Saturday, March 28, 2009

Behind the Vacuum

I had an experience with a vacuum cleaner yesterday that started me thinking. My two year old son, Luke, is a fearless, rascally boy who loves dismantling the vacuum, but for some reason it scared him yesterday. As I was vacuuming under his kitchen chair which was littered with dropped veggies and crumbs, he kept yelling and running away. I was watching him in sort of amazement because first of all, Luke is fearless. Second of all, he never does that with the vacuum. However, the thought that really gripped me is that usually when he is scared of something he runs to me.

For those of you that have never met my Luke, I am quite definitively his favorite person on the planet. Luke LOVES me. I know that at some mysterious point in the future all of his admiration and love will switch over to Daddy and he will follow Daddy everywhere, but for now he is my personal fan club. There is no comfort like Mommy, no one else like Mommy to kiss it and make it better, or put him to bed. From this wild and wrestling, roaring and wriggly child, I get cuddles and kisses and sighs of adoration. I love it.

In that moment, as I looked at my son running from me I kept wondering why he would run from the person he loves most. I’m cleaning up his mess. I am doing this for him. I’m saving him from ants. I would never ever harm him or hurt him, and yet he is afraid of me with the vacuum.

And somewhere in that moment, I felt the heart of God. There are times in our lives when God starts cleaning house. He starts messing with our messes, or cleaning up friendships and relationships. He may clean out a cupboard with lost dreams, or sort through a closet of masks that you have been hiding behind. He may even start cleaning house in your career so that He can move you into a better place for your gifting and personality. Sometimes it is a cleaning, sometimes a sorting, but it is always for your good and to give you a future and a hope.

Yet so many times when life gets difficult or uncomfortable, we run from the vacuum cleaner. We don’t want things to be hard or loud. We don’t trust the process and sometimes we can even forget how much we love the God who holds the vacuum. We hide from his cleaning, we shrink back from the junk he wants to remove from our hearts.

I have a friend who is mad at God. He feels that God hurt him and he has determined that God can never make it right. Consequently, in every instance when God wants to heal or to bless him or to clean him of the baggage that he is carrying, he shrinks back. He runs from God’s presence all the while craving the very thing he is running from. When he gets into a worship service he weeps and weeps, but won’t let God come near enough to pull the thorn out of his heart that is causing all of his pain. He says he still loves God, but the truth is he just doesn’t know Him.

Just like Luke with the vacuum, in the noise and discomfort, my friend has lost sight of God’s heart for him and His kindness and love for him. He fears the vacuum because he doesn’t know that God would never hurt him. God didn’t hurt him in the first place. The enemy did that and blamed it on God. God wept with him in his pain, He didn’t do it to him. There is evil in this world and God in His incredible mercy gives us freedom of choice. We have the freedom to chose Him, or not, just as others have the freedom to inflict pain. We are not His puppets, we are His kids. Ironically, as thankful as we are for our own freedom, we so wish that God would control everyone else and take away theirs. It is a cycle of blame and destruction and all it does is push us further from our Father and the truth of His goodness. It is as simple as this:

God is good.
The devil is bad
God can only do good.
The devil can only do bad.
So if He wants to clean something where the enemy has made a mess, it is only with our good in mind.

As all of these thoughts flashed through my mind, I felt little hands pulling at my pants leg. Luke’s beautiful face was turned up toward me asking me to hold him. I picked him up, perched him on my hip and kept on vacuuming. Once again he was fearless. Once again he had found his Mommy’s arms and all was well in the world. You see the safest place to be during the cleaning is in your Father’s arms. He isn’t doing anything “to” you. Rather the two of you are tackling the mess together.

If you have been running from the vacuum cleaner in your life, it is a really good idea to re-examine your position. Your Father is only good and if you are running from him, you are probably wasting a lot of energy on needless fear and missing out on something wonderful (like an ant-free life). The chances are, if you have been running from God in some area of your life and fearing what will happen if you surrender, you are overcomplicating the situation. You don’t have to clean up the mess yourself. You just have to get on the right side of the vacuum. Your Father has you. He will do the cleaning. You just have to find His arms.

Saturday, March 21, 2009

Budgeting Review - "Practicing your Payday Plan"

This blog is actually a wonderful illustration of how to use your budget, but it also is a great example of the blog that I never wrote on "Diggin Out" when you have gotten behind. I was so happy to find it and I hope it will be a helpful illustration to everyone of how to manage your finances with the help of a budget. Have a blessed day today, even if it isn't payday :)

Payday! Yea! For my husband and I, yesterday was payday and I thought it might be helpful to walk you through exactly how I use my budget. I realize that not everyone receives a salary or is paid on the 15th. There are a multitude of different pay cycles which I have written about and you can find here. However, all of us get to sit down and pay our bills, no matter when or how you get paid. Today, I want to take you through that process using a budget. Some of the steps I haven’t discussed yet, but I will get there. If I just touch on something today that I haven’t dealt with, I will probably come back to it in the future.

The first thing that I do when I get our paycheck is I sit down with our Quicken program, my check register, my finance binder, and a printed copy of my budget. If you do not use a computer program to track your spending and accounts, then you should have written ledgers for your checking account and for each of your credit cards. In that credit card ledger is where you keep a running total of what you owe on each card. Remember, (see my blog on managing your credit cards) a credit card should never be used as money you don’t have. This is a sure way leading to debt and difficult times. Inevitably, something will come up that will make that payment hard to make. A credit card should only be used as an alternate means of payment when you already know where in your budget the funds are coming from.

Through the whole of my payday process, my printed budget is my road map. I first of all will look at what I have in my bank account and make sure that my bank account is balanced with the most current statement. If you have a program like Quicken, it will download your statement for you and is very helpful in balancing. I need to do and entire blog on how to balance your statement, because I know that would be really helpful for many of you who are just now coming out of hiding from your finances. The reason you balance your statement first is that sometimes there are fees or miscellaneous charges that you have forgotten to enter into your register. You want to be absolutely accurate with what you have in your account, because bouncing checks is an extremely frustrating waste of money! I had a friend who bounced an electronic check and the company resubmitted it twelve times before my friend realized what had happened. They ended up with over $300 in bounced check fees from their bank. Matt and I never wanted to even come close to this, so at the beginning of our marriage we decided that we would always keep a “buffer” in our account that we would consider our “zero”. Our particular bank charges fees for a checking account unless you keep a minimum balance of $500 in the account, so we keep a $500 buffer in our checking account at all times. We never even consider that money in any equation. It is just emergency protection that is saving us from fees. Even if your bank doesn’t charge you any fees for checking (Sorry, South Africa!), it is still a very good idea to keep a buffer in your account, so that you never experience the panic and waste of being overdrawn at the bank.

Your bank statement only comes once a month, so you can decide whether to balance it at the beginning or middle of the month according to when it comes. Once you have balanced your checking account you are ready to begin to work with your deposit. The first thing that I do is to take my account down to zero (or $500). If for instance, my utilities were lower than I expected and budgeted for, I will transfer out any surplus into my savings account. Basically, each bill period, I only keep the funds that I need in my checking account. If it is money without a purpose, I would rather have it earning interest in my savings account. I can always withdraw it if Matt and I decide there is something that we need or would like to do with that money. So I start from zero. Now part of starting from zero means that I look at my credit card and completely pay off my balance. Now this is not for those of you in credit card debt. Your debt payment is made as part of your budget, and you also should not be using these cards and accruing any more debt. This is for those of you who use your credit card as a part of your budgeting plan to pay for gas and groceries, etc. Everything that you put on this card must be paid off every month, and I actually pay it off every bill period (so twice a month). This way I am accountable to know exactly where the money is coming from.

Let’s say for this example, that my credit card is current, my account is balanced, and I am ready to do my bills. This is the part where you get to use your printed budget and implement your budgeting plan. I simply take our paycheck and subtract whatever cash that I am taking out for budgeted expenses and then write in the deposit amount. I will actually track all of that cash in Quicken and in my register. So I will write into my register: Deposit: Salary $X.00 Cash out $X.00 (groceries $X.00, gas $X.00, entertainment $X.00, etc). Matt and I actually do a combination of Credit card and cash for our bills and spending. I withdraw the cash amount and then write the total deposit into my ledger (enter it into Quicken). I also cross out on my written budget any category that I withdrew cash for, so groceries, gas, and entertainment, etc.

So now you have your bank account buffer (so $500.00 for us) and your salary deposit (minus the cash that you have taken out) total in your account. The next thing I do is, I start at the top of my bills for the bill period I am in and just write them in, so at the top of my sample budget for the bill period of the 15th is Electricity. I go into my finance binder where I hole punched and stored my electricity bill when it came and enter that amount into my ledger. If it is a paper bill, I will write the check and put a stamp on. If I can pay the account on line I will go online right then and pay the bill. The majority of my actual bills are automated which means they automatically debit from my bank or credit card on a day that I have set. However, that is not possible for every company and bill. Some of you may also pay your bills through bill pay with your bank, which is a wonderful option (if your bank offers it with no fees). You would just then sit with you written budget, your binder, ledger and billpay, and just enter your bill total and pay it from your bank account. I then cross off Electricity. And I just go down the list of bills that I have made, paying the bill, entering it into my bank ledger (or Quicken or whatever program you use). It usually only takes me 20 minutes to sit and pay all my bills because they are all in one place thanks to my binder. They are mostly automated so I only have to write a few checks, and it is just entering all of my bills into my ledger. I will also pay myself first in this process and transfer out savings to my ING account.

