charliepark + budgeting   29

Nadia Eghbal : How to Live in San Francisco on $20K A Year
"Here’s the biggest secret about managing money when you don’t have a lot of it: it’s not about managing your dollars, it’s about managing your stress. If you get stressed out about money, you lash out by spending erratically."
budget  budgeting  minimalism 
june 2013 by charliepark
Wesabe: Creating a budget: How do you budget an income that is differant all the time
charliepark says:

Gordon -

Hey there. There's a lot to your note, but I want to say, first off, that it's awesome that you're saving towards your retirement, and that you're building that emergency fund. Those are both really good things to be doing.

There are a bunch of issues you're outlining ... it's helpful to break them into chunks, and to deal with each one individually. I'm seeing a few:
1. a variable income, making it hard to plan for the next month's spending.
2. not knowing where your money's going.
3. spending money on your friends, or on yourself, when that's maybe not what's best for your finances.
4. not knowing what "appropriate" amounts are for each of your categories.

Also, from taking a look at your goals, it looks like you have a couple of other things on your plate ...
5. needing to pay off a credit card
6. wanting to save up for a house

So those are the issues I see. I'll use those numbers to look at each point.

1. Variable Income

It's tricky, as you know, to work with a variable income to make a budget work right. It's hard enough when your money's the same every month, since your expenses can change so radically. When your income shifts around, too, it's incredibly hard.

Here's the thing: You're not a water tower. You're a dam. People with regular incomes are like water towers: water flows in at a regular rate, and it sits there. And when it's time to spend it, the water comes out of the water tower. The more water (money) there is in the tower, the less risk the city runs of running out at peak times. But a dam has a different purpose: Water's coming in at different rates, and the dam is trying to control how quickly it flows. So the trick: how do you turn a dam into a water tower?

I think the key thing is to try to get a little bit of surplus into a "living account" — try to get one month's living expenses into an account. In your case, I'd suggest diverting your 401 or rainy day fund savings to it, although I don't know your whole situation, so that might not be great advice. But anyway, try to set that money into an account. Once you have one month's living expenses in that account, only use that account to fund your living expenses. So if it costs you $2,000 a month to live, save up $2,000. Then, use that account to pay for your living expenses.

Also, limit your spending for the next month, to the amount of money you made in the previous month. So if in June you make $1,800, even though you normally spend $2,000 to live, only allow yourself to spend $1,800 in July. This is something that Jesse, at YNAB, talks about a lot, but it's a straightforward idea: if you don't know what you'll MAKE this month, you certainly know what you MADE last month. While most people shouldn't SPEND more than they MAKE, you just shouldn't SPEND more than you MADE. Of course, it's easy to write that out here. I know the real work will have to come from you on that, and I know it's hard. The community at Wesabe can help you out with it.

2. Not knowing where your money's going.

So ... it's a good thing you're here. One of the great things that Wesabe will show you is where your money is going. I'm not sure how long you've had your account going, but you should begin to see some patterns in your spending. The thing is: everyone has a way they THINK they spend money, and then there's the way they ACTUALLY spend money. Keep using Wesabe, and you'll be able to see how you're actually spending money. Not sure what else to tell you on this one. You're on the right path.

3. Spending money on your friends, or on yourself, when that's maybe not what's best for your finances.

Just as everyone has ways they think they spend money, and ways they actually spend money, there are also the ways that you WANT to spend money. If you don't have your goals in front of you, it's incredibly hard to not spend that $20 on your friend to cover his dinner. Also, if your goal is a far ways out, it's hard to not spend that money now. ("I have to save $10,000 for a house! So I spend $25 now, going out. $25 doesn't really matter if I still have $9,000 to go on that house!")

The thing is, it's not the single $25 that will do you in. It's the pattern of spending that is perpetuated with that $25 charge. You do that once a week, and that's nothing, right? Actually, it's $1,300 over the year. That's a lot of money!

I'm not saying you can't buy the stuff you want. What I'm saying is this: Budgeting isn't about spending less on the stuff that you want. It's about spending MORE on the stuff that matters. My wife thinks that's the cheesiest line ever. She's probably right. But, hopefully, it communicates my point: if getting out of debt is important to you, if buying a house is important to you, if having that emergency fund is important to you, then that's where your money should go. And, seriously? It's *awesome* that you're putting that money towards the emergency fund. I said it before, but that's great.

You might want to think about what you and your friends can do that doesn't involve going out to eat / drink / pay for movies / etc. I have the same problem: Just this weekend, I wanted to meet up with some friends. It was going to start as a game of Ultimate Frisbee, with pizza and beer afterwards. The weather was terrible, though, so it ended up as a couple hours playing pool and drinking at a bar. What could have been a $5 / person evening ended up being more like $15 / person. Is that $10 the end of the world? Nope. BUT it isn't getting any of us closer to our goals. Next time, we're planning to meet at someone's home, to play Rock Band or Guitar Hero or something. That way, even if the weather's bad, we'll be fine.

So ... see what fun things you can do with your friends that moves you away from the "must spend money when we hang out" mentality. Especially if you're the one that ends up footing the bill.

4. Not knowing what "appropriate" amounts are for your different categories.

So this one's tough. I've thought about this one a lot, and I've tried to do some research on it in the past. A lot of people have various formulas that they throw out there: no more than X% to go to housing; between X% and X% should go to clothing; etc. Dave Ramsey has a lot of them.

