Let’s Talk About Budgets, Baby

I’ve been working on this whole budget plan thing for a couple of weeks now and I still don’t feel any further along than I was when I started.  Oh, don’t get me wrong, I’m an intelligent person.  I can grasp the very basics:

Income – Expenses >= 0

I mean, I did study accounting in college and I do have a programmer’s logical mind.  Plus, I was a math minor.  I get the most basic part of the concept.  Really, I do.

However, I just don’t think my brain is wired right for easily latching on to the complexities.  For instances, most books and examples out there all offer up examples of income that is the same amount and dished out on the same two days every month and most of the expenses are fairly simple and fixed every month; a few of the examples might show the occasional expense that might be paid quarterly and they all usually show groceries and dining out as unpredictable.  Clearly none of us eats exactly the same thing day after day and no one is stupid enough to pretend to make the assumption in a sample budget even.

It seems like everyone these days are jumping on this zerobased budgetbandwagon.  ”Zero-based” sounded a lot like what was in my checking account so I looked into it.   It turns out that it’s not what I thought it was.  Zero-based budgeting is basically a method where at the beginning of each month you spend all of your expected incoming income “on paper” — every dollar has to be spoken for, every dollar has to have a job, so to speak.  You make a list of all your expected expenses and you dedicate every last expected incoming dollar to every last expected expense until the balance is zero.  Now, one of those “expenses” can be a savings account so its not like you actually have to really spend all of the money — I mean, spending it all is what got you in this problem to begin with, right?  The idea is that you don’t just have money sitting around doing nothing, idling about, burning a hole in your pocket, raring to go do some evil by bringing some infomercial trash into your home…or whatever unnecessary thing you might spend money you might psychologically think is “free” on.

Well, that method seems like it’s solid and it appears to work for a lot of people.  Radio/TV talk show host Dave Ramsey has built himself a cult based on it, but I have to agree with my Daddy — there is just no way that you can budget for little thing.  The whole zero-based budget method stresses me out just thinking about all the ways I’ll feel like a failure throughout the month as surprises come up.

A number of years ago, I did really well using the envelope (or my Daddy calls it “the shoebox”) method – a method of budgeting where monthly or biweekly or whatever period, you set aside a certain amount of money for expenses in categories, in envelopes marked for that purpose (ie. mortgage/rent, groceries, gas, auto repairs, etc.) . Then anytime you want to  make a purchase or pay a bill, you check in the associated envelope for the type of expense to see if there are sufficient funds;  if the money is there, yeah!  Go for it! Otherwise, you have three options: 1) you do not make the purchase/pay the bill; 2) you wait until you can allocate more money to that envelope; 3) you sacrifice another category by moving money from its associated envelope. The flip side is true as well, if you do not spend everything in the envelope this month then the next allocation adds to what is already there resulting in more money for the next month.

The envelope method is just a tad more flexible for me.  There’s the psychological feeling that if I don’t get it right on the very first try, I can rearrange things while no one is looking and no one will care — in fact, the rules say I can so there’s no cheating.  Plus, I feel like I can have an envelope marked “Miscellaneous” that covers anything I forgot about when I made up the budget and drop any left over money into it every month; then at the end of the month, I can re-allocate that money over to savings, where my emergency fund is going to be building.

What kind of budgeting method works best for you?  What sort of mental tricks do you play on yourself every month to make it work?

Nightmares – Er – Tales of a Spendoholic (Episode 1)

Last night I saw an advertisement for something I could use.  It doesn’t really matter what It is.  Let’s just say that if It functions as advertised, it would make me look nice and probably boost my self esteem as a result — basically, the next best thing to magically making me a Supermodel overnight. :P

Anyway, It was one of those special deals with “order now” and “get this extra thing free” plus “get this other thing half price”.  You know what I’m talking about, right?  You’ve wanted one of those before.  You may even have ordered a few.  The whole thing was very seductive.  If you called right then, you could get the whole special deal.  (How do the sales people know when those advertisements are running really?)

Now, I’ve been reading The Budget Kit and a number of budgeting and personal-finance-related blogs lately, there’s a big focus on differentiating needs from wants, and a bigger focus on restricting the purchasing of wants or prioritizing them, especially when you are in financial trouble. So…I took some agonizing time to consider whether It was a need or a want. Clearly, It isn’t required to sustain my life — It isn’t food, water, medicine, air, shelter, wood for heat…Therefore, It is not a need.

Thus, It is a want.

Having divined this truth, since I am attempting to spend as little unnecessary money as possible, to straighten out my finances, to get back on track, I did not make the purchase. I agonizingly did the right thing. Non-spendoholics must not even have to think about such choices. They just know and do the right thing and there’s no residual disappointment.

Unfortunately for me, my new little frugal angel and my old spendoholic devil manifested themselves last night as I slept. I spent the night dreaming that I was arguing all night with my mother about whether or not she would allow me to buy It; she kept insisting that no one needs an It, but I argued that she used to encourage me to get one when I was a teenager and I had a perfectly good one in my 20′s that wore out. This It is better.

The whole thing has left me with a bad taste in my mouth. I hope it will get easier.

Sometimes The Best Advice Is No Advice

My mother has a talent for offering inappropriate advice at the absolutely least welcome time.  We have a regular conversation about how difficult it is for me to save money.  This conversation has been repeating itself many times over the last 10 or 15 years.  It seems that every time I get a little bit of money in my savings, something big and unexpected occurs that wipes my savings totally out.  Then when things get tight for me, my mother has the audacity to say something to me like, “You know, it’s always best to have have about $10,000 in your savings.”  She’ll also let a day or so pass and then mention that I really should be making extra payments to my mortgage principle a couple times a year.  Meanwhile, I have been telling her things like I have to make a choice between eating lunch this week or paying the water bill or that I’m not sure how I am going to pay the $1,000 bill I got from the hospital for the emergency surgery I had last month when I also have to pay for heat.  Where does she expect me to come up with $10,000?  If I had $10,000 I wouldn’t be starting the “Eat Only What’s In My Pantry For A Month” Diet.

It’s that kind of useless advice that people offer that boggles my mind.  There’s never any additional advice attached that helps explain how you are supposed to reach the lofty goal of the advice when you are in the particular situation you are in.  It’s kind of like the obscure New Year’s resolutions “I want to lose weight” or “I want to be more healthy this year.”  There’s no specifics.  Everyone with smarts knows that in order to make a resolution you can keep, you have to have a specific goal — like “I want to lose 10 pounds” or “I want to walk 30 minutes 3 times a week.”  Then you can make a plan to achieve your goal.

The problem with arbitrary advice like “You should keep 3 months-worth of your salary in savings” is that it doesn’t take into account the financial situation the person is in already.  Is the person in debt over his head?  Is the person living paycheck to paycheck?   Is the person making more every month than she is spending already?  A person who is struggling is going to have a lot harder time figuring out how to save that much money; in fact, such a person might find the feat overwhelmingly hopeless despite the fact that the advice is painfully obvious and having that savings would in fact make life easier.  Dishing out such advice without actually offering any real direction on how to achieve this while still being able to pay bills and eat is just as useful as announcing that you hope for world peace.

But it’s worse because it’s thoughtless and hurtful; it sets the receiver of the advice up to feel like a failure because he or she can’t snap his or her fingers and magically make all of his or her financial woes go away.  It’s clear what the goal is, but the path isn’t always obvious and unless you are walking it or at least can see the same point-of-view and offer more than a trite recitation of what all the books or magazines or talking heads have been repeating for ages, sometimes the best thing to say is “I empathize” and leave it at that.