At the end of entering all of my bills, I might have some categories that I leave the funds in my bank account for, and these are the only categories that you need to track for the next two weeks. As an example, let's say that you hate carrying cash and so you leave your grocery money in your account. It is imperative that you track this money as you spend it. Write it down on your printed budget or in a ledger, but do not count on yourself to remember. We always “think” we have spent less than we actually have, unless you track your spending.

So with all of your bills entered, paid, and current, you are done with your bills until the next bill period. It may seem difficult just reading it, but it is going to be so simple as you actually do it, because you won’t be searching for bills. In fact, bills that don’t fluctuate like your mortgage, you can simply enter the amount from your printed budget. And at the end, you have all of your bills that are paid and current crossed off your printed budget and only the ones that you are still tracking will be unmarked. The total amount budgeted for the unmarked bills or expenses should total exactly what you have left in your account (minus your buffer amount).

So maybe 45 minutes of your time, twice a month and you will never have to worry about missing a payment or a bill, or if you are forgetting something. You can relax about your finances and get on with enjoying your life. Budgeting isn’t difficult or stressful. You just needed a plan. And now that you have one, it’s time to practice using it.

Friday, March 20, 2009

Budgeting Review - "Balancing Your Budget

If you have come this far and have determined your budgetable income, and all of your monthly bills and expenses, then it is time to balance your budget. This blog will walk you through that process, as well as give you some great encouragement along the way.

God has not given you a spirit of fear, but of power, love, and a sound mind. As we face your budget today and try to determine how to bring balance. I just want to remind you of that verse. This is the time that many people want to get into fear when it comes to their budget. Fear that there isn’t enough, fear of deprivation, fear of knowing… None of this fear is from God. He is not in your fear. Neither is He controlled by your fear. Let go of your fear of the unknown and face your budget. God is with you today.

So… balancing day. How exactly do you do it? The idea behind it is that you want to enter all of your expenses and still have surplus, even if it’s only a little bit, left from your income. Now, a new friend named Ashley left a comment yesterday asking a question that I just want to address quickly. He asked, “I get my salary once a month, (end of month), all my bills are debited or paid by the 2nd of the month. I therefore have no expenses (bills) to pay by the middle of the month. Should I still be putting my salary into 2 portions?”

Now, Ashley’s situation is unique in that all of his bills are being automatically debited on the same day each month. I wish all of us could do this because it makes bill paying so simple; however, for most of us, our bills are due at all different dates during the month, with many of them having inflexible due dates. Utility bills, for example are often set with inflexible due dates because they are dependent on when the company comes to check your meter and they often give you only a few days to make your payment once they bill you. However, for Ashley, no I would not complicate by dividing up what is already so simplified for you. I would leave all of your bills coming out of the first of the month as they do, but I would divide up your discretionary funds. So your budget might look something like this.

If your situation is similar to Ashley’s in your income setup, but not in the way that your bills are paid then I would typically still recommend dividing your monthly income in two. This will enable you to divide your bills into two sections (please see my blog “Simplicity”) and not have to be constantly managing your bills all month. It enables you to only have to sit down twice a month and work with the bills that are due. Also, I have discovered that if you take your entertainment money, or grocery money (for example) all at once, it is very rare to have anything left by the end of the month. Typically you spend it all in the beginning, and really struggle at the end.

So for today’s topic of balancing your budget, I am going to continue to address the issue from a position of dividing your income into two sections, since this is going to work best for most people. The very first thing to look at when starting to balance your budget is your mortgage/rent. Your mortgage/rent is typically the biggest bill that you will have in your budget. So when you enter your mortgage amount into the budget it may take the majority of your first of the month budgetable income. So from there you need to choose the bills that are going to best fit with your mortgage and not cause you to go over.

So let’s say that you have inputted all of your bills due on or after the 1st into your beginning of the month section and you are two hundred dollars over the amount of your income. There are several solutions to that. The first is to identify the bills that do not have fixed due dates such as Savings, Giving, Car Insurance, Infrequent bills that you are saving for, Groceries, Gasoline, Entertainment, etc. These expenses can easily be moved between sections and allow you to try to move your expenses around. You can even divide these up and pay them in both sections if that is what works best for you. For instance, I have a section for savings in both my beginning of the month and middle of the month sections. So lets say I save 300 dollars a month. I might have 150 coming out of each section, but if I need an extra $50 as I am balancing my budget, I might reduce my savings amount to $100 in the first section and then increase my savings to $200 in the second section.

A second solution is to look at the bills that have semi flexible due dates close to the first and to move them to the middle of the month. These might include bills like your retirement savings, insurance, or credit card payment… anything that you can call and request a different bill due date or automatic payment date. Companies will typically be happy to bill you earlier or to debit your account earlier, so it might just require a simple phone call to move your due date for a bill if you absolutely cannot get your budget to balance without doing that.

So now, what if the issue is not having too little money in the beginning of the month and too much in the middle of the month? What if your issue is not having enough money for your total? What if once you enter all of your bills, both sections are in the negative, meaning that you have too many expenses for you income? Don’t get in a panic. This is just your moment for discovering why you are in debt. If your outflow every month is always more than your income, then the only possible result is going to be debt. So don’t despair, this is just your answer to why you are in debt, and it is a great thing to discover or you can never change it. It is simply time to re-evaluate your “necessary” bills, as well as your discretionary (meaning flexible) expenses. Are you spending too much on impulse purchases for clothing and eating out? Can you reduce your grocery budget? Are you killing your budget through all of the presents that you buy for other people (a topic for another day)? Are you living beyond your income in your new car payment or in the vacations that you take each year?

These are very hard questions for many people, and for some reason seems to stir up all kinds of fear. Fear of deprivation, and having to give something up, fear of being controlled, fear of not getting to do what you want to do. I want to remind you again… “God has not given you a spirit of fear” Ask Him for the wisdom to know what to change and how to live within what He has given you to live on. Surrender your desires and your fears. Your heavenly Father loves you and He knows what you need. Sometimes His answer may even be a job with better pay or a raise, or His answer may be to give you the wisdom to manage what He has already given you. However, it is really amazing when you begin to live within your income and with gratitude, how quickly increase will come in your life. It is just so true in so many circumstances, when you get happy where you are, and learn to be content whether you have a lot or a little, God always brings more. Again, He is after your heart, so let Him have your heart, your fears, and your trust in your finances, and you will be amazed at what He will do.

The picture at the top of this blog is entitled “Perfectly Happy”. It was the first picture that came up when I did a search for the word “balance”, and somehow I think that is significant. As your budget comes into balance, as you weigh the plan to live within your means, as you face what lies before you, I think you come to a place of acceptance and peace. I don’t think you can ever be “perfectly happy” when you are in fear and denial and your entire life is out of balance, but in the truth comes freedom, in the light comes answers, and in the place of balance you will often find happiness… or at least a reprieve from constantly falling off the beam and into debt… and that really is a happy thought. But even if you have just discovered that you have fallen off the beam, God is with you. He is for you, and just like a Daddy helping his little toddler to walk for the first time, God is so excited to help you to come to the place of balance.

Thursday, March 19, 2009

Budgeting Review - "Directions for the Journey"

The next few blogs are on how to use your budget. The very first step which I cover today is to print it and carry it in your wallet. The following story will humorously illuminate some reasons why:

Last year I had the opportunity to speak at a ladies retreat in New York with my Mom. It was such a fun thing to get to do together and we had a lovely time. We flew into Newark airport and were picked up by three very sweet ladies whom we had never met before and the plan was then to drive to Long Island Beach where the retreat would be held. Well, my Mom and I were in the back seat with one of the ladies in between us, and let me just say the conversation from the front seat was just a little disturbing. There were many, many comments like, “I hope we don’t get lost”, and “I’m just not good with directions”, and “Let me just call my husband to find out where we are.”