The problem with those formulas is that they're so generic, it's hard to really apply them. For example, my wife and I pay a lot more on food, percentage-wise, than we "should," according to most formulas. But food is something that's important to us, so we're willing to spend less on other things (clothing and entertainment, for example). Again, getting back to the cheese: It's not about spending less on the stuff you want; it's about spending MORE on the stuff that matters. In our case, food matters. So we spend more on it.

So the best thing I can suggest is to write down the "needs" that you have ... the critical, no-compromising things that you absolutely must spend money on. Then write down the "goals" ... the things you'd like to be putting money towards. See if, with the money that you have coming in (and, again, I know you're having a hard time measuring that), if you can meet your "needs" and your "goals." After that, see if you can meet your "wants" ... and the new TV and the system for your car should probably go on that "wants" list. I don't know if category percentages will help you get a good plan together.

That being said, I know you'd probably like to have some ballparks that will help you see that you're spending, and how that compares with what you "should" be spending.

The 60% Solution
10% goes to retirement
10% goes to short-term savings
10% goes to long-term savings
10% goes to fun money
60% goes to everything else (food, clothing, household, insurance, charity, bills)

Oprah's Debt Diet
35% goes to housing
25% goes to living expenses
15% goes to transportation
15% goes to debt
10% goes to savings

CNN Money
Housing & Debt: 30%
Taxes: 25%
Insurance: 4%
Savings & Investment: 15%
Living Expenses: 26%

Crown Financial Ministries:
Housing: 36%
Food: 12%
Auto: 12%
Insurance: 5%
Debt: 5%
Ent / Rec: 6%
Clothing: 5%
Savings: 5%
Med/Dental: 4%
Misc: 5%
School/Childcare*: 6%
Investments: 5%

Dave Ramsey has some % recommendations, too, but in a nutshell, they're:
10% giving
15% retirement
no more than 25% housing
max out college savings

So there you go on that.

I won't touch on the other points, about paying off your credit cards and saving up for a house, since I don't know enough about your situation to talk about those things. But I will say that a lot of people find Dave Ramsey's "baby steps" to be helpful:
1. $1,000 In An Emergency Fund
2. Pay Off All Debt With The Debt Snowball
3. 3 To 6 Months Expenses In Savings
4. Invest 15% Of Income Into Roth IRAs And Pre-Tax Retirement Plans
5. College Funding
6. Pay Off Your Home Early
7. Build Wealth And Give!

He would say that the first thing you should do is to get that $1,000 saved up. Then, throw every dollar you can towards paying off that credit card debt (even the 14% you're putting towards retirement right now). And it goes on from there.

So hopefully something in that helped! In general, I'd say that you should split your issues into their independent components, and not get overwhelmed by trying to deal with all of it at once. Look for little victories. Good luck.
wesabe  budget  budgeting  dams  watertowers 
september 2012 by charliepark Someone Could Make a Lot of Money with Personal Finance Software
Khoi on personal finance software. Mentions YNAB favorable, noting that it takes a position on finances.
december 2010 by charliepark
Holy Crap! I Eat Out A Lot!
Tony (the commenter, not the OP) has used PearBudget ($3/month) to cut their "dining out" spending by over $150 a month.
pearbudget  frugality  budgeting  testimonials 
february 2010 by charliepark
The Basics Behind a Budget that Works
An *excellent* post from on budgeting. Totally nails it.
budgeting  howto 
june 2009 by charliepark
Moneyist » Archive » Reasons Budgets Fail
A really solid article with lessons on getting a budget working right. He's using PearBudget, and does a grea job explaining how PearBudget's features work with budgeting best practices to help you budget better. I need to link to this from the PearBudget
budgeting  pearbudget  tutorial  lessons  instructions  help 
july 2008 by charliepark
Wow. Guess I'd never delicious'd the new URL. Here it is.
envelope  budgeting  money  budget  easy  simple  free  trial  online  web2.0  webapp  finance  howto 
may 2008 by charliepark
Successful Resolutions with Daily Measurement [Matthew Levine]
Gateway Goals: Rather than trying to motivate herself to jog several miles, she resolved to merely put on running shoes and walk out the door without any stipulation about what she did once outside.
goals  productivity  budgeting  gateway  gatewaygoals 
may 2008 by charliepark
If Monthly Budgets Don’t Excite You, Try This - Consumerism Commentary: A Personal Finance Blog
Flexo quoting an article at the Times that says that annual estimates end up being more accurate.
pearbudget  budgeting 
april 2008 by charliepark
Training Wheels: Why I’m Spending Less and Less Time Managing my Personal Finances
In short, I began to trust myself. I had seen the results ... of my good financial behaviors. ... Eventually, I began to trust these principles, and that trust led directly to a reduced need to keep running the numbers and micromanaging everything.
budgeting  success  pearbudget  simple 
february 2008 by charliepark
Quicken Online + The iPhone = Yuck! (with iPhone screenshots) | The Dough Roller
Wow. Not the interface I was expecting to see. Mental note: don't make an iPhone interface the cornerstone of PearBudget Mobile marketing.
quicken  online  iphone  budgeting 
january 2008 by charliepark

Copy this bookmark: