geek

I’ve mentioned my shopping bans and a few other things like balance transfers and getting my finances in order before but since a friend just asked for me to share my actual budget strategy, I figured I could make a post out of it since it can help so many of you out there.

We weren’t born with good financial skills. Some of us weren’t taught by our parents how to balance a checkbook or be responsible with our spending. Some of us got our first credit card as a freshman in college and made a mess of things. That’s okay. There’s no time like the present to figure out what’s really going on with your money and know what your limits are so that you don’t get yourself into a pickle.

I’m on a pretty tight budget. I work for my family and get a regular paycheck but it’s not nearly what I would like to be making. My car is paid off, my rent/home bills equal 1 week’s pay (the standard for living within your means), and I have a a couple thousand in credit card debt that I’m whittling away at.

So here is the plan I enacted a few months ago (because I was sick and tired of always having to figure out in my head what I could and couldn’t buy, and I was always broke for a week after rent was paid) and it’s been working great for me!

First off, I transferred the balances of my 3 higher interest credit cards to 1 card that had zero interest for the first 18 months. You’ll have to research this yourself and find one with NO fees and at least a way lower interest than your other cards. (Or just try to negotiate lower rates with the companies over the phone, or transfer to one card you already have with the lowest rate.)

I will not put any new charges on that new card ever. Once it’s paid off, I’m done with it. I don’t even carry it around with me – because balance transfers and new charges get put into different interest pools and they screw you hard.

I also found out which one of my other 3 cards had the lowest rate and that’s the one I carry around for emergencies. Real emergencies. Not shoe emergencies. Like car explodes, cat is sick, bail my mom out of jail emergencies.

THE BUDGET PLAN:

1. Figure out how much you make every year after taxes. This is your base total. If you sometimes get overtime, don’t count that. That’s a bonus cushion in your checking account.
2. Total up your bills (round up) like cable $50 x 12 months = $600, car insurance, cell phone, rent, gas for your car (average what you usually spend and round up), utilities, regular prescriptions, etc. Subtract all this from your base income total. (You should also pay yourself first and consider the money you put into whatever retirement/savings plan you have as a regular bill.)
3. Figure out how much you’re willing to pay every month on your credit cards to get them paid off asap.Multiply this x 12 and subtract from what’s left of your base total.
4. What’s left is your disposable budget – divide it by 52 (weeks in a year) and that’s what you’re allowed to spend every week on whatever the hell you want. Since grocery trips vary all the time I consider food a disposable income kind of thing. If I go over one week, I take it out of next week’s allotted money. If I have a surplus, I put it in my savings account or I roll it over to the next week if a holiday is coming up or I really want something special.

Now, if you find that this simply isn’t enough to live off of every week, think about it. How did you manage to survive before this plan? Nothing’s really changed. You still have the same income and expenses. So were you putting junk purchases on credit all the time? You have to stop it. You have to live within your means. It’s as simple as that. If you HAVE to have more every week, then consider picking a smaller cell phone plan, or eliminating a monthly bill altogether if you can. You could also re-crunch your numbers a pay a bit less every month on your credit bills. This will only drag out paying them off though. What can you live without? Do you eat out too often? Do you need 5 fashion magazines every month? For the cost of 2 you can get a subscription for the entire year. This is the time to think about stretching your allotted weekly disposable money.

HOW TO STAY ACCOUNTABLE:

I deal primarily with a debit card. I will write a check for rent and that’s about it. I don’t rely on what online banking is telling me what my balance is because they’ll put things on hold, aren’t up-to-date, etc. I know what I have in the bank because I did the math myself. That little ledger that comes with checks is where I write down every single debit transaction and do the math. There are free programs you can download to do this on your computer as well. After I buy something, I stuff the receipt in my wallet (immediately write it down for online purchases) and once or twice a week, I sit down and subtract them all from my balance. When my bank statement comes in the mail, I cross reference and put a check mark for each amount on the ledger and the statement. Sometimes I lose receipts so this keeps me straight and I can stay on top of fraudulent charges as well.

Now for keeping track of that allotted disposable income every week:

I keep a little piece of paper (super cute stationary) in my wallet with my allotted weekly money written down at the top. Every time I make a purchase that isn’t a usual monthly expense, I subtract it on my paper, always rounding up. That’s it. I always know how much I can spend every week. I’m never broke come rent time and it keeps me in check on my shopping. Like, “Oh crap, I only have $60 left this week and I want xxxxx but need groceries. Maybe I’ll get the xxxxx next week.”

There is great room for negotiation on your weekly disposable money. If I spend more one week, I subtract it from the next week when I put a new paper in my wallet on payday (yes, payday is where I start my week). If I spend less and have a surplus, I either transfer it to my savings account online or I roll it over to the next week if there’s something I really want, something I have to do (like an oil change), or a holiday is coming up.

Not all of us can spend whenever we want on whatever we want. I wish we all could but oh well. This is what I have to do to keep myself from over-spending. When you are forced to consciously consider every purchase, you’ll start seeing how silly and reckless a lot of your past spending behaviors were. It’s a good little reality check.

You also get used to this really fast. It’s a pain at first but now, it’s second nature and I’m glad to have done it this way.

Hope this helps some of you get a game plan. There’s no better time to get the ball rolling on good financial behaviors than now. Your next payday would be a good time to start!

Good luck!

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