My Mom and I just kept our mouths shut and started praying… not so much that we would find it, although we were very ready to get out of the back seat, but that we would find it soon, because we were both starving. We had been up since 4am to get to the airport and it was now around 2pm and the muffin at the airport was a long time ago. Well, towards the very end of the journey, my Mom starts talking to the ladies about how she wished that she had her “Nuvi” with her. She and my Dad drive to many of their meetings and the “Nuvi” is a GPS device that tells you exactly where you are and gives you specific directions on how to get to where you are going. Well, the lady in the passenger seat, whose car we were driving says, “I think we have one of those…” and proceeds to pull out a “Nuvi” from the glove compartment! Wrong turn after wrong turn, wandering aimlessly trying to find a place to eat, frantic phone calls to husbands, and we had a “Nuvi” in the car with us the whole time…

Some of you may be wondering why do I need to have this budget, Tracy? I track all my finances on my computer and everything is automated. Well, I’ll tell you. Life has a tendency to throw you a lot of surprises and turns, and even the need for u-turns sometimes. It is all very well to be able to track where you went once you have already gotten to your destination, but how much better is it to have directions in the car with you telling you how to get there. This budget is like your own personal financial “Nuvi” or printed directions. It is your roadmap to when each bill is due. It is your signal when you are reaching the end of your budget for entertainment for the week, saying, “OK, stop here or you will not reach your destination.” And what is your destination? A life without debt. A life with savings, and provision for the unexpected. A life with hope and a plan for moving towards your dreams. That is why I have the sections to the right on your budget. This section doesn’t have to be your plan for what to do with your extra money. It may be your section for tracking your savings and watching your dreams grow. Make it your own, but write down your financial vision. Carry it with you. Look at it often, and remind yourself why you are doing this. If you are going to a place you have never been before, it is wise to have directions, and this budget is your directions for a new life.

Every month I print a new copy of my budget and I fold it and carry it in my wallet. I still input all of my spending into Quicken and I record it in my check register… but this budget is my vision. It is my roadmap to where we are going with my finances. I physically cross off bills as I pay them on bill paying day. On the first and the fifteenth I sit down with my budget and enter all of my bills that are due for that section into Quicken (and my check register, although I don’t necessarily recommend this, it is just a habit for me). I then track my spending on that piece of paper for the rest of the categories, like groceries, and gas. I transfer out all surplus money from my account into my savings, which forces me to stick to my budget and not overspend. If I am continually short in a category, my husband and I will adjust our budget, but we always do so with the vision in mind.

So that is why I feel like this concise, clear, easily accessible budget is so important. You may love your financial software program, but mostly it just tracks where you have been, and can also make something that is very straightforward into something very complicated. Your financial plan needs to be simple, it needs to be easy to follow and even adjust, but I also firmly believe it needs to be written (printed is OK :) ).

Habakkuk 2:2 says “Write the vision and make it plain on tablets, that he may run who reads it.” I love this verse because it is basically saying if the vision is plain and written out clearly, you get to run to your destination. In other words, you get to get there a whole lot faster! This is truly the heart of budgeting… purposeful spending in order to reach your dreams… as quickly as possible.

There is a small chance you may still reach your financial destination without directions in the car. We did eventually reach Long Island Beach (well, actually we only got there after we started using the Nuvi). But I guarantee you if you do decide to go through your financial life without a map, it will take you a lot longer to get where you want to go, and like my Mom and I in New York, you will probably be extremely hungry when you eventually get there. So save yourself time, frustration, hunger and a lot of u-turns, and get yourself a financial “Nuvi”. It will not only tell you where you are, like we looked at yesterday, but a budget will also help you to get where you want to be, and to get there a whole lot faster.

Wednesday, March 18, 2009

Budgeting Review - "A Plan to Stop Juggling"

You have determined your budgetable income, and made a list of your bills, expenses and even discretionary categories, so today is the big day. This blog is going to help you to plug all of that information into a spreadsheet that will change your financial life. It is so simple to use and understand, and yet it is the key to budgeting success.

One of the most difficult things about juggling finances is that you feel like you can never stop. Some people are constantly dropping balls, others just put some of the balls down until they can afford to pay them. The juggling act is constant and exhausting. You never know when the next ball is going to be thrown in or how many there will be. What I am going to be giving you today is so incredibly valuable because it is not just a way to manage the juggling act, it is way to end it.

I am so excited about what I am going to be sharing with you today because it is a very simple, very straightforward “Excel” spreadsheet that you can plug all of your information into and will allow you to determine your budget. Many people fail because they can never grasp the big picture of their finances, and this visual budget is going to help to give you that picture. So if you just want to see what I am talking about, you can view my blank budget here. Or, if you want a copy for yourself that you can actually work with (which I highly recommend), you can download it here.

This budget is going to help you to stop the juggling act. The first step is to click in the top peach box (You can change the colors on your budget later :) ), and to enter in your bi-monthly budgetable income. If you only figured out your budgetable income to a monthly figure, simply divide your monthly budgetable income total by 2. When you have entered in your bi-monthly income, you will notice that it will automatically add the two together to give you your monthly total and also put that total in your Surplus category and Savings. Do not worry about those numbers right now. They will automatically adjust as you enter in your bills and expenses.

The second step is to get your list of bills. This is where knowing the date that every bill is due is going to be extremely important. I want you to begin to plug your bills into the budget according to when they are due. If they are due after the beginning of the month, plug them into the first section entitled (beginning of the month). If they are due on or after the 15th of the month, plug them into the second section. You can change the names of any of the categories that I have put in for an example, although I would recommend leaving the category entitled “savings” found in both sections, because it is linked to the savings tracker in the yellow section of the budget.

Obviously, the categories will need to be changed for your specific situation, but they will give you a general idea. Furthermore, don’t worry if the numbers don’t add up correctly for today (if your bills total more than your income in one of the sections). I am going to be addressing how to balance your budget in detail in an upcoming blog. For today, you have started. You may be able to mess with this budget and figure it out for yourself, which is wonderful. If you need to see an example of a completed budget (all the numbers are made up ~they are not mine, because what I pay for my mortgage isn’t the point :) ) I have posted one here. If it is all a little confusing, don’t worry because by the end of this series, this budget will be so simple and clear. So hang in there with me.

I know some of you may already manage your finances through a program like Quicken, or Microsoft money. I use Quicken, but I also use this budget and I am going to go into why later on this week. So let me just challenge you to trust me and go for it.

This budgeting plan is going to set you free from the juggling act. You will finally have all of your balls in one place and you will know exactly when each ball needs to go out because it is due. You will also be able to see at a glance where your money is going and what your plan is for your money. It is time to get all of the weight, uncertainty, and confusion out of your head and into a plan. It is time to stop tossing your bills up and hoping the money comes in before they land. You can succeed on a budget, but it needs to be clear, it needs to be comprehensive, and it needs to be easily accessible and changeable. If you will walk with me this week, I think you will see that this budgeting plan is all of that and more: it is also your chance to quit juggling, and to finally clear the balls from your head so you can get on with the rest of your life.

Tuesday, March 17, 2009

Budgeting Review - "Expenses - Cash, Credit,or Debit"

Discretionary money, or money that you spend at your discretion, is very often the downfall of budgets and kings. It is the money that you spend at a whim on clothing, or groceries, or a latte, on eating out or gifts for people, that many times will kill your budget. So, how do you manage that money in a way that it won't destroy what you are trying to establish in your budget? I am so glad you asked :) The following is my favorite plan for discretionary money and I hope it will help you to tame your spending beast as well.

One of the questions I get so often is “How do you keep track of your grocery money?” It is probably about groceries because most of my friends are Moms and staying in the budget with groceries is a huge part of our world. Grocery money, Gas money, Entertainment, Gifts, Free money, and just whatever categories you have in your budget that you don’t automatically pay as a bill, are really the most challenging thing about budgeting and the areas that most people overspend the most on. I consider these categories as discretionary spending, because it is money that you spend all throughout the month at your discretion. So what is the best plan for staying in budget and handling this money?

Well the truth is there is not one answer for all people in how to handle this money. Basically there are three methods for discretionary spending: cash, credit card, or bankcard. Or you can even use a combination of the methods. It really is about finding the system that works the best for you. For some people, carrying cash is scary and they would prefer to use a credit card. For others, spending on credit cards has gotten them into serious financial trouble and they absolutely need the boundaries of a cash system. And others prefer to use their debit card for everything so that they only spend the money that they have, but don’t have to carry cash. Using a bankcard also forces them to keep a careful record of what they are spending so that they do not overdraw on their account. For me, the system that works the best is a combination of cash in envelopes (the envelope system) and credit cards. I am going to go into the envelope system in detail for you today, because even if it is not your method of choice, all of us need to pull the reigns in on our spending at some point and the envelope system is an excellent way to bring you back on budget. Then in tomorrow’s blog I will write about how to manage discretionary spending on credit cards.

So, you haven’t had cash in your wallet in years due to the magic of the plastic card… and your question is, “How does this paper money even work?” Well, you might love it and you might hate it, but it will definitely work to keep you on budget. It is also a great opportunity to really get a feel of what you are spending each month. If you will notice on my budgeting plan (click here to view it and here to download it), I have a space between bills and what I consider discretionary spending. This helps me to separate it from those that I pay on bill paying day twice a month. For me, this is what I draw in cash when I make by bank deposit twice a month. I take $x.00 for groceries, entertainment, gifts, gas money, etc and then I have little bank envelopes that I have written groceries, entertainment… on and I divide up the money into it’s designated categories. Those little bank envelopes fit easily into my wallet and they really make it so easy to track your spending. When the entertainment envelope is empty, we skip going out to the movie. You can physically see what you are spending. I also tend to draw the money in large bills. It just seems a lot easier to wastefully spend $1, $5, $10 bills than it is to spend $100’s.

