, and the flames were visible at the top of the engine. I asked him if it was okay for me to use the chemical extinguisher on the fire. He nodded vigorously. I Aimed the extinguisher at where I thought the seat of the fire was, Squeezed the actuator, and Swept the nozzle back and forth for 10-15 seconds.

When I released the actuator, I waited to see if the flames were out. Seeing no signs of them, I moved in close again, nozzle still pointed and actuator ready. I peered down into the engine bay where the first signs of flame were. None were visible, the fire was out.

By now, a small group of people — including a few employees of the store — had gathered. “What made you think to carry a fire extinguisher?” asked one. “I’ve seen far too many cars burned up on the side of the road,” I replied. Then I explained that my former job required me to train as an industrial firefighter. I had put out a number of staged fires before, but never a “real” fire.

My fire training had taught me to keep cool around fire, but to respect the fact that fire spreads much faster than people expect. Another two minutes, and this guy’s car would have been well on its way to a total loss. Safety should always come first, as well. I learned how to effectively use a fire extinguisher by remembering the following acronym:

  • P - Pull the pin
  • A - Aim the nozzle at the seat of the fire
  • S - Squeeze the actuator
  • S - Sweep the nozzle back and forth

I have asked my wife to memorize this acronym and quiz her every now and then on it. Now that I have a partially discharged extinguisher, I can safely stage a small fire in a can on the patio and let her put her book knowledge to practice.

The fire extinguisher that I used to put out the fire was about $25 at Home Depot. This is a very small insurance policy that saved some random guy $20,000 tonight. I have one of these on every floor of my house. Tomorrow I will be shopping for a replacement, as these are single use items. I will also buy one for my other car, which does not yet have an extinguisher.

All in all, I feel somewhat vindicated since now I can tell all the people that have ridden in my van and asked about the fire extinguisher that I have finally put it use. Yet at the same time, it’s a real bummer for this guy, who was still on his cell phone an hour later when I got out of dog class, to have had his car catch fire. I suspect that the car has not been properly maintained and that caused the fire. Lastly, I’m a bit disappointed that the guy never thanked me (even though the store employees did…), and that I’m out $25. :P

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