Friday, April 16, 2010

Foodless Friday: Money

It surprises me how many people are not good with money (okay, I'm not perfect, but have learned a few things I try to implement...)  I was fortunate enough to take a Family Finance class the first semester my husband and I were married. I think that set the stage for the managing of money in our marriage (it also helps that my husband had previously taken the same class.)  I'm going to share some things I've learned.
*Disclaimer: I am not a finance expert by any means, below are just some things I've learned and am trying to/have implement(ed) in our lives.

First, to create a budget, you should spend as you normally do for a few months (or go back for the past few months and chart expenses.) Divide it into categories that work for you (for example, the categories that I track are: Rent (Mortgage), Insurance, Loans, Groceries, Eating out, Gasoline, Baby, Clothing, Charitable Contributions, Entertainment, Irregular (things that don't normally happen such as tires, car repair, etc.), Medical, Household, Phone, Utilities. The first three expenses are usually fixed - you pay the same amount each month. The rest of the expenses vary, whether a little or a lot - which is why it is best to track your expenses for a few months in order to get the best picture of your expenditures.

Of course since we've been married, first we were both in college, then my husband was a grad student and now we're looking for full time employment while he finished his thesis so our finances have been all over the map. If you are in more of a stable situation, you should be able to do this a little better than we have!

One way to reduce spending in a category is the step down principle. Imagine there is a ladder and at the top is the most expensive way to spend money and the bottom is the least expensive. When buying clothes having them made professionally for you is the most expensive, a few steps down - department stores - a few steps down - Target - a few steps down - second hand - at the bottom - freecycle. Now if you were buying tailored clothes you would not go directly to freecycle, you would probably go to a department store or one step in between tailored and a department store. The big thing is that you would be saving money. If you eat out a lot, you can save money by getting water instead of a drink or not ordering an appetizer or dessert. Or you can eat out one to two fewer times per month... You have to do what works for you.

Another principle of finances is to pay yourself first - set money aside in savings first. I find that if I do this I am less likely to spend it than if it is in my checking account. I tend to look at my checking account and think, I have this much $$, so I can spend it all. If I put money in savings then I tend to forget I have it - unless I actually NEED to spend it (such as for medical, or car repairs.)

Weekly/Monthly Finances Sessions:
How I do my finances: every week I enter my income and expenditures in my excel spreadsheet (actually made by my husband) that is like a check book register that does all the math. I usually discuss our financial situation with my husband after I am finished. Every month I break down the expenses into the categories that I listed above. Then I enter those into another spreadsheet that averages how much we spend in each category per year as well as one that is just for that month. It has an area that lets me enter information about that month and list any out of the ordinary circumstances that affected our spending. That way we can see trends in our spending, such as when I was pregnant and had morning sickness we spent a lot more eating out because I couldn't stomach cooking and eating the same food... that is actually when we separated eating out and groceries.

Credit Cards:
Another thing with finances is credit cards... we love them and we hate them. They are convenient and the best way for shopping online securely. They also charge interest... You should NEVER get a credit card that charges a yearly fee to hold it... it is not worth it. Each credit card has a 'grace period' for purchases where they do not charge interest. The best way to use a credit card is to pay it off each month so you do not have to pay interest - be sure to note the grace period for your card, some are as few as 20 days. (Of course this was before the new legislation that passed, so I'm not sure exactly what has changed...)  Hubby and I actually count our credit card purchases against our checking account balance so we have the money to pay off our credit cards each month.

If you do have credit card debt on more than one credit card, pay off the highest interest card first while paying the minimum on every other card. For example: If CC1 has an interest rate of 20%, CC2 has an interest rate of 18% and CC3 has an interest rate of 12%. To make this easy we'll say that each credit card has only 1,000 balance and that the minimum payment for each is $25 and that we have a total of $150 per month to pay on the cards (I'm also not calculating interest, which would make the payments on the cards longer, but more complicated in this example.)
So since CC1 has a higher interest, we're paying $100 on it, and $25 on the other two per month. After 10 payments (months) CC1 is paid off. The other two cards are paid down to $750 when CC1 is paid off. So then we take $125 (the $100 from CC1 and the 25 from CC2) and apply it to CC2 and $25 to CC3. After 6 months CC2 is paid off and then we apply all $150 to CC3 (which has a balance of $600 when CC2 was paid off.) After 5 months CC3 is paid off. So after 21 months all credit cards are paid off... of course with paying interest, it would take longer...(20% interest on 1000 is about $16 per month.)
Here's it looking visually:
        CC1         CC2         CC3
1000 1000 1000  Month 1
900 975 975  Month 2
800 950 950  Month 3
700 925 925  Month 4
600 900 900  Month 5
500 875 875  Month 6
400 850 850  Month 7
300 825 825  Month 8
200 800 800  Month 9
100 775 775  Month 10
0 750 750  Month 11

625 725  Month 12

500 700  Month 13

375 675  Month 14

250 650  Month 15

125 625  Month 16

0 600  Month 17

450  Month 18

300  Month 19

150  Month 20

0  Month 21
Another way to deal with high interest is balance transfers, but you have to be careful with balance transfer fees, as they can make you pay more money than you would just paying it off.

These are just a few of the things I've learned and tried to implement in my financial life... I hope this has helped at least one person out there...

1 comment:

  1. Great ideas!

    I love using credit cards... if done properly. In the course of one year, we used our credit card for all purchases (making sure we could pay it off to zero every month, or more often when we thought of it) and we saved at LEAST $10/month in bank charges (vs using our bank card) and MADE $200+ in points that we can use in our local Superstore! How many bank cards or cash systems allow that? But, the problem is, making sure you only spend what you have, not more. I think that's where it can be difficult for some people. :)

    I love the tips you posted! Awesome!


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