Category Archives: Budgeting

Last Quarter Cash Flow Changes

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I’ve been overzealous in my desire to save and invest more this year!

My plan was to max out my both my 401k and my Roth IRA, but with a twist.  The idea was to use my employer’s ESPP to save for my Roth IRA (and this has been successfully done), but also to take more out of my paycheck for my 401k contribution, the thought being that I would max my 401k contributions so that we could breeze though Christmas since my 401k contributions would be finished in November.  Unfortunately, that’s not going to happen, and that is all part of financial planning.  I underestimated my expenses and overestimated my income (slightly) and now it’s time to make some end of year cash flow changes.  Luckily, I control the dials on my financial engines, and all I have to do is make a few small adjustments to put myself back on a track that is realistic.  Below are those changes!

Getting Paid for recycling

Cash Flow Changes

  1. I now plan on back off the amount I’m saving for my 401k Contributions by 1 or 2 percent.  This alone will make an instant and dramatic impact.  Since I was shooting to get my 401k maximum paid off in November, this really won’t affect me other than make Christmas a bit tighter.
  2. I already kicked up my withholdings for taxes at the beginning of the year.  This is an easy dial to adjust, I reduced the amount by $25 and that move freed up an addition $50 a month.  Not a huge number, but it counts.
  3. The most important one is my ESPP.  I’ve saved enough from it to cover my Roth IRA, so now I’ll be able to transfer the amount from my ESPP saving into my checking account to cover the rest of the year, and the bills next year in January for Christmas 2013.  Originally, I had hoped to use this money for investments, but it obvious that the original path is not going to happen now.

Cash Flow Thoughts For Next Year

My basic plan is that I’m going to throttle my 401k contribution percentage down by 3% to 5% less than what I’m currently saving.  This will make a big difference I believe.  Then midyear next year, I’ll reevaluate how I’m doing and then maybe adjust the amount up if all is going better than I believed or do whatever is needed to make life for my family good.

On the ESPP front, I will continue to use it as a forced savings account for both my Roth IRA, and then later for investments or more than likely for basic living expenses since this is what I have to do this year.

I think the above cash flow changes should put me back on track to free up the flow of money for the rest of the year.  If it doesn’t, then I’ll adjust my budget again next month.

Bests,

Don

Creating a Spending Budget To Spend More Money

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The significant percentage of people have problems with spend more money than they have, so they usually overspend.

To counter their overspending habit, the more prudent ones typically implement some sort of budget.  I’ve never implemented such a budget, but my situation is a bit different that other!

My problem is I underspend!

So while most folks go to the store to go shopping and bring home bags full of items bought, I often come home empty-handed.  Oh I’ll spend 1/2 to a full hour looking at the item I want to buy, but often in the end, I leave telling myself I’ll wait for it to go on sale, or that I’ll get the next newer model when it comes out.  I’ve been doing this process for years with the flat HD TVs.

Some people would say: “Oh, you’re just cheap”, but those people don’t see what I spend on my kids.  I’m much quicker to loosen the purse strings when the kids come into question versus anything else.

How Does My Wife Handle My Underspending?

Surprisingly very well, but then again, she is even more frugal than I am.  So I’ll suggest something that we need and she’ll mildly question it, and I’ll then gladly, quickly backpedal, saving me the bucks!

While this is a positive for a financial perspective, it also leads to a less than optimized lifestyle that I’m trying to fix.  I’ve been encouraging my wife go out during the day when the kids are at school to meet with friends for lunch once a week.  She seems to enjoy this little (new) tradition.

Now that I have enough money generated from my Free Lunch Experiment, I might go out to lunch with people or friends, once a week too!

So that all said, with both my wife and I going out once a week for lunch, surely I must be spending more, but not so fast!  You see, my wife has a small (around 8 hours total) weekly job, where she uses the money to spend on herself and the kids, so this doesn’t cost me.  And the Free Lunch Experiment provides me money from the dividends so I don’t have to pay for those 1 or 2 lunches that I eat out once a week!

So I’m really not paying from my income either of the weekly lunch out sessions.

A Budget For Spending:

This is where a Budget for Spending would be ideal!  The idea would be to determine that amount of money we want to spend on entertainment at the beginning of the year, and make a spending budget to make sure that money get spend on those goals.  Of course, the money can come from any source (income, investments, dividends, money found, etc).

Thinking about it, I can imagine the following Budget Goals (Kids activities, vacations, entertainment, house projects, Gifts, etc).

Is there any readers out there that have “Nospenditis” like I do?

-MR

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Are You Tracking Your Cash Flow? You should be!

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This is a guest post from Money Beagle, who writes about personal finance with a focus on the personal side of things. 

A few years back, my financial tracking was a lot less involved than it is now.  I had started tracking my Net Worth and investment performance in 2001, but that was about the extent of it.  At the time, I had a low mortgage payment, was making pretty decent money, and the net worth statement went up more often than not.  I was single and had money to spend when I needed it.  Life was good.

At the time, I knew that I was doing pretty good with saving.  Every few months when my savings account balance would grow, I’d take a chunk of cash and either send it off to retirement savings, a high-yield savings account (this is back when they were paying 5-6%) or something else.

Financial life was pretty smooth!

Then something happened to change all that: I bought a car.  Or, as might be more appropriate, I bought a second car, a fun car, a sports car!

I’d always had my eye on a Corvette.  They’ve always been my favorite car, and since I had recently done very well in the stock market, knew I was saving money, and knew that the car I coveted was pretty good at holding its residual value, I started taking a look around.  I found one I liked and away we went! 

