Oh Nos! Not The B-Word!
Posted on March 21, 2007 by Him and tagged budget
Over a year ago, figuring out where our money went was an easy task. Since we weren't making as much and we had considerably more debt, we budgeted using the Force.
The Force? Wha?
Budgeting using The Force is more organic in that saving is taken out up front (usually automatically), most bill payments are made automatically, there’s a decent cushion in the checking account, and the rest is spent or not based on what comes down the pike
Budgeting using The Force was all fine and dandy when most of our money was allocated towards debt repayment. There are a few events that have recently happened that made us rethink about the way that we budget.
In the past year, we have boosted our incomes by 33%. We have lowered our debt by about $14,000 (!!), lowering the number of credit cards we pay per month to just one. These events combined led to a an increase in cash flow, something that happened a lot sooner than we thought it would.
With the increase in cash flow, we also managed to get a two small and one large unexpected windfall in the last two months. The smaller windfalls were the result of tax refunds (it seems as that my withholding changes didn't properly account for my year end bonus). The largest of the windfalls was a result of a generous bonus that Her received. This is also one of the two months of the year that Her receives three paychecks instead of two.
Since we know we have a lot of this cash in the bank, we've tended towards laziness and a false sense of security. We both sat down and agreed that our spending was getting a little out of control, and came to the conclusion that The Force wasn't working for us.
So this past weekend I sat down with Microsoft Money 2005 (obtained for free two years ago when I bought TaxCut), used maybe a half a dozen times since we obtained it. I'm still learning it, and hope that it can be the budgeting tool that works for us.
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That's a good question. The point of this post wasn't to say that we're going to budget our money to other things, but more to say that we're not exactly sure how much extra money was left with "The Force". When we were came to that realization, we were asking ourselves not IF we wanted to put more towards student loans, but HOW MUCH? $10? $100? $1000?
Brian | Mar 21, 2007
I too am just learning how to use MS Money, 2007 though. There doesn't seem to be a lot of great documentation out there.
edenz | Mar 21, 2007
Check out You Need a Budget (YNAB). I've tried to use MS Money's budget capability and it sucks - in all ways. YNAB is only $19.95, it's in Excel so you probably already know how to use it and it uses a really intuitive method. (Plus you support another PF blogger) We've tried at least 3 different systems before YNAB, and it is by far the best - an it's easy to use so that you don't 'fall off the wagon'. I know this sounds like an ad or something - but it is a great product. (www.youneedabudget.com)
We are also use force budgeting. We started using Quicken to track our spending for the last couple months. I figure that gives us a chance to see whats going on and what we can tweak. We can also decide after a few months if we should do a real budget or can trust the force. I think monitoring your spending really opens your eyes to where your money's going. Good luck with the Microsoft Money. I think the hardest thing about all finance programs is sticking with them. If you get too far behind, you end up stopping because catching up takes sooo long. But you guys should be fine. You can designate time on Saturdays, now that your bills are so much simpler.
Amy | Mar 21, 2007
I've tried budgeting in Microsoft Money (and many other methods) but it took so much time to manage -- the electric bill goes up, then down, then gas prices go up; I spent all my time transferring money between budget accounts and my purchases in any given category tend to be all lumped up instead of in even amounts every month for 12 months. (Budgeting would be a breeze if you could fund your entire year's budget at once and then get on with life.)
So I came up with a hybrid method that goes beyond "the force" but doesn't require me to manage it more than twice a month.
First, I track all our accounts, expenditures, net worth, etc. using software (I use MoneyDance: very straightforward, multi-platform, love it!). I just download our transactions from the banks and make sure they are categorized correctly, so I can get detailed spending reports at any time. But I don't use the software's budget feature.
Next, I set up three bank accounts. 1) savings. 2) bill paying account. 3) spending account.
Then I figured out how much I needed every month to pay the fixed expenses (plus a buffer), which includes debt repayment, utilities, insurance, gas, etc.
Then I assigned an allowance for all discretionary spending, which includes anything I have control over, like food, dining out, cash expenditures, clothes, etc. The remainder (smaller than I'd like) is allocated to savings.
From each paycheck, the savings amount goes automatically into savings, the spending amount goes into the spending account, and the balance goes into the bill paying account.
For the spending account, I have no checks, just a debit card (that earns reward points like a credit card). I use this account to withdraw cash, and for all my shopping, and if the balance is low, then I spend less. If I blow it all on shoes right after I get paid, then I don't get to eat for the rest of the month. Simple.
I do still use a credit card for some of the "fixed" expenses, like my cell phone bill, the cable bill, and gas. This gets paid each month from the bill paying account.
If I need to use a credit card it to make an online purchase or something, I just transfer that amount from my spending account to the bill-paying account. But generally, credit card spending is a no-no. I have to have the money actually in my spending account.
My husband and I share one spending account (because I do most of the shopping and he just spends cash), but other couples would probably prefer to have separate spending accounts.
So far it's working great, and other than sitting down twice a month to update my transactions and pay the bills, I've kept my spending in line without any obsessive budget-tweaking. (Although I do checking my spending account balance at least once a week.)
If the bill paying account goes over my set amount, then I use that money to make extra debt payments, or I put it into savings.
As I write this, it seems so hard to explain, but it's really dead simple and almost no work for me.
The great thing is that even if I have a lot of money in the bill-paying account, I don't get the urge to over-spend, because I know I can't touch that money. Having a separate spending account keeps me from dipping into the till, so to speak.
Arabella | Mar 28, 2007
I agree with the previous poster. I track expenses in quicken but my budget is in Excel. I'm not sure if we use the "force" or not... our budget is more like a guideline than an absolute. kind of like the speed limit. :)
with regards to student loans - I have huge student loan too, but it's consolidated for 30 years and 3.5% interest (to drop to 2.5% in a year or so) so why bother paying it off? I can do better sticking my money in my ING account than putting it on my student loan debt.
congrats on the big income increase! (and I'm a bit curious about it, if you don't mind sharing)
Kathryn | Mar 21, 2007
I'm not one of those "eat ramen, drive a beater, and put everything else into retirement funds" people but when you still have over $130K in student loans why didn't use the "Force" by putting most of your extra cash towards that?
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