I’ve Paid For This Twice Already…

Archive for the ‘budget’ Category

Here in the US, things aren’t necessarily looking so hot.  I don’t know if recession is the word, or if the powers that be actually acknowledge that things, economy wise, aren’t doing so great, but in my little corner of the world, it is basically a given.  Ask a friend, ask a neighbor, and most likely they’ll say that things cost more and their dollar doesn’t go as far as it used to.  I haven’t collected quantitative evidence but it sure feels like the economy is in a downturn from here.

How things are now are giving me flashbacks to another economic downturn that directly affected my family - the so-called “dot com bust”.  Around that time, the company my spouse then worked for went through a huge downturn and ended up laying off almost all of its employees.  My spouse was one of them.  It didn’t come without warning, his losing his job, but we were naive and didn’t read the signs.  We were completely unprepared for my spouse to be out of work, and that period of time put us in an economic tailspin of our own that took a long time to recover from.  So now, I’m starting to become mentally and financially prepared for the worst, so to speak.  There aren’t any signs of my spouse losing his job - in fact he’s in a much better position now with more seniority and job security than he’s ever been in - but you never know what might happen.

So I’ve started to seriously consider what our bare bones budget is, what we absolutely have to pay for, what we want to keep but isn’t essential for survival, and what we would like to keep but can go if need be.  I’m doing this to determine the very lowest bottom line that we can get by on if we had to.  This isn’t an exercise on how to reduce our fixed expenses (although that is a future step to consider) but just to understand what those fixed expenses and necessary variable expenses add up to.  It is easy to say “sell your car” or “sell your house”, but when disaster in the form of a job loss or other large financial change occurs, it isn’t always possible to lower those fixed expenses immediately.   Especially in a down economy.  Understanding what your current bottom line bare bones budget is is the start to preparing to avoid a financial disaster.

I split up our expenses into three categories - essential, needed, and wanted.  Essential are things we can’t go without, such as shelter and food.  Of course, we could do things to reduce those expenses, but that’s for another post.  Needed are things like our newly purchased disability insurance.  We need these things, but if it is choice between that and eating, eating wins.  And then come the wants.  For example, my kids are starting a session of tumbling in September.  They can live without it, but I want them to have the experience.  But if our situation drastically changed, they wouldn’t be tumbling.  Here is what I came up with for my essentials list (per month) :

• Housing:  $950
• Groceries:  $300
• Gasoline:  $100
• Utilities:  $200 (gas, water, and electric)
• Diapers:  $30
• Medicine:  $30
• Car insurance:  $80
• Phone:  $10
• Minimum debt payments:  $610.40

Kind of depressing that the second biggest thing is minimum debt payments, but, we are working hard to correct that.  But that’s where it stands now.  So I came up with our bare bones budget as $2310.40.  Which seemed higher than I expected, given our actual monthly budget (before extra debt payments) is only slightly above $3000, but I guess we don’t budget a lot for extras after all.  There are many other things I consider important that I didn’t list here - this is the very bare bones that for the short term, we could get by on.  And of course, there are always the inevitable emergencies.  This is the short term, first line of defense preparedness concept.

After our non-mortgage debt is paid off, that drops down to $1700 a month, which I like better. 

So now, I know where we stand.  If we can’t bring in at least $2310 - we need to have some kind of fallback plan.  Which leads us to the emergency fund…

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As I mentioned Friday, my spouse and I have gone forward and purchased a long-term disability policy for him.  This is an expense we deem necessary, but one I didn’t predict at the beginning of the year when I came up with our monthly budget.  Therefore, I have to tweak our existing budget to absorb the expense for the rest of the year until I do a complete budget reassessment in December.  The expense isn’t that huge, only about $69 a month, but since I do zero-dollar budgeting, where every dollar is accounted for and assigned a purpose, there isn’t $69 left unless I take it out of the debt elimination money I earn above and beyond our budgeted income.

That isn’t the option I want to go with, because the entire point of earning those extra snowflakes is for them to be for debt elimination - not a normal part of our budget.  Once you start budgeting with “extra” money, it is no longer extra and becomes something you depend on to make ends meet.  So ideally, the $69 needs to come out of our budget somewhere.

And how to do that, is to look over our budget and figure out areas we might be spending less than we’ve budgeted, and can find $69 per month for the next 5 months.   In our budget, the area I found it was our annual expenses fund.  We put away $50 per month each month for annual expenses, and right now that fund has about $70 in it, but we only have one annual expense left this year, a car registration that is about $40.  Looking at what we budgeted as our annual expenses, I quickly determined why we have extra there - we replaced our furnace this year, and usually we pay about $180 a year for the annual maintenance on the furnace, a/c and water heater, but we have a one year service contract included with the furnace.  Since we don’t have to pay that $180 this year, that is where the start of the money for the disability insurance is going to come from.  The extra money in that fund plus the money we put away every month will cover the next 3 months of disability insurance payments.  By then, we’ll have hopefully adjusted for the expense (or paid off my spouse’s student loan) and will continue paying it from there.

The key to absorbing a new expense?  Look for places that you have wiggle room, and take advantage of them.  Ours right now is our annual expenses fund.  Keeping track of your spending and knowing where your money goes makes it possible to reassess mid-course and adjust.

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One of my strategies for lowering my overall grocery bill is to shop at several stores.  For many people, this would be a waste of gasoline, but I have access to 3 different chains simply driving to work and back, and if I drive to Aldi (my main shopping place, which is not on my route to work), I pass two other branches of those stores on the way there and home.  So for me, it doesn’t cost me extra gasoline to go to a number of places.  It does add a little more time, but I feel my time is worth it.  Mileage may vary on that one. 

The problem I’ve encountered is that keeping track of the normal prices at all these stores and then comparing them against each other on the fly becomes a little more than my brain can handle.  I do use a price book - in that I record the prices of the things I buy every week and compare them to the prices I paid in the past.   But when I look through the sale circulars it isn’t always apparent to me if something on sale is actually a good deal compared to what it might cost at other stores because of the different unit sizes and the myriad of different prices I might have paid for that item before.

To help figure this out, I’ve started a list of per unit “buy it now” prices.  These are prices on items that if I see anything below that price (or can use coupons to get it there), it is a very good deal and I should stock up.  For example, I frequently see boneless chicken breasts on sale in store circulars.  I’ve done my research, and decided that $1.70 a lb or less is a price rarely seen for that item, so if I can get chicken for that price, I generally buy it.  Keeping that one price on a single sheet, versus pages and pages of prices over time, helps me to streamline my shopping preparation.  Yesterday at Walgreens, I used a combination of manufacturers coupons and a $5 off $20 one day only store coupon to get Pampers Crusiers diapers for about $0.22 per diaper.  My buy it now price on those is $0.25/diaper (for those of you whom that seems way expensive, realize my daughter is in size 5’s, not size 1 or 2 where the cost per diaper is much lower).  Knowing what I usually pay per diaper and what I consider a good bargain cut out a lot of the hassle of deciding if it was a good deal or not.

Creating the buy it now list did take some effort.  I made a detailed list of everything I have bought in the past 6 months or so, and then looked at all the prices I have paid for those items and decided what the bargain threshold was for each item.  The bargain threshold was usually close to but not the rock bottom price I have paid for the item in the past - because I may never see some of those prices again with the rising cost of food.  Then I put that single price next to each item.  In a few months, I will re-evaluate the list, comparing it to what I have been actually paying for items over that time period and decide if some of my buy it now prices are too high (I can always find that price) or too low (I never ever find that price any more).  And I can adjust when needed.  Maintaining the list should not take too much more effort than just keeping track of prices does - and for those who don’t want to keep track of prices formally, you can just save all your shopping receipts.  that is how I started my price book in the first place, just saving my receipts.

For now, I will stop at Meijer on the way home from taekwondo tomorrow and pick up some organic milk for my kids.  $2.50 for a half gallon is an unbeatable sale price for me. 

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In January I set my gasoline budget per month at $130.  I had consistently been spending a bit more than that per month, about $150, but I thought with some effort I could reduce my usage and bring my bill down.

And I was right.  In January, February, and March, I came within $10 of our budgeted amount every month, either a tiny bit over or a tiny bit under.  I was happy that my effort to make less trips and consolidate driving was paying off.

And then in April I started a new job teaching taekwondo in another town, which added unavoidable driving to my life.  I used April as a gauge to figure out how much, and determined that we’d need about 50% more gasoline than we used in previous months.  The new studio was about twice as far away from a mileage perspective as the one I used to teach at, and I was teaching more often.   I knew that the new salary would more than compensate for the increased gas consumption, and I raised the gas budget by about 50%, or to $200.

But then the world really started to plot against me.  Between April and today, gasoline prices in my area have risen by about 30%.  The average price of gasoline at the beginning of April here was $2.99/gallon.  This week, it was $4.17.   So now, not only am I driving more, but the gas is more expensive and shows no signs here of leveling off.  Every month my gasoline budget column is in the red.  I’ve eliminated all the driving I can figure out how to eliminate - I only do errands one day a week and consolidate them all into one trip, I never idle my car, I only drive to work and the kids’ activities (as does my spouse) and even with decreasing usage as much as we feel we can at this time, we’re still in the red.

So all I can do is allocate more of my taekwondo salary every month to gasoline and hope that at some point, I can come up with a realistic gasoline budget again.  Will prices ever level off, or at least slow to the rate of inflation?  I think my next car is going to have to get at least 30 miles per gallon. But that’s hopefully a long way off, so all I can do is tell myself that gasoline will not rise in price by 30% every four months.  One can dream.

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A few weeks ago, my spouse had his annual performance review. I am happy to report that he got an amazing review, his direct supervisor loves him, and put in for my spouse to get a 10% raise. His supervisor said that he didn’t think my spouse would get a 10% raise, because no one generally does, but he wanted to be clear he thought my spouse was outstanding so he put in for 10%. (I will mention that my spouse did get a 10% raise one year, because he is that awesome. My spouse rules.)

My spouse didn’t get the 10% raise, but he did get a 5% one which is the highest his supervisor has seen this year. His paycheck this past week was the first one to include his raise, and I was honestly just hoping that after taxes and the 401K were taken out, the raise would bring his paycheck back to what it was before we changed his 401K to from 4% to 6% earlier this year. Our budget is still based on the pre-401K change numbers, and therefore causes an extra squeeze that I’d like to do without. I was happy to see that his new biweekly paycheck was $44 more than his previous pre-401K increase one. Hurrah!

And immediately the wheels in my brain started turning. I needed to take action and figure out how to not just suck the raise into our monthly budget and never feel the benefit of having it. What to do, what to do… and then it hit me. Snowflake it of course!

So every other week, when my spouse gets paid, I will snowflake $44 to the student loan payoff fund. $44 is not a small amount of money, but it is small enough that I know if I just left it in our checking account, it would evaporate and I wouldn’t even know it was there. But $44 every two weeks makes $88 every four weeks, and that will put a little dent in the student loan every month. In 3 months, it adds up to an entire extra student loan payment.

Little changes add up to big results. This time, my spouse’s raise isn’t going to be just sucked in to lifestyle inflation. It is going to make a noticeable difference in our life.  Debt - be gone!

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