Tuesday, November 22, 2011

Budgeting! And my crazy system that took years to perfect...sort of.

My girlfriend read my post yesterday and told me I should share my budgeting skills. None of the purchases I make are on credit. Or if they are I pay the credit card company the same day.

The above pretty much sums up my finances about 5 years ago. My husband works 5-6 weeks away and is home for 2-3. He doesn't get paid the weeks he doesn't work so there are times when I don't see a pay cheque for 3 to 5 weeks...depending on the amount of time off. In the beginning this was hard to manage as we always had weekly or bi-weekly pay cheques and I could budget quite easily with consistency. When that was taken away I fell into the credit trap for a few years. With no income for 5 weeks and having to pay for everything still I turned to credit cards to make up the difference and within a few years made a huge hole for us to get out of. That's when I put my accounting skills to work and revamped our finances.

So I came up with a crazy system that works for us. It doesn't work for everyone. Though I do have simpler systems I can share with you all if you are interested.

I set up "jars" so to speak in various bank accounts and tax free savings plans. Here is how I break it down:

1 - Pay yourself FIRST! Ideally 10% of your income but even 2% is better than nothing. If it's $5 a week so be it. Plan for the future. My Grandma taught me that all my life and have been pretty good about it. With my first accounting job I started an RRSP...to the tune of $25 a month...but hey! I was 21 and making peanuts.

2 - Pay all the basics - Minimum DEBT! Rent/mortgage, utilities, insurance, life insurance, car payment etc - the have to be paid or else bills. I count School fees in this category. Tuition/Preschool fees etc. I also count sport fees in this category too but budget for it throughout the year(see part 5).

3 - Budget for groceries and stick to it. I can't take $150 a week and stick to it. It makes me crazy if I have to buy extras like TP or laundry soap. I take a monthly budget and make it work. How you make it work is up to you. Cook from scratch, coupons, bulk..etc...

4 - Budget for extras like gas, oil changes, clothes, shoes. I budget about $125 a month for these. I may spend only $49 one month but carry over the balance to the next. Sometimes I go over...especially when all the boys need shoes at the same time..ughg! But then I watch for the next few months to keep on track.

5 - Discretionary income...this is what you have left over after all that. I have to set aside a % to cover weeks we do not receive a pay cheque and keep a defined amount in that account at all times. If it means not going to the movies so be it. I also have a holiday account and a Christmas fund. This is a personal preference as we like to travel and I refuse to use credit ever again to finance Christmas. I also have an account just for home renovations/maintenance. It can dwindle quickly so we put off projects until the account has the funds to do it.
After I set aside monies for these 4 accounts then I have what is truly our discretionary income. Sports fees first. Then Ron and I decide how much we need for the week/weeks ahead. He can have unforeseen expenses so I know to keep my allowance lower than budgeted..lol...But it is enough for the kids to go swimming, go to birthday parties, have some treat days or a night out for dinner. Stuff like that. We order pizza on Friday...or I make it. Those little extras come from the discretionary fund. Do I ever have any extra at the end of the week? Sometimes...but usually when the kids are sick..lol...

6 - Anything left over goes straight to debt...you can put an extra partial payment on your mortgage...a little more on the line of credit...a little bigger payment on the credit card. You decide but do put EXTRA on the DEBT every MONTH! I can't emphasize this enough. Minimum payments will not reduce your debt in a timely manner and you will be paying so much in interest for that dinner out it will cost you thousands in the end. I know...I've done it! If you have many credit cards carrying a balance get a low interest line of credit to consolidate...cut up all but one (for emergencies or online shopping or car rentals or hotel rooms) Unfortunately one needs a credit card for some things.

The average consumer debt for Canadians was over $90,000 last year! OUCH! And that is not your mortgage. "A $1,000 charge on an average credit card will take almost 22 years to pay, and will cost more than $2,300 in interest ($3,300 total) -- if only 2 percent minimum payments are made." (Debt Help Canada) 

It's a balancing act! No doubt about it. It has taken me years to perfect and I still sometimes have to rob peter to pay paul. But I get back on track and try to keep disciplined.

I have counselled many people on how to budget and some need to physically have the jars in their home with the cash in it. It works for them. And once they got the system down and realized that those daily Starbucks coffees were costing them a trip to Disney Land they are shocked and grateful for the system.

You got to treat yourself sometimes though....save a little each week and go for a pedicure! ;)

Hope this helps. If you want one on one help just email me and I will be glad to send you my spreadsheets....no cost.

PS...down 9.8 lbs with weight watchers. Woohoo! Gained a bit in Mexico...lol...but back on track.

Big Momma Budget LOVE to you all! Xo

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