How To Micro Manage Your Home Budget, Painlessly. For double income/no kids- Couples.
It's REALLY all about attitude. Are you willing to do what it takes to be in charge of your money?
You've read all the books on handling your money wisely. You're into all the tricks of saving, sacrificing, balancing and cutting corners. For years you believe you've put genuine effort into juggling the home budget
With the current economic crunch, joblessness and foreclosures, you're beginning to panic. What on earth can you do now? What's left to do that you haven't tried?
Relax, kick back, breathe and read on....
C'mon, take a big deep breath. I said this will be painless and I promise it will be. For starters, I am not a licensed money manager, a financial advisor by career, nor a controller for a major corporation. What that should do is assure you I'm not going to get into long, drawn out lectures, draw complicated graphs for you to try to decipher, nor ask you any embarrassing or personal questions. You need not fill out any forms stating your income, your bills or your spending habits. I don't want lists of your unavoidable household living expenses.We all pretty much know what these things are for every person in America.
The only one who needs to know all of these things is you. All I will expect of you is to be totally honest with yourself. Although I intend to get very specific and discuss every single minute detail of a household budget, you get to be the one who accepts or rejects any or all of it. I need to stress as I said, it is all about attitude.
Since you have chosen to read this, I will safely assume at the very least, you have an interest in budget micro-managing. This then would lead me to understand that you just want to be able to truly manage your household needs and maintenance in terms of expenses, while creating a savings nest egg, an emergency fund and some much needed peace of mind.
These are reasonable things to want. In fact, a responsible way to think and requires only adjusting to new and different behaviors that eventually become habit.
Supplies needed: Me and You, an open mind, motivation & a notebook
This will be the most informal cheap and easy course you've ever taken. Many years ago, I'd have paid whatever I needed to, to have someone hand me this education. As it was, however, I went through the School of Hard Knocks, like so many did and may be going through at this moment. I'm happy to say, I made it through, graduated with honors and use this valuable knowledge every day and pay it forward every chance I get.
What will you not need?
You'll be happy to learn, you won't need to deal with any suggestion or advice from me about increasing your household income. I'll not be telling you that you or your spouse have to get out there and find a second job, another way to utilize your time and energies that are already stretched to capacity. Nor will I be doling out any helpful tips about how to live in darkness and cold or starve to death. I will offer no suggestions to conserve on water by not bathing or washing your clothes nor watering your plants. You have to be frustrated to the max with these useless ideas. I know I am.
We shall move forward from the very point you are NOW, Today, working with all things as they exist this moment.
I understand that where ever you are now in terms of your household budget, it is what it is. How you got here, what you did and did not do in the past is yesterday. As long as you are prepared to make an attitude adjustment, we are good to go forward. Micro-managing is not scary and you can do it. As long as you are self-disciplined and have a grip on self-control, you're bound to be successful at micro managing.
Expenses, Per month......we'll discuss INCOME, later.
Grab your notebook and have a seat. Use a pencilwith a good eraser. I'll give you some time to list your monthly living expenses.
Living expenses are those bills that are due and payable each and every month, also known as fixed expenses to live in your home or apartment. Mortgage/rent, Insurances and property taxes, utilities (gas, electric, water, phone, cable, trash pick up,) & your car payment. Come up with a total, circle it and keep this group of bills separate from any others you will list.
Continuing on, down the left side of the paper now, just write the words that apply to you in terms of "other expenses," whether monthly or otherwise, such as groceries, pets(pet food, Vet visits for vaccines, pet grooming) household cleaning products, hygiene/grooming products, fuel, toll and/or parking fees, bus or cab fare, church offerings, hair salon, manicures and pedicures, bowling night, bingo night, etc.....Anything and everything you think of, write it all down. I expect you are both contributing to this list. If you do this right, your list will be quite long, to your own surprise. For instance.....
Are you a Starbucks/Dunkin Donuts, daily customer? Jot down those expensive drinks and don't forget the pastry or muffin! Rent several movies a week? Play the Lottery on a regular basis?
Don't mind me, I'm just mentioning things that a lot of people just don't think about and may not include. It's called, mindless spending. All the cash we shell out during the course of daily living that we pay no attention to whatsoever....almost as if these dollars don't count or add up considerably. They DO.
While on this subject, get into the habit of asking for a receipt for every purchase. I mean, all purchases...postage stamps, ice cream cones, odds & ends you pick up at the corner store on your way home from work. Keep an envelope or small box in your car, or throw them in your purse or pocket until you can add them to your receipt container at home.
Notice there's been no mention of credit cards or credit card debt, yet. This category is definitely a separate issue, to be dealt with by itself a bit later on. In the meantime though, keep a few things in mind in terms of this destructive plastic: I am not going to get crazy and suggest you cut them up and have a ceremonial burning of the cards. What you need to seriously consider is surrendering and stashing( under lock and key if possible,) all but one credit card, to be used for emergency-only purposes. You're on your honor to yourself and/or to each other. Remember, I mentioned self-discipline. Dig down deep and show yourself what you're made of!
INCOME: Right Hand Column
Unfortunately, jotting down income doesn't take much time or thought. You (and partner) make what you make and it's fairly simple to keep track of. If your paycheck is variable from week to week based on your work schedule, use an average of four week's worth of paycheck amounts.
For the sake of ease and clarity, I'll use a nice, round, reasonable amount of $2400 per person, per month, take-home pay...( $600.00 per week). The same amount for a second income, or $4800 per month total Net income.
One very important goal in micro-managing is to reach the point, in perhaps four to six months time, where you have to your avail, at least one month in advance, the total amount of your fixed monthly expenses. (That total amount at the very top, you circled and set apart from the rest)
Please note that I am guessing and/or estimating imaginary costs, but because you have your costs in front of you, I trust you are capable of following the concept I present, using your personal information. Our numbers won't match, but the concept applies in any case. About those fixed monthly bills.....