If you are nervous about carrying that much cash, then it might work for you to take the money out of your wallet and leave it in a secure place in your home. Then take out the cash you might need before you leave home and put it into your wallet. However, if this is your plan, have two sets of envelopes, because if you just take a $20 bill out of grocery money and stick it into your wallet, it is so easy to forget where you got it from and then just feel like “Oh well” and just spend it. The whole idea is to track your spending. If you get caught out with no money, you can use your card to pay for it, but then write the amount on your printed budget that you carry in your wallet or put the receipt into the appropriate envelope and immediately when you get home, put the cash into a “to be deposited” envelope to pay for that purchase. That way when you go to pay your credit card, you simply deposit your cash from that envelope and it should be exactly what you need to pay for what is on your card. Remember, the money to pay your credit card has to come from somewhere and the envelope system just lets you know exactly where it is coming from.

What I love about the envelope system is that I don’t have to keep track of every single purchase. We just buy groceries and gas and even entertainment and we know what we have in the envelopes and we can just relax and not constantly worry if we are going over budget or where the money is coming from. To me, it allows us to live on a budget, but not have to constantly monitor and track our budget. The envelope system does it for us.
It also makes it really fun when I get a great deal on diapers and spend less in “baby money”, because the cash left at the next bill pay period can go to something fun, like a “day to buy something” for my kids, or an extra date night for my husband and I. However if you save a significant amount in a category, then I would suggest maybe adjusting your budget and putting that extra money to a purpose like increasing your savings, or financing a dream, or putting extra toward debt. What you do with your money is up to you (and your spouse if you have one), but the key is just to be purposeful with that money. If you decide to just have fun with it, then go ahead and spend your $20 on a movie, because it will just motivate you for next month to come in under budget again.

Now if you are married, the envelope system needs to be negotiated. The way Matt and I handle it is we divide the money up. I keep the grocery money because I do the shopping, the gift giving money (again because I do the shopping), baby money, and my clothing money. Then he keeps the entertainment money in his wallet because we like to be together when we spend it. That way we are making memories, having dates, or eating out as a family. He also keeps a portion of the gas money that he needs for his car. However, Matt doesn’t like to have to go in to pay so he will take his cash and load a free gas card with his money, and then uses that to pay at the pump. He has to always go to the same kind of gas station, but he does that anyway so this works for him. So in his wallet he has his “free” money, his gas card, entertainment money, and his clothing money, which he can spend on clothes or whatever. What has worked for him is a version of the envelope system. He will use paper clips and sticky notes, or even just keep the money in separate sections of his wallet. For instance, he will fold his clothing money and put it behind a picture just because it helps him to purposeful with it and not to just spend it on a whim. There is a way to make this work, and if you are trying to come out of a freefall of spending and bad financial habits, this may be exactly the reality check you need. It does take some self-control when your envelope is empty and a “desire” comes up, but this is actually really good for you to realize that it is giving in in these moments that has sabotaged you in the past and kept your finances in disarray and debt. Just submit that desire to the Holy Spirit and go on about your day. :) I can feel you smiling at me like, “Yeah right.” It is never fun to reign your flesh back in, but it is so worth it!

So, giive the cash/envelope system a try. Like I said earlier, you may hate it, you may love it, it will definitely challenge you, but it could also change your financial world around. It is a great “litmus test” to see if what you have allotted for groceries (for instance) is actually livable for you family. It really will reveal a lot about your spending habits, but if you actually let the cash/envelope system become the habit, it will also revolutionize and simplify your finances and help to change your spending habits.

Money is spent easily, it goes quickly and there is no simple solution to managing it except to manage it. And just like water in your hand that so easily flows between your fingers, the only way to keep money in your hand is to find a way to contain it. The envelope system is simply a system of containers for your resources, yet it is also a great way to know that although you may be out of money in one particular envelope, you will never be empty handed in your finances again.

Monday, March 16, 2009

Budgeting Review - "Expenses - Finding the Holes"

In the last few days we have reviewed how to determine your budgetable income to be able to plug it into your budget. As you have seen, there are so many different scenarios for this, but I hope that you were able to find your situation in my scenarios and develope a plan that will work for your income. Today we are looking at how to determine your expenses. In your budget, you are going to list all of your bills and expenses and the following blog is going to help you to do that. God bless.

Have you ever felt like trying to get ahead in your finances is kind of like trying to blow up a balloon with a giant hole? The more energy, time, and air you pour into that balloon, the more frustrated you become because it just won't get any bigger. And even worse, the second you take a break, it completely deflates and you have nothing to show for your efforts. It all just feels like a mystery because you never know where the air is going. And all of this frustration is simply because you have never taken the time to identify the holes.Today we begin the adventure of finding out exactly where your money is going. To me, budgeting is all about being purposeful with your money so that you don't just continue to throw all of your energy and money to the wind.Your "hole finding" mission for today is to identify all of your bills. I want you to make a list of every place that your money is obligated to go. If you have already made your binder, or organized your filing, then this step is going to be easy for you. Your bills are going to be specific to your life, but here is a list of some general categories:
Mortgage/Rent
Savings
Giving
Insurance
Electricity
Gas
Water/Sewage
Telephone
Internet
Cable TV
Car payment
Car Insurance
Credit Card Payment
School loans
There are also other categories which have more flexibility, but actually tend to steal more air and I want you to make a list for these categories as well. Categories like:
Groceries
Gasoline
Entertainment
Baby Expenses (if you have one)
Clothing
Gifts
Try to be realistic and specific about what you spend your money on. If you go get your hair done every month then you need a hair category, etc... Try to be as specific as you can. This is where your money is going and it is imperative to identify every area. Don't worry about all of the "holes" in your balloon right now. A lot of that is just life and what it costs to live, but as we go along in this budgeting process, you will realize that by not being purposeful with your money, you have allowed some of those holes to sabotage your dreams. This is just the beginning, so hang in there with me, because I am confident that this plan is going to finally get your balloon off of the ground.
Bills That Are Fixed
The next step on your journey to establishing a budget is to determine what you are averaging in spending in each of the categories that we established yesterday. We are also going to determine each bill's due date, as that is critical to knowing which paycheck each bill must come out of and it's placement in the budget. So get out your list and let's start with your Mortgage/Rent. It will be easy to determine because it is a fixed amount each month. Write down the amount and the date that it is due by. I want you to do this for every bill that is fixed (does not fluctuate from month to month).

If you do not have paper statements, you can check online for your bills. Most companies now allow you to access your account online and will let you see your bills for the last few months. If you do not have online access to your bill, you can also check your bank statement (or check book register) to track your spending in a category. If all this fails, you can always call the company and they will definitely be able to give you your bill totals for the last few months.
Bills That Fluctuate
So what about bills that change from month to month? One of the most confusing issues that people have with setting a budget is, "How do I know what to budget when my bills vary so much?" In the winter your gas bill will typically be high and then drop to nothing in the summer (unless all of your appliances run on gas). It can be a challenge to know what to budget when your bill can fluctuate by more than $200! So here is what has worked for my household, and some ideas that have helped others with their budgets as well.

This is where it is really helpful to have the last 12 months of statements or be able to access them either online or by a phone call to the company. The first step is to take the last 12 bill totals and add them together. Divide the total of this by 12 and you will have your monthly average. However, it is always better to budget too much than too little and in the months where your bill reaches $150, you will struggle if your average is only $70 and that is all you have budgeted.

There are several ways to compensate for this. First of all, you can budget your bill at the top side of your bill (at $150) and then in the low months (when it is only $30) just put the difference into your savings plan. This is a great plan if you have lots of flexibility in your budget (make a lot more money than your actual bills). However, the average person does not have this flexibility, so this plan can be very difficult for them because that is an extra $120 that they are unnecessarily putting aside each month. Your bill will only be that high one or two times a year, and many people need that money to live the rest of the year.

A second plan is to budget your bill half way between your average bill and your highest bill of the year. That way the majority of your bills will be covered by your budget, but maybe two bills a year you will need to draw from your savings to make up the difference. The third plan is to budget your bill at the average bill and start a savings plan just for that utility. Each low month of the year (months with the lowest bill), you would take the overage in your budget (the difference between what you budgeted and the actual bill) and put it into a savings account so that money is there when the bill is in the high months. This third plan requires a lot of discipline to not spend the extra money when your bill is low, but it is definitely do-able. I will discuss savings plans in detail later, but I currently have five savings accounts open which I use both to manage our money and to save for our dreams.

Another idea for managing your variable bills is to take out the variation. Many utility companies offer fixed rate programs, in which they take the average of your last 12 months of bills and that then becomes your fixed bill total. They do have to adjust it each year for rises in cost of gas, electricity, etc and for your actual usage, but they should only adjust it once a year. Many companies will also refund you the difference if your actual usage is less than what they have charged you over the course of the year.

I have used all of these plans over the years, but I have found that the easiest is to allow the utility company to average my bill for me. If that is not available, I now do a combination of the second and third plan. My budgeted amount is between the high bill and the average total and when the bill is at its lowest point I will put that money in savings for the two months when that bill is high. Most of the year I have enough to cover the bill and I don't constantly have to be micro-managing the money. There is also the factor that when my electricity bill is at its highest in the summer, my gas bill is often very low, so I can use the surplus from my gas to pay my electricity.

Regardless of what plan you choose to use to set your budget for your utilities, it is very important to have a plan. Try to think through your personality, the flexibility level in your finances, and what is available to you through your bill company. These factors will help you determine which plan will best fit you and your family's needs. Having a plan in place for your utilities means that you will no longer have to worry about your bill totals from month to month. Instead, you will be free to sit back and enjoy the weather, no matter what season you are in.

Sunday, March 15, 2009

Budgeting Review - "Self Employed and the Power of Percentages"

This blog is a little long, and I apologize for that but I combined two of my previous blogs, so as not to split up the topic. If you are paid by commission, this blog will also be very helpful to you. This is the last blog under the section of our outline for a.Determining your budgetable monthly income.

Self-employment can be a liberating, extremely rewarding way to earn your income. Many people who are self-employed are doing exactly what they love and want to be doing. They are their own boss, set their own hours, and consequently have a lot of flexibility. However, it can be a very difficult venture when you are first getting your business going, and also when you are laboring in a business that may not go very far. When you are at the top and a huge contract doesn’t go through, or they are late on payment, it is you and your family who will carry that load. It is definitely a little lonely at the top in terms of responsibility, and yet the rewards can be spectacular.

So how do you budget when you are self-employed? Well, if your business is established and stable, the best option is that you will draw a salary from the business and it will be very easy for you to budget. How you set up your income from your business is entirely up to you and your accountant. You may choose to bill your business an hourly rate, or draw a monthly or bi-monthly salary, or be paid weekly. However, these are all great options in a business with an established clientele and that is at a place of maturity. Many people who are self employed live contract to contract, with their families just praying that the check will come. I am going to primarily deal with this scenario today, as all people who are self-employed have been in this place at some point in their business. Once your business is established, you can set up your budget based on commission, weekly, two week, or salaried budgetable income according to how your income is set up.

The first thing to do is to determine your monthly budgetable income. First of all, take your total gross income from last year, which you can find on your recently completed taxes, and subtract the taxes that you paid or owed for the year (medicare, social security, state taxes, federal taxes). If you are making personal tax payments each quarter on your income, then you will need to set up an “escrow” savings account just for your taxes that you contribute to as part of your budget, and from which you pay your taxes. If you are withholding money for your health insurance or your 401K or IRA through your business, you will need to subtract the yearly total of those from your gross as well. If you are paying for it personally, the payments will just be a part of your budget. This will give you the "net total" for the year or the amount of money you get to take home and live on each year. To find your monthly average net pay, simply divide that total by 12.

The reason it is so critical to know an estimate of what you have to live on, and to have a budget, is that being self-employed with no idea what it is costing you to live is the quickest way to dig yourself a deep hole of debt. During the time when you are establishing your business, your budget may need to be extremely frugal so that your debt load doesn’t end up sabotaging your business and your peace at home. If this is your first year in business, you need to be especially vigilant in your finances. You will have to base your monthly budget on a pure estimate of what you will bring in this year. It is better to be conservative with this estimate than generous, because if you make less than you spend, you will end up in debt.

So you have an estimate of what your monthly budgetable income should amount to each month, the only problem is most business contracts don’t come so precisely and on time. Like a commission-based income, you may have months that are incredible, and months where you pray for the contracts and the checks to come. I am going to at this point ask you please to read my blog on how to set up your income on a commission-based income entitled “Life on Commission: Finally Breathing”. I go into so much detail on how to set up an “escrow” savings account which I would just be repeating here. The premise is that you will save in the times of plenty and supplement your income from that savings in the months when business is not as good.

However, there is a dimension of being self-employed which tends to sabotage budgeting efforts. That is, you tend to live on whatever you bring in. The truth is, you will always spend everything you have, unless you are purposeful with your money. So how do you get purposeful with your money when every check that comes into your business has already been spent by you and your family?

“Budget thy expenses that thou mayest have coins to pay for thy necessities, to pay for thy enjoyments and to gratify thy worthwhile desires without spending more than nine-tenths of thy earning.” ~ This is the second cure for a lean purse according to the book The Richest Man in Babylon by George S. Clason. OK, I love this book so much that (although it is not Christian) I’m just going to say… You have to read this book!! It is told as a story and it reads easily and it will change your life. It is a fantastic book about the power of saving money, and managing money. One of the principles that it lays out so clearly is never spend more than 90% of your income. As Christians we are used to hearing this because we are told to give 10%, but as a Non-Christian book, it urges that you have to save 10% of anything that comes into your hands to ever move beyond where you are. Now I believe in giving and saving which both are so powerful in your financial life, but another wonderful principle I believe in is the power of percentages.

If you are self-employed the power of percentages is going to enable you to be purposeful with everything that comes through your hands, and also find the finances for your dreams. My husband is on salary at his full time job, but he also has several side businesses, which he does contract labor for and is self-employed. Every dollar that comes in through his self-employment is filtered through our agreed upon percentage plan before we look at what is usable from that money. For instance, a certain percentage goes to savings, a percentage goes to pocket money so he can feel the rewards of his labor a percentage goes to giving, and to a dream we are saving for, and then the rest goes to our needs and is available money. So out of every side check that comes in only about 50% of that money is “available”. We never even consider the whole check, we just divide it in half. This needs to become your mentality every month, otherwise 100% of your income will disappear every month and you will perpetually struggle.

So how do you go about setting up your percentages? It is really simple actually; a simple math equation will tell you what percentage to withhold from each check for each category of your budget. However, percentages are mainly applicable for expenses that do not have a definite due date. This is because it just doesn’t work to only pay a percentage of your mortgage payment. It will still be late J. Most of your fixed bills will need to be paid by their due date and that is where having an “escrow” savings account will come into play in self-employment. If you do have a bill, like your mortgage, that is due and you don’t have quite enough to cover it after paying out your percentages, you would then withdraw the needed funds from your escrow account. You do not take the money from your grocery money, or Christmas fund, or vacation fund. This is the beauty of having a storehouse set up specifically for months when your income is lower than other months. At the end of the year it will all average out, so tap into the picture of your whole income and quit thinking in the desperation of the now.

To determine the percentage rate of each of your budgeted expenses, you would take the expense amount, and divide it by your monthly budgetable income. So if your monthly budgeted grocery amount is $600.00 and your monthly budgetable income is $4000.00, your grocery percentage rate would be $600. divided by $4000. = .15 or 15% So lets say that you receive a check for $2500 for a contract that finally paysJ. You would then take that check and immediately multiply it by your percentages before you do anything else. So in our example, take .15 and multiply it by $2500. = $375.00 which you would set aside from that check for groceries. Other bills that I would do a percentage for would be your taxes (ask your accountant to tell you what to withhold for your tax payments), gas money, savings, vacation fund, dream funds, entertainment money, and any bill that is paid, bi-annually or annually and not paid monthly (like car insurance).

I am feeling a little “clear as mud” moment right now and I hope that you are not feeling that way because it really is not that complicated. Basically, the percentage allows you to prioritize living rather than always living on what is left over. So your budget might look something like this (this is just an example, your percentages need to be based on your workable budget of what you can afford to spend in each category!):
Percentages:
Taxes 10%
Giving 10%
Savings 10%
Groceries 15%
Gas 5%
Vacation 3%
Car Insurance 2%

Leaving 45% of every check that comes in for your set bills. At which point I would pay in full whatever bills were coming due at the next bill period, and draw from your “escrow” savings account for anything that you are short on your budget.

Again, I would like to reiterate that this is a plan for people that are just making it. It is not optimal, but it is extremely necessary if you are in the situation of getting a business off of the ground, or if your income from your business is just enough to cover your budget. There are many people who live in the place of “just enough” and percentages, and an “escrow” savings account could truly help you to not just subsist, but to actually thrive. Having consistent money for groceries might revolutionize your wife’s world and keep her from resenting your business, and having a plan for a vacation might just invigorate you into bringing your business to the next level so you no longer have to live in the desperation of paycheck to paycheck.

Saturday, March 14, 2009

Budgeting Review - "Salary and Commission"

A friend of mine emailed me this question concerning her budget that I wanted to share with you today. It goes back to the section I did on income, but I am sure that many have you have very unique pay cycles and I thought this might help you in your effort to set up a budget. This really gives a great example of how you can adjust a budget to fit your particular needs. A budget is not meant to control you, it is meant to assist you, so change it up until it fits the income cycle, bills, and needs of your family. Use my example budget just as a starting place and then adjust it until it fits. Her question was,

“My husband gets paid every Wednesday. He gets 2 different bonuses on the second Wednesday of the month: one bonus is a fixed amount, and the other bonus fluctuates, could be nothing could be lots, it's all based on if the company profits or not. I am trying to figure out how to do the budget. Right now I have it divided into first half and second half like you said. Our mortgage comes out of his fixed bonus in the second week, according to them it's not late until after the 15th, but I would have to save a whole paycheck and then some of the next week paycheck to do that differently. I would love to do it like you said about using the last 2 weeks paychecks for the beginning of the next month, but I have no idea how to accomplish that except for having a lot of money up front to get ahead? Anyway, I would appreciate any thoughts you might have!”

