My 2017 Annual Budget - Part 3 of 3

This is the final part of my personal 2017 annual budgeting series.  Now let's talk about what isn't included but definitely has an impact on my budget.

First off right now I do have a flatmate on a short-term (but unknown time) basis.  I receive a tiny amount each month to offset their costs.  I do not factor that into my income but the extra costs I have is factored into my expenses.  (I am using the monies they give me to top-up a savings account that is not a part of this blog.  Once this person is settled, I may simply give them back the money to purchase furniture etc.)

Regarding the above, I am still deciding whether to take a small amount (say $40) each month and spend it on myself.  But at this point I don't need it or want anything so this may not happen.  I may also take some of the money and use it to buy a piece of furniture to better accommodate our living situation.  Problem is that I don't know how long this person will be here and once gone neither of us may want the item.  Hmmm...still thinking about this one.

In addition, I use a cash back credit card most of the time.  In 2016, these rewards have equaled about $320.  I haven't spent those funds so they are available to me in 2017.  And of course I will earn more in 2017.  It is not a huge amount but it is there.  Right now I am just going to accumulate the rewards and apply it toward something in 2017 (travel, the holidays?).

Speaking of travel, I have a lot of air miles and hotel points.  I'd like to start using them in 2017.  Not sure what they will translate into.

Finally, I do have some gift cards purchased in 2016 at some sort of a discount (or for extra cash back rewards).  Those will be used in 2017 for splurge (restaurants) or groceries or possibly even home repairs/maintenance.

And that's it!

Pru

My 2017 Annual Budget - Part 2 of 3

As mentioned in Part 1, my 2017 annual budget is being done on a quarterly basis.  I created a generic quarterly budget.  However, as mentioned in Part 1, the quarters correspond to the seasons and there will be *some* variance.  This should only impact my flexible or variable spending as everything fixed will remain the same.  The plan is that prior to each quarter I will tighten up the budget and factor in anything seasonally related or planned (e.g. a trip or holiday spending).  
Budgets are not static!  They must be reviewed and reassessed frequently!

Let's get into the details!
 
Income/Salary (After-tax, after any deductions)
The first part is income.  I know my monthly after-tax income so this was easy for me.  (There may be a some slight changes once 2017 starts due to any new tax implications or the small increase I'm planning for my 401K deductions but nothing major so I felt comfortable working with my currently known after-tax amounts.)

[Make sure you calculate your salary based on an after-tax, after-any-deductions amount.  If you don't, you must budget for those items as expenses otherwise you