Mortgage/Rent may be from such a wide range of costs, I'm using $1100, based on the reasonable comparison to your income. With a total income of $4800, it would be acceptable to assume,$1100 is a feasible cost, between extremely high and exceptionally low. If, you were wise enough to include your taxes and property insurances within your mortgage (in escrow), this is not only to your benefit, but an enormous load off your mind. Otherwise, you must total your property tax amount and Home owners Insurance annual payment and divide by 12. This is for the purpose of monthly calculations only.. Because my friend, if you pay taxes and insurance separate from your mortgage, these bills arrive at some point during the year, due and payable in full. (Ouch) Often at the worst possible time. Count on it. If you rent, property taxes are of no concern and all you may have to keep on your list would be Renter's Insurance, and it is a wise move to have it..
Your monthly car payment could be any amount from $500 (extravagant to a fault) to $150 (good deal!) We'll use $275. To my knowledge, in any U.S. State, Auto insurance is mandatory. You have a car, you have auto insurance. Perhaps you pay this annually, but for the sake of what we're doing here, let's say, $100 per month. OK...do not relax. If there are 2 parties, and two cars, time to multiply by two. This brings a total monthly expense to $750. On to utilities....
Please total each monthly utility cost for the previous year and divide by 12. Should you already be on a balanced billing program for gas and electric, of course this isn't necessary for those two utilities. This program is a personal choice and may be advantageous to some individuals in particular cases, but I will interject, that I am not in favor of balanced billing payments. Now come up with your monthly total of all utilities combined. Staying with the same six utilities I mentioned above, I'll conclude a monthly amount of $475.
This gives us a Total of $2325, in fixed monthly expenses, based on two parties, for our particular imagined scenario here. This leaves a balance in monthly income, at $2475.
Budget Micro-Management is ONGOING.
With your total balance in mind, before we move on to your long list of other expenses, put $100 aside and forget about it for a moment.
Now, to that long list of what we'll call probable or possible expenses throughout the period of one month. Top two would be food (fuel) for you and fuel for those cars. Again, having no way to know how much gas you may consume in a week, or how,when and where you shop for your groceries, I have to step up and consider amounts. We're all aware we don't normally grocery shop or fill our tanks once a month....but the estimated total monthly amount is what we're working with. .I am going with $600 for food and auto fuel for the month.
Briefly, if you have a pet dog or cat, simply add the cost of their monthly chow, and the possible two visits per year to the Vet for vaccines, (divided by 12)...for the monthly input to your budget. Forget the groomer. Fido gets a bath at home. Think of it as a bonding experience. Professional Pet grooming is unnecessary, at least for the next six months to a year.
You have a coffee maker, a special cup for the car and those dozen muffins or cinnamon rolls you whipped up over the week-end. Oh yes, you can and you will. A couple bucks for a mix and about 30 minutes of your time.....wrap them individually for freshness and store in the fridge. Drive right on by Starbucks and realize that you're saving well over $20 a week...OR $80 a month! Remember, mindless buying and attitude? If you BOTH do this, it's $160 per month. Please....let's get real. For coffee and a muffin?
OK, a minute to breathe and re-cap thus far. If you've done the math along with me, you know your $2475 balance, after fixed monthly expenses, is now at $1775. Now we can get into some of the negotiable things.
Amusement and entertainment is an important part of life. No argument here. However, for the purpose of this learning experience and until you become not only comfortable but near-expert at this micro-managing.....enter: Negotiations. We're not discussing necessities here nor things we will die without. If you bowl, love Bingo, have dinner out more than once a month, you have a choice. Bite the bullet and choose one. Be big boys and girls, and dispense with all others. No whining. You're honing your attitude toward money. Yes, you can play Bingo one month, go bowling another and have dinner out in yet another month. However, not all three forms of amusement in one month's time. No cheating or defeating your purpose.
Realistically, this is but a light surface brush over the category of "other expenses," Go over your list and after much thought and discussion, hopefully you will agree to dispose of that which is simply "fluff," and just not necessary to still be content and comfortable.
Those nagging credit card payments have to be dealt with. With your remaining income balance, as in this case being $1775, decide whether to make a minimum payment, per card, or not. I bring this up because you do have the option now, to pay more than the minimum, thanks to the "savings" from what you have graciously decided to cut out for your own good. Whatever you choose to do, and where that brings your balance at this point, split that amount in two.....half for each of you.
The Challenge: That $100 I asked you to put aside from your monthly income before you did another thing? Let's get back to it. Mark an envelope or a box, Emergency Fund, and place the $100 in there. You can now challenge one another. Which one of you will have an amount of money leftover from your share of the balance you split evenly by next pay day?
Should you have perhaps, $30 and your spouse has $50( at the time of your next paycheck) both of you should be willing to add the lesser amount to your Emergency fund with your spouse, in this case, left with an extra $20 of "mad money." Yes, just a little game with an incentive,to add a bit of competition to this. I'll bet your spouse will split that mad money with you.
I have kept you long enough. You may be very tired of reading but I know you will thank me....later. Important: This is a mere basic introduction to the theory of Micro-managing your budget. Before you are able to get seriously into this feeling like an expert and breezing through month after month with ease....It will be a few months of focus and determination to get much more control of your finances and best of all, more money you get to keep.
The concept works. It is tried and true by many many couples over the years. As you can see, it's not difficult nor is it terribly painful. It is and will be very well-worth your attention and efforts. It is also tweakable to fit you and your lifestyle. Embrace the attitude.
I wish you luck and a beautiful, bountiful future.