Wednesday, 24 October 2012

Domestic Budgeting

Merry meet everyone!

Today I'm going to tackle a very practical but slightly unfashionable subject; running the household finances.  Now stop yawning at the back there!  This is a really important thing to learn to do, and in a recession it can be a life saver.

Back in the UK, we knew how much was coming in, how much would go out, and kind of made up the rest.  One of the roles I decided to take on now we're in the United States and I'm not working was to do the budgeting for the household.  In these days of easy credit, many people would maybe get a new credit card or a loan, but that is rarely a good idea.  I say rarely, because loans do have a place in a carefully budgeted account.  Nobody I know can afford to buy a house through savings alone, for example, or a new car, and credit cards do offer extra protection when purchasing items over £100.00, certainly in the UK at least, and if they are paid off in full each month it can be a good emergency back up.  Here I would like to point out clothes and cinema trips, even holidays, are not emergencies.  Now I'm no saint; I've had credit cards before, always just one, and I've used it.  At one point in my life, my finances were a mess having come out of a relationship and having no money saved.  I was living hand to mouth; my wages would clear my overdraft and put me a few pounds in the black, then my bills would come out and I'd be back up to my overdraft limit with no spare cash for things like food and petrol to go to work to earn the next months pay.  It was a vicious circle and I ended up taking out a credit card to buy my groceries so I didn't starve and petrol so I didn't get sacked.  In the end I sold the house, moved to Devon with my parents and one of my brothers and started a new life, using the money from the house sale to clear my debts.

Most people will mess up their finances at some time or other, and once you're in debt and unable to control it it destroys your soul.  I won't have my married life go down that route, so I am taking a leaf out of my Grandmother's book and budgeting.

My Gran didn't work outside the home, instead she raised the children and ran the household.  She kept a notebook and all expenses were logged.  My grandad would hand over his pay packet, or later in life go down the post office to draw out the pension and give it to gran, who would enter the amount in her notebook, put aside the money needed for bills and the rest, in cash, was what they could spend on groceries and treats - my grandad was a fiend for softmints!  She showed her notebook to me once, and it was fascinating.  She had drawers full of these books, and everything had been listed; she could show how much a loaf of bread had gone up, and a pound of mince.  She knew to the penny how much they spent each month, and was always able to save money for christmas, birthday presents and emergencies

With this in mind, I have registered for internet banking and got myself an account notebook.  This first month has been chaos financially, so we don't really know how much my husband will take home in dollars, and we are waiting for the first full month bills so we know how much we are spending, but everything will get recorded in my book.  Our groceries are a bit expensive because we are having to buy all the essentials again - spices, flour, herbs - but it seems to be settling down at a rough ball park figure so I can guesstimate how much I'm going to have to keep aside.  It looks like a full tank of petrol lasts my husband about a week, and if prices stay fairly constant I can set aside the money for that as well.  Our renters insurance is less that $10 a month, and the car insurance has been paid in full, so I need to set money aside for the next time.  I also want to save money for christmas and for when my family come to stay in March next year.  So every month I will record how much comes in, and how much goes out, so we know how much spare we have to spend on niceties such as meals out, DVDs and our hobbies.

There are actually two ways of working out your finances; one system is for getting to know how your money comes in and goes out, and another system is for more general budgeting once you are financially stable.  Most people who start working with a household budget do it because they have only a vague idea of how money flows through their account.  Maybe you earn a reasonable amount, have minimal outgoings in terms of your bills, but never seem to have any money left over at the end of the month.  Maybe you are in debt and trying to figure out how you can fix this, or you might be looking at ways to cut down on expenses to save for something, such as Christmas, a holiday or the deposit for a house.  Either way, this blog post can help you.

The first thing you're going to want to do is to have some way of recording your finances.  This may be a spreadsheet on your computer, a physical account book, pages in your journal, or maybe your bank has software available to you.  Whatever method you choose has to be something you are comfortable with and is convenient; for example I chose an account book because I am not good with spreadsheets and the physical act of writing everything down helped me to focus on my goal of controlling the money instead of money controlling me.

The key is to be scrupulous about your recording, at least for the first few months.  When you get paid, or any time money comes in, record that amount in the "Incomings" column; this is probably your base mark for how much you have to spend that month, assuming you don't have any left over from the previous month.  Next, make a note of all the essential bills you have to pay and how much they are.  Some, like rent or your car insurance, will be exactly the same from one month to the next and so are easy to budget for, while others like groceries and petrol may fluctuate.  Unless this is your first time setting up home, you will have some idea how much you spend each week on these items, so either take an average or set yourself a budget for these too.  As a side note, you get no rewards for staying loyal to a company so shop around for the best deal, particularly with things like insurance, because you can nearly always get the same cover cheaper.  Even if you like the company you are with, get some quotes from competitors and then ask them to match the price.  Similarly if you get a service from a company and the price keeps going up, call them and ask them to do better.  Remember they always offer deals to new customers, so don't be afraid to haggle, and if all else fails, take your money elsewhere.

Now you need to look at the items and services you pay annually, and divide this total by twelve so you know how much money you need to put aside each month to cover that bill too.  Now have a look at all your entries; are there any items you can immediately see you can get rid of?  Maybe you have a gym membership but never go there, or a magazine subscription you can live without?  Unless you're tied into a contract that will cost you more than you will save, cancel the agreement.  Now I don't want to sound mean, but if you regularly donate to a charity and your finances are in a mess, suspend those payments too.  No charity worth your money will want you to get further into debt to help them, and hopefully in a few months you will not only be able to reinstate those payments but maybe even give them more than you are now.

Ok, so now you know how much you have coming in and how much has to go out, and hopefully you have some left over; I think of this as my pocket money.  Now, think about how much you can comfortable afford to save.  It may only be £10 a month, it may be £100 or even more, but my advice to you is to have a standing order to put that amount into your savings account right after payday so you get used to not having that money.  I would recommend you put this money into an instant access savings account so you can get to your money quickly if you need to without incurring financial penalties, and try to find one with a good rate of interest (hard right now I know, but even 0.1% is better than nothing at a push).  Record this regular savings payment in your account book.

Ok, so now you have a clear idea of how much you have coming in, how much you have going out, and a warm fuzzy feeling because you are saving some money as well - yay!  Now comes the scary part: recording your incidental expenses.  This is the tough part to turn into a habit, but it is well worth it.  Every time you come in, record what you just spent and where you spent it.  Every.  Time.  Don't try leaving something out so you don't have to admit to it, because it won't work in the long run and you'll get further into financial trouble.  Go out to dinner?  Write it down, including the tip.  Bought a new pair of jeans or went crazy in the Next sale?  Record all that as well, even the coffee you drank to recharge your batteries.  Honestly, after a couple of weeks of writing everything down my husband and I automatically questioned whether we really needed to buy something or could live without it.  Then, at the end of the month, we reviewed all our purchases, laughed awkwardly about how much we spent, and found we even had a bit of cash left over.

If you too have money left at the end of the month there are two things you can do with it.  If you have credit or store card debt, use that leftover money to pay it off a bit quicker by getting online or on the phone and manually making a payment.  If you have more than one credit card, focus on the one that costs you the most each month, which is usually the one with the highest interest rate.  If you have no credit card debt then you are doing great and that money can top up your savings.

Once you have got a firm grip on your finances, and this will take time because there are annual patterns to understand such as holidays, bonuses, or maybe something unusual happened so some months aren't a normal reflection of your expenditure, then you may choose to swap to a more general system of accounting whereby you record your income for the month, your household bills, and simply tick them off as they clear your account so you can see what has gone out, what is yet to be paid, and how much you have left.  The difference in this method is you don't need to record every single expense because you have already learnt how to live within your means, but if anything changes don't be afraid to swap back to the more thorough method for a while to get back on track.

Both my husband and I have been in tough places financially, sometimes because of inexperience, sometimes because of circumstances, such as a couple of years ago when I had to spend three months on sick pay after a foot operation, and I refuse to let that happen again.  Money can't buy you happiness, but I have known the misery of poverty, the stress it places upon even the most loving relationships, and I will not see my marriage go down that path.  My husband vowed to always look after me; this is my way of doing the same.

OK, lecture over.  Let's see how much money I can afford to save for Christmas and Yule presents :)

Blessed be )0(