Complexities in Financial Management
Day 15 of No Credit Needed’s 33 Days Series asks you to look at the big picture in your finances and talk about dealing with the complex relationships within. When looking at the big picture in personal finance management, there are a lot of complex interactions that I could choose as the most difficult to deal with. There are taxes, retirement, debt management… but honestly, what has been most complex for me is dealing with irregular payments within the framework of a budget.
How to budget and pay for irregular payments has not been too difficult. The hardest part of that was trying to remember all the different irregular or annual payments that come up and make a list of them so I could accurately figure out how much money was needed. Once that was done, I simply added 10% (I am bound to forget something), divided the number by 12, and assigned that number to my budget each month. The struggle, challenge, and simply hair-pulling-out part of this has been keeping track of that money on a monthly basis and figuring out how to account for the carryover in my budget each month.
Every month, some of that money gets spent. Sometimes more than I budgeted for in a particular month, sometimes much less. That’s why it is irregular, after all. At the end of each month, I figure out how much money is left in each irregular category and carry that money forward to the next month, adding it to whatever is budgeted already for that next month. On paper. In reality it just stays in my checking account. But on my next month’s budget sheet, do I put that carryover in as income so that I have an accurate picture month to month of what is left over to pay down debt? I didn’t last month and I ended up having my bank account and budget sheet not match. So I am trying it this month - everything agreed at the beginning of the month once I tinkered and calculated and tinkered and added irregular expense money carried over as income from last month into the this month so I’ll need to see if everything agrees two months from now (where I messed it up before was at the end of month 2 by not accounting anywhere on the “inflow” part of my budget for the irregular expenses money from month 1). But I don’t like this solution very much, because it basically keeps counting some income twice - we didn’t re-earn that money, after all.
I think the simple solution might be to have a completely separate account that holds all the irregular payment money, and transfer money from my checking account there every month, and transfer it back in to pay things as needed. I could do that, but it adds yet another level of complexity from a bank perspective as well as a tracking perspective. And if I keep it in a savings account, I have a limited number of transfers I can make out every month. Ugh! I don’t know. This irregular money thing really makes my head hurt.
So for me, that is the most challenging financial aspect to track and deal with. Irregular payments. I have a knack for making seemingly simple things complex.
~J
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September 20th, 2007 at 10:23 am
Right now, I’m trying to create a freedom type account for my irregular expenses (mainly car repairs).
September 20th, 2007 at 12:03 pm
This has been my challenge and struggle as well. Not only how to track the money, but how to SAVE it and not have to put car/home expenses on the credit card. I finally set up 7 ING accounts for each of my irregular expenses and transfer the money back and forth. It is working great! I am forced to save due to automatic transfer and I don’t even miss the money, but there it is when I need it, almost like magic. Go figure.
September 20th, 2007 at 9:10 pm
@SavingDiva - you can do it!
September 20th, 2007 at 9:13 pm
@Gina - I have 4 ING subaccounts and I really should do as you said and set up more. But I don’t for some reason. I guess it seems cluttered or something. But I may start. Darn irregular expenses.
September 20th, 2007 at 10:55 pm
Do you have a balance column in your budget? At any given time the amount in my balance column must equal what I have in any bank accounts PLUS whatever cash I have in my purse. At the end of each month I have a carried forward balance which is also the brought forward balance at the start of the next month. It’s not purely a budget I guess; it’s also a statement of income and expenditure. I’d be happy to send you a copy if you were interested. I’m not sure having more accounts is an easy answer, I know it would freak me out having to keep track of them all. But that’s just me :-D.
September 23rd, 2007 at 5:36 pm
@magwitch - the budget sheet does have a balance column, which I wasn’t paying as much attention to as I should. I am using it now to kind of keep track each day, and I *think* it is working. Emphasis on *think*….