The car: Awesome.  For everything I’m about to write, I have no regrets about having bought the ‘Vette.  I saved it for more ‘special occasion’ driving, put minimal miles on it, and loved every second I was behind the wheel.  That includes spending a lot of time behind the wheel just parked in my driveway or garage.  I loved it that much!

It took awhile, but I noticed that I wasn’t doing my somewhat regular contribution to savings that I had noted above.  By that I mean, I had stopped altogether.

I sat down one day to take a look at why this was.  I knew that the extra car payment and insurance was going to slow things down, but I thought I’d still be able to put money aside.

Turns out, I was WRONG!

I sat down and added up what I brought in (my paycheck) and subtracted out all that I was paying out (mortgage, car payments, insurance, utilities, spending money, groceries and everything else).  I didn’t believe what I saw so I added it again and again. It still came out the same.  I was spending more than I brought in!

I had a cash flow problem!

Even though my net worth was going up, it was because I was seeing increases in non-cash areas.  My mortgage balance was going down.  My retirement contributions were growing.  The value of my house was growing (ah, the good old days).

But, the numbers didn’t lie and they said one thing: I was slowly bleeding cash.

Luckily, even though I was burning through cash, it was a slow burn where I was pretty near the break-even point. It would have taken me a few years at the rate I was going before I would have run into a real cash flow issue.  In all honesty, that’s probably why it took a while for me to even notice it.

Still, even though I wasn’t in any imminent danger, I didn’t like it.  So, I resolved then to begin tracking my cash flow and I started right then and there.  Now, in addition to tracking my net worth, one of the statements I prepare every month shows our cash flow.  It’s as simple as I outlined above:

Money in minus Money out = Cash flow

If the number is positive, things are good.  If it’s negative, then there’s a problem! Tracking it makes me aware of any issues so now I can head off any possible issues.

To finish off my personal ‘Vette story, I fixed the problem.  You might think I turned around and sold the car, which would have been the best method to address the problem.  While I ended up doing that, it was over a year and a half later before I did, and was for different reasons (I was about to get engaged).

What ended up happening to relieve the immediate problem was a friend of mine ended a relationship and needed a place to stay.  I had a spare bedroom and the $350 that my new roomie brought solved both of our problems temporarily.  This brought me back into positive territory and let me keep the car longer and later sell it on my terms, and not in a panic as I might have otherwise done had the problem gotten worse.

This was my eye-opening experience on the importance of knowing and tracking your cash flow.  Please stop by Money Beagle and let me know if you’ve had any experiences of your own that led you to track this very important measure of personal finance health.  And, if you’re not tracking this, start tracking your cash flow today!

Saving By Paying Attention – Impulsers, Part 1 of 4

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Impulse Buyer

I have friends, lets call them Impulsers (yes, I made this term up), that are constantly driving to the store to get a snack, pop or ice cream or _________ (insert convenience item on the line to the left).

Typically the Impulsers group are non-financial people that don’t understand (or were never taught) finances so they never picked up even the most basic money skills.  They usually buying everything on impulse, whenever they want it, including big ticket items like cars and boats.

The Impulsers typically live paycheck to paycheck, or worse, go into debt spiral!  Money is like air to them; they breathe it in (salary/wage income) and breathe it out (consumer items and non-appreciating assets) and then some…

Impulsers are not bad people per say, but a little naïve about money management!  So what do you to do if you have a close friend that is bad with money like the Impulsers?

2 Ways to overcome Impulsers’ weaknesses:

  • Budgeting!  Yep, the “Impulsers” have the most to gain by using a budget versus any other group! Ironically, there is an excellent personal finance blog out there called www.Budgetsaresexy.com that actually is really cool.  So cool, that I believe the Impulser’s group would appreciate it and perhaps get hooked on it.  They might start to reading it on a daily basis.  This would be a win-win for anyone in the Impulsers group, because they would derive entertainment value out of the Budgetsaresexy.com website, while at the same time learning a thing to 2 about budgeting!  J.Money even has a special Millionaire Club group, that is basically a pledge of things to do to try to reach that elusive Millionaire level status.  This hands down is the coolest blog about budgeting you will ever find!
  • What if they don’t want to do read a blog? Well, that brings me to what I’m trying to do currently with a friend.  First, we are close… almost brothers, so that gives me a little extra wiggle room, versus a friend you might have know for only the last couple of years.  What I’m going to do is have my friend and I do the budget together!  You might be wondering what am I going to use as the carrot?  Well, my plan is to use the old “I need help” and “Let’s try this out as a team” approach.  The reason for this approach is that your friend doesn’t believe that he/she has a problem.  But, like most good friends, if you come to them asking for help by doing something together, it might have a chance!  You’ll have to spend some time creating the program in addition to the work creating budgeting program.  But if you do it right, and have periodic meetings (monthly or maybe quarterly) somewhere fun (maybe a bar?) it might work!  During these meeting times, voice your concerns to your friend about your financial goals and talk about your expenses and how you plan on controlling them.  You might be able to even animate certain expenses.  By animating certain expenses, it will give it a face!  That will enable you and your friend to recognize the face of the enemy and try to conquer it by keeping it contained (via the budget)! He/she should be able to pickup your concerns and how they relate to him/her.

Also make sure you really do it all out (afterall it’s really a stealth mentoring thing). If you don’t follow through with your budget, how can you expect your friend to either?  I think it might be fun, actually!  Perhaps another win-win scenario.

If you have any additions or any questions about my suggestions please jump in and post a comment.  The water is warm and friendly here are Money Reasons!

-D