OK, if you feel like you have just read a math question on the SAT’s, so did I. However, there is always a way through, so let’s just take it slow and I know this is going to help many of you who have a more complex pay scale. Basically my friend’s income is set up in two ways. Most of it is a fixed salary income, just paid weekly, and even the “fixed bonus” should just be considered to be part of her monthly salary total. The second part of her income is the varying commission check and should be considered as a commission based part of her income. So how do you budget when your income seems so varying and uncertain?

Well, the truth is it is actually not that uncertain. The key is to basically live on your income without the “commission” check since it is the uncertain part. However, since it can be a really great part of your income on months that the business is doing well, you will want to put this check into a saving’s account and then disperse it throughout the year. This is going to require an “escrow” savings account where you pay into a savings account on the months when you do get a bonus and then draw from that account on the months when you don’t. This will help to stabilize that wildly varying 2nd bonus check. It might help to look back at your last 12 second bonus checks and add them together and divide by 12. This will give you an average of that check, and what you can kind of expect over the course of this year. So then you can work off of that number to determine what you have to supplement your salaried income each month. Now if you are in an economical place where you are not getting anything in that second check, you might need to wait until you get a check to begin this section of the plan. However, you are going to have to live without that money regardless right now because it just isn’t there, so this plan will just help you to not have to live at this low point again because through the “escrow” you will get to disperse the money and live on it throughout the year rather than just having a really good month one month.

Another factor to consider is that several times a year there are more than 4 Wednesdays in a month. You cannot base your budget on these months because they are not every month. You have to base your budget on the 4 Wednesday months. So what do you do with these “extra checks” to make them livable income that goes to a purpose rather than just “Oh, we have more money this month!”? The months with 5 Wednesdays in 2008 are January, April, July, October, and December. I think there is one extra “extra week” from my blog on being paid weekly because the year starts on a Tuesday and ends on a Wednesday. I would simply add these “extra checks” into my “escrow” account. For this year I would divide the total (so 5Xyour weekly salary) by 12 and then you could disperse this amount monthly to yourself to supplement your budgetable income. If you end up with a huge surplus each month, just increase what you are putting in savings and spend from your savings and not from your bonus check or extra check. This will keep you from spending what you do not have, and from spending like crazy on “good” months and then suffering in the not as good. It will help your income come to a place of balance as if you are paid a higher steady salary even though your actual income fluctuates.

The next issue is how to manage the “1st of the month” issue in a budget. I just want to say that just because I have put dates into my blank budget example, doesn’t mean this has to be when you pay your bills. Because your entire pay cycle is keyed to the second Wednesday of the month, I would just shift my entire budget from the first of the month, to the second Wednesday of the month (a date somewhere between the 8th of the month and the 14th for 2008) and then your second billing period to the 4th Wednesday of the month which would be the last Wednesday of the month or the second to last on the months with 5 Wednesdays (so that would put the date between the 22nd and the 28th of the month). In other words YOUR “1st” of the month would just start a week later. You have already been doing this successfully because you are already paying your bills, you are just making a plan to make it more successful. So you would then know that on the 2nd Wednesday is when you would sit and pay all of the bills that are going to come due before the 22-28th of the month. And on the 4th Wednesday, you would sit and pay all of the bills that are going to come due before the 8-14th of the month.

So let’s say that you are paid (totally made-up numbers) $800.00 each Wednesday, and then every second Wednesday of the month you get an additional $1000.00 in a fixed bonus amount. So your total “Salaried” monthly pay would be $800 X 4 = $3200 + $1000.00 bonus = $4200.00. In to my budget that I have prepared for you, you would put $1600 into the 1st and 2nd Wed income slot (I have filled it in for the example, but you can change it and put in your actual numbers) and then $1600 into the 3rd and 4th Wed income slot. You would input in your actual fixed bonus amount. Your budgetable income per bill paying period will be $2600 for the 2nd Wed period (because you get your $1000.00 check on the 2nd Wed and need it for your mortgage), and then $1600 for your 4th Wed period.

However, once you get your escrow account set up and functioning, I have inputted what it would look like with the escrow. If you get 5 “extra” paychecks per year, you would take 5 X’s $800 =$4000.00/12 =$333.33 per month which your would draw from your “escrow” savings account each month. And then once you get your 2nd bonus check amount going into an escrow it would look like this: if you made $2400.00 annually through the 2nd bonus check, you would divide that by 12, so $200 a month which you would draw monthly from your “escrow” savings. You could either just draw from your escrow on the 4th Wed and put all of the supplemental income through escrow towards your 4th Wed bill period, or you could draw it on the 2nd Wed and divide the total by two to add to both bill periods. This is the way that it is set up in your example budget.

From there you would just plug in your bills and follow my guidelines for coming up with a budget under the sidebar title “Balancing Your Budget”. I sincerely hope that all of this has helped some of you to think creatively concerning your budget. There is a way to budget no matter what your income cycle. Sometimes it just takes a little bit of problem solving and I am so glad to be here to help you with that (if you would like me to). I can’t promise I will know the answer, but when it comes to budgeting it is my belief that there is always a way through.

Friday, March 13, 2009

Budgeting Review - "Life on Commission"

Some of my dearest friends in the world are both realtors. And although they are wonderful at what they do, the realty business is a %100 commission business and is consequently very competitive and difficult to make a living in. However, it has very flexible hours, and can be extremely rewarding business.

So how do you budget when you might have a $7,000.00 month one month and an $1200.00 month the next? I am going to lay out a plan for you today and I hope is going to help some of you finally come to a place of balance in your unpredictable income. This is not the only plan for managing a commission-based salary; however, if you have a mountain of credit card debt, you may need to re-evaluate the plan you have in place. It is too tempting to use your credit cards during the low-income months, thinking you will pay them off during the high months, but credit cards can quickly get out of control. It is so difficult to have accountability in what you are spending. Your budgeted spending tends to go out the window when you are freefalling on credit cards.

I believe the key to budgeting on a commission-based income is to set up an "escrow" savings account for yourself, which you contribute to out of every paycheck and from which you supplement your income to pay your bills. An “escrow” account in terms of real estate is a holding fund from which your bills related to your property are held and paid out of. You typically contribute a little to it each month out of your mortgage payment, and then, for example, when your homeowners insurance is due, the payment would be made out of your escrow account. You contribute the rest of the year to be able to afford that large payment when it is due.

A personal “escrow” savings account works very much the same way except that you are managing it yourself. So this is how you would set it up. First, you will need a savings account set a side specifically for this purpose. This is not the savings account that you will go to when your car breaks down. I am going to be addressing savings accounts specifically next week, so please come back for more information on that and the technicalities of how to get that set up. You will only use the funds in your escrow account to fund your budget in the low months.

So how do you know how much to fund your escrow savings account with? We are going to base your escrow savings account on your Net income from last year. Let’s say that you earned $50,000 last year (after taxes, and whatever other deductions come out of your paycheck… this is take home, budgetable income.) You are going to base your budget on $50,000, giving you $4166.67 per month for your budget, and $2083.33 per bill period (please see my blog entry from May 5th entitled “Simplicity” which deals with setting up your bill periods –beginning and middle of the month). Now you know your particular industry, and if last year was a phenomenal year for you and you don’t expect the same earnings this year, then you need to set your budgetable income at a realistic amount that you know you will earn. Also, do not include your bonus (if you received one), in this figure as you have probably spent it and thus it is not usable income for this year. You may use it in your budget for next year if you commit to putting it into your escrow savings account and not just spending it.

So here is the critical factor. After you have totaled up all of your bills and living expenses per month (this should include everything you spend money on like clothing, hair appointments, groceries, etc), I want you to subtract that amount from your monthly budgetable income total (so $4166.67 in our example). If the difference leaves you with surplus money (in other words, you spend less on your budget than what you earn, which is a good thing) you are then going to put in another category for you budget for surplus savings. Every month you will transfer this amount into a separate savings account. This is the money that you would fix your car with, or go on vacation. That way you are never taking unbudgeted money from your escrow savings account. If you do not separate out the surplus, it is very difficult to keep track of what is needed for your budget and what is extra. “Extra” spending has a way of “taking over” unless you know exactly what is “extra” to spend.

However, if you add up all of your monthly expenses and subtract them from your budgetable income total and you are in the negative, then first of all, you will finally understand why you are in credit card debt. Secondly, you are going to need to adjust your budget so that you are living within your means (which simply means that you are spending less than you earn). Thirdly, if you have reduced your monthly expenses to their bare minimum and you are still not able to bring them under your budgetable income total, then it is time to ask God for creative ideas to generate more income. Remember, He loves to “teach you how to fish” and His heart is that you would never lack, so there is a way through this. Sometimes that way through may mean reducing your car payment by driving a used car, or not eating out as much, or couponing to reduce your grocery budget. These may not sound like fun ideas to you, but if money is tight you need to be realistic about where you are and ask God to help you have joy in being as wise with the resources that He has already given to you as you possibly can.

Now, here is how you practically work this plan. Every month when you earn over your budgetable income total, so lets say you earn $7,000, but your budgetable income total is $4166.67, you will take the surplus money ($2833.33) and put it into your escrow savings account. Conversely, any month where you earn under your budgetable income total you will draw from you escrow savings account to make up the difference. Yes, this plan takes some diligence, but it will also stabilize your income and keep you from ever having to live on credit cards.

In closing, I just want to say that you need to recognize what season your industry is in when starting your escrow savings account. If you are doing well right now and business is booming, this is a great time to start your escrow and begin to fund it every month. If business is horrible right now, you may need to take your government rebate check (only in America ~sorry my South African friends) and fund your escrow account, or your take rebate, or you may need to live on a much stricter budgetable income total (what you are making right now –the low point) until you get into the next season and business picks up and you can begin to fund your escrow account and then adjust your budget.

I so hope all of this has made sense to you. I apologize for the length, but I truly didn’t want to leave anything out because it is the details that make this plan succeed. I hope some of you will put this plan in place and write me back with the details. I already have several friends who have put this plan in place and it has revolutionized their finances. They don’t stress in the low months and don’t have to live on mac and cheese. They feel like they have such freedom and can finally breath when it comes to their finances. It is my sincere prayer that it will do the same for you today.

Thursday, March 12, 2009

Budgeting Review - "Every Other Friday"

This blog is so revolutionary if you are paid every two weeks, that I know you will want to read it again. I have laid out the new dates for 2009 for your "extra check" which I know will be helpful. If you have never read this information, I guarantee you that this plan for regulating your paycheck in order to pay your bills on time is going to change your life!

Being paid every other week is a very common practice, but it can be very difficult to set a budget because your bills come on a certain day… your paychecks do not. The date that you are paid floats all over the month and it can be very challenging to determine exactly what bills are being paid by what check.

The key to succeeding on a budget if you are paid every other week is that you constantly need to be thinking forward with your paycheck. There will rarely be a paycheck that is for right now. Instead you will be paid ahead of your need. For example, let’s say your mortgage payment is due on the 1st of the April, but your pay cycle is for you to get paid on Friday the 27th of March and then the 10th of April. You would need to be aware that your mortgage payment was going to need to come out of the paycheck on the 27th of March. If you waited until the 10th of April, you might be late on your payment.

So here is the rule for succeeding on a set budget with a floating pay date: Any paycheck received after the 15th of the month is going to go towards paying your first of the month bills. Any paycheck received after the 1st of the month is going to go toward paying your middle of the month bills. This will eliminate so much stress and guarantee that you will never be waiting on a paycheck in order to pay an overdue bill. If you can get your budget onto this system, you will never have to stress about if the money is going to be there. You will never again be in a panic because you thought you had a lot of money in the bank and so you spent it and now you don’t get paid for another week and your mortgage is due.

So for March, the check that you receive on either the 6th of the month or the 13th of the month would pay for the middle of the month bills (any bill with a due date on or after the 15th of the month), and the check that you receive on either the 20th or the 27th would then pay for your beginning of the month bills for April (any bill with a due date on or after the 1st of the month).

Now as you may have noticed, January had five weeks and that again brings up the issue of the “extra paycheck” that we discussed yesterday (under the title, “By the Hour”). On a two week pay cycle, your “extra paycheck” will either fall in January and July, or May and October of 2009, depending on which week your company has payday. If for January your paydays were on the 9th and the 23rd, your “extra check” would fall in May and October. If your paydays in January were on the 2nd, the 16th , and the 30th, your “extra check” will fall in January and July. So if you are on the first cycle (the 9th and the 23rd of January), you would only have received two paychecks in January and your next month with three paychecks would be May and then October. If you received three paychecks in January, then your next month with three would be July.

In other words, your paycheck for the 3rd of July will go to pay your middle of the month bills, your paycheck on the 31st will go to pay your beginning of August bills, and your paycheck on the 17th is bonus (your “extra check”).

If in the past you have used your 3rd of July (on months with three checks) to pay your beginning of July bills, this “extra check” will be a lot more fuzzy for you. You will feel like you have more money, but will not be able to pull the entire check out because without a budget in place you have probably already used it. A budget is going to be such a blessing to you, because instead of just having a “good month” twice a year, you will be able to be purposeful with that money and actually put it toward your dreams, like taking a vacation, or a new computer, or a fence around your backyard, or paying off debt. Without a budget in place, you will live up to your income… your entire income, no matter what it is. So even if you don’t get to do it this month, if you will begin to set your finances to the plan that I have laid out today, you will bring stability to your finances and come May or July, you will be able to actually save and be purposeful with your “extra check”.

Again, if your budget has little flexibility you may need this check to live on the rest of the year to supplement your income. If this is the case for you, the way to do that is to take the “extra check” and put it into a savings account. Divide that check by 6 and then draw out that amount each month to supplement your income.

So if you are on a two week pay cycle, your budgetable income that you will plug into your budget will be your net paycheck amount if you are on salary. If you are paid hourly it will be your average –to-lowest paycheck amount (please see details on how to reach this amount in “By the Hour”.. all of the info is the same except that you will divide by 26 instead of 52 to find your average paycheck).

I hope this has all been clear to you and that you can finally begin to see a way for you to succeed on a budget. I know that many of you may already have a plan in place, or you may have ideas on how you can make this plan work better for you, and that is wonderful. This is not the “only” plan, but it is “a” plan and it will work, and if you will use it, it will help you to finally understand where your money is coming from, and to finally have purpose in where it is going.

Wednesday, March 11, 2009

Budgeting Review - "By the Hour"

Even if you have read this blog before I encourage you to read it again if you are paid by the hour. I have updated the dates for your "extra paycheck" for the year and it will be a great reminder of your pay schedule. This blog fits under II. a. ~Hourly wages of our outline. And yes, I know how to correctly do a formal outline, however blogger will not cooperate and allow me to leave spaces. Consequently, I have improvised so that it can be clearly read... just had to add that :)

According to Forbes magazine, more than half of working Americans get paid by the hour. So if that is how you are receiving your income, you are in great company. As far as budgeting goes, it is not too different from receiving a salary in that you roughly know what you are going to make each month. However there are some notable considerations with hourly pay and we are going to look at those today.

Now I want you to hold on to your seat a little bit, because I am going to be giving you a lot of information today, but it is extremely important to understand where your money is coming from if you are going to be able to manage where it is going. I am really trying to lay this out so that it is clear and easy to follow, so please ask questions if something is unclear.

Because there are slight fluctuations in your take home pay when you are paid by the hour, I first want to look at how to determine your monthly take home pay. The first step is to determine your average paycheck. For today's blog we are going to focus on a weekly paycheck.

Tomorrow we will look at the strategy for when you are paid every two weeks, as it definitely differs in the particulars, however there is a lot that is the same, so don't stop reading! First of all, take your total gross income, which you can find on your recently completed taxes, and subtract your taxes that are withheld by your employer (medicare, social security, state taxes, federal taxes) for the year. If your employer withholds money for your health insurance or your 501K, you will need to subtract the yearly total of those from your gross as well. This will give you the "net total" for the year or the amount of money you get to take home and live on each year. To find your monthly average net pay, simply divide that total by 12. To find your weekly net pay, divide the yearly net by 52. This will give you your average weekly paycheck.

However, sometimes this average may be higher than what your actual weekly net pay is. Many times this is because you may do more overtime during certain seasons, which effects your yearly net, but not necessarily your weekly net. Consequently, you need to think about what you will actually have to live on every month of the entire year when you set your budget. So somewhere between your average check and your lowest paycheck amount is a good place to set your budgetable income. So multiply your weekly amount by two and you will have your budgetable income total. Thus if you make $400 a week in net take home pay (taxes already subtracted out), your monthly budgetable earnings would be $1600. You would have $800 per bill period (first and middle of the month ~see yesterday's blog) to pay your bills.

In setting up your budget, we are going to be basing your entire budget on a four-week month. However, if you are paid weekly, four times a year you will receive an extra paycheck in your month. For 2009, those months are January, May, July, and October. For this year, these months all have five Fridays in them and consequently you will get an “extra” paycheck. I am going to deal with this issue extensively later on because it actually affects everyone when it comes to budgeting. However, I am mentioning it today because if you receive a weekly paycheck, it is an enormous factor. You cannot base your budget on a five-week month because it only comes around four times a year. You need a livable budget all twelve months of the year and that means you must base your budget on a four-week month. It is better to have surplus four times a year, than to constantly be in lack and struggle to pay your bills the rest of the year.

If you already know that your budget is going to be tight with not a lot of flexibility, then you may need that “extra check” to live on every month. So this month, I want you to take the “extra check” and deposit into a savings account. If you need to subsidize your monthly income, you can then divide that check by 3 and each month withdraw that amount to add to your income. It will allow you to set your budgetable income a little higher each month. For example, if you earn $400 in net take home pay a week, and on the extra week you take that paycheck and deposit into a savings account, you would then divide that amount by 3 and withdraw $133.00 a month to add to your budgetable income. So your income for the month would be $1733.00 instead of $1600, and you would have $866.50 per bill period to pay your bills.

However, if you have more flexibility in your finances, I would still recommend putting that “extra check” into a savings account. If you don’t need that money for your monthly living expenses then it is a wonderful opportunity to begin to save towards your dreams. On a limited income, $1600.00 (from our example, four “extra checks”) can be a wonderful way to save towards a vacation, or a down payment on a house, or new furniture… whatever your dream is. My heart is not to tell you what to spend your money on but rather to spend purposefully. If you don’t have a plan in place the money will disappear, but if you have a plan, you can reach your dreams.

So that is it for today. Again please feel free to comment or ask questions. I know I have given you a lot of information, but I hope it is helpful to you. And if your head is hurting, I want to leave you with this joke, which may feel true, but hopefully isn’t too close to the truth in your life:

UNDERSTANDING YOUR PAYCHECK:

GROSS PAY: $1222.02

INCOME TAX: $244.40
OUTGO TAX: $45.21
STATE TAX: $61.10
INTERSTATE TAX: $5.89
COUNTY TAX: $ 6.11
CITY TAX: $12.22
RURAL TAX :$4.44
BACK TAX: $1.11
FRONT TAX: $1.16
SIDE TAX: $1.61
UP TAX : $ 2.22
DOWN TAX: $ 1.11
KNICKNACK TAX: $ 1.98
HACKENSAC TAX: $ 3.93
THUMBTAX: $ 0.98
CARPET TAX: $ 0.69
SNACK TAX: $ 8.32
SURTAX: $ 3.46
MA'AM TAX: $3.46
PARKING FEE: $ 5.00
NO PARKING FEE
F.I.C.A. : $ 10.00
T.G.I.F. : $ 81.88
LIFE INS. : $ 5.85
HEALTH INS. : $ 16.23
DISABILITY INS. : $ 2.50
ABILITY INS. : $0.25
LIABILITY INS. : $3.41
DENTAL INS. : $4.50
MENTAL INS. : $4.33
FUNDAMENTAL INS. : $ 0.11
COFFEE : $6.85
COFEE CUPS : $66.51
CALENDAR RENTAL : $3.06
FLOOR RENTAL : $16.85
CHAIR RENTAL : $4.32
DESK RENTAL : $4.32
UNION DUES : $5.85
UNION DON'TS : $3.77
CASH ADVANCES :$0.69
CASH RETREATS : $121.35
OVERTIME : $1.26
UNDERTIME : $54.83
EASTERN TIME : $9.00
CENTRAL TIME : $8.00
MOUNTAIN TIME : $7.00
PACIFIC TIME : $6.00
DAYLIGHT SAVINGS TIME : $4.44
TIME OUT : $12.21
OXYGEN : $10.02
WATER : $16.54
ELECTRICITY : $38.23
HEAT : $51.42
AIR CONDITIONING : $46.83

MISC
169.24

TAKE HOME PAY: $0000.02

Tuesday, March 10, 2009

Budgeting Review - "Simplicity"

The first step to setting up your budget is to determine your monthly budgetable income. In other words, the money after taxes that you have to pay your bills and to spend each month. The following blog was originally posted last year and covers the topic of determining your income from "Salary" - II. a. ~

Albert Einstien once said, "Everything should be made as simple as possible, but not simpler." There is a lot of complexity to finances, and sometimes it is difficult to find the simple answer. Sometimes the answer is so simple and obvious that you miss it because of it's simplicity. I really want to make this as simple as I can for you, but at the same time I realize that we are all coming from different backgrounds with different financial situations.

There is a simple way through the maze that has been your finances and with the grace of God and the map of a budget, we are going to find it. The first step is to identify your livable income. The heart of a budget is managing your money and being purposeful with that money, and simply determining how much money you have to live on each month is absolutely critical.

So how DO you determine how much you have to live on, no matter how much your income fluctuates? For some of you, this is not a difficult issue because you are on salary, and are paid a fixed amount once or twice a month, and consequently know exactly how much you have each month. However, for those of you on commission, self-employed, or hourly wages, it is not that simple. I am going to start with those on a fixed salary, so that everyone can get the heart of where we are going with a budget on a simple example.

Let's say that you are paid $1500.00 on the 15th and the 30th of each month. Your take home pay for the month would be $3000.00. This is the total that all of your bills have to be subtracted from. Very simple and basic, and yet for some of you this may be an "Ah-ha" moment. However, even if you are paid just once a month, I want you to divide your salary into two sections, the beginning and middle of the month. It is too time consuming to continually manage your bills throughout the month. No matter when you are paid or how often, I recommend sitting down twice a month (of course you can do more if you would like) and looking at your budget and paying your bills. This system is particularly easy if you are paid twice a month as you can sit and make out your deposit and pay your bills and handle your finances all at the same time. That way you don't have to worry about your bills for the next two weeks.
Instead of trying to manage your bills all at once, like some unwieldy giant, it really does bring simplicity to divide the month in half and face it as two separate parts. Conversely, if you are continually paying bills and trying to manage your finances, it will bring simplicity to you to only do your bills twice a month. Managing your finances should not control your life, it should empower your life, and bringing simplicity is the way to do just that.

So that's it for today. Simple, easy... for today anyway. Determining your budget may not always be so easy, but once it is done I guarantee you it will simplify your life. You won't be constantly worrying about missing bills, or if you have enough money in your account, or where your money is going, because you will have a plan for your money, and you will know exactly where your money is going. The simplicity and peace that is going to come to your finances will make all of this effort worthwhile. In closing, I want to share a quote with you, because I know you are going to feel the same way about budgeting:
"As a destination, Simplicity is not the easiest place to get to, but once you find it you will never want to leave."

Monday, March 9, 2009

How to Set Up Your Budget (an outline)

This is a simple outline that I am going to fill in in the next few days with information. For today, if you have not yet set up a finance binder or a system of organization for the paperwork of your finances then please read the blogs under Section I. If you have been following my blogs, and already have your paperwork organized, then I thought that seeing the process of setting up your budget outlined in this simple format may help you. If it is all new to you, then stay with me, because it will all be explained in the next few posts.

I. Setting up a Finance Binder for easy organization

I covered setting up your Finance Binder a little last Monday, but I didn't major on it. If you would like more information on setting up a finance binder please see the following blogs:
Binders, Files and the Battle of the Sexes; A Plan for Freedom; A Place for Everything; Finishing Things

II. Setting up your Budget

a. Determining your budgetable monthly income
~ Salary (paid once or twice a month)
~ Hourly wages paid weekly or
~ Bi-weekly (hourly or salary)
~ Commission
~ Combination of salary and commission
~ Self employed

b. Listing your bills
~ Fixed bills (do not vary – the same amount every month
~ Fluctuating (like your electricity or gas –change every month)

c. Listing your monthly Fixed expenses (Giving, Savings, etc)

d. Discretionary Money
~ List your categories (Groceries, Gas, Entertainment, Clothing, Gifts…)
~ Look at your last few months to see what you typically spend and determine a livable budget based on this
~ The Envelope method

III. Balancing your budget

a. Work to reduce your expenses to within your income
b. This is the part that may take a little prayer and (gulp) sacrifice. Remember, living within your income is going to free you from debt and enable your dreams. This is the time to be realistic about what you are spending your money on, and what you may need to give up or reduce. Ask the Lord to help you to know how to manage your money well.

IV. How to use your budget

a. Carry it in your wallet
b. Make notes on your budget as you spend and pay bills
c. Print a new budget each month, making adjustments as needed

Sunday, March 8, 2009

Blooming

What a beautiful weekend we had in Tulsa, OK. Blue skies and lovely warm weather have completely confused my rose bushes which are now covered in spring growth. Unfortunately, spring never comes this early in Oklahoma, and the warm weather is usually just a lull before the temperature plumets to below freezing. Most of what is blooming will probably die, but it is such a delicious taste of spring in the mean time.

Before I dive back into the wonderful world of budgeting I just wanted to update you a little on what has been going on in the last week. Last Monday, I had the priveledge of doing a budgeting class for a lovely group of ladies. It went so wonderfully well. In preparing my notes to speak, my biggest concern was that they would be overwhelmed. However, the comments I received were that they were each so encouraged. I loved that, because I truly feel that budgeting should be a liberating subject, and not a burden. The burden is in NOT having a budget.

The whole experience was a wonderful reminder of the freedom that learning to manage your finances well can bring. It reminded me why I am writing my book and why I started writing this blog. I feel excited again to write about an area that is producing so much fear in so many people right now.

For the next few days, I am going to be posting the handouts that I gave out at my budgeting talk. This may be a review for some of you, and it may be brand new for others. However, I think all of us can benefit from refocusing on the "why's" and "how's" of good money management. Just as I did with the ladies last Monday night, I am going to once again take you through the process of setting up your budget. Even if you already have your budget established, I believe this information will still be useful to you.


My prayer for you is this:
"God has not given us a spirit of fear, but of power, love, and a sound mind."
~2 Timothy 1:7

May you have His mind as you sort through your budget. May God's wonderful power strengthen you and sustain you, and may His perfect love cast out all fear.

God bless,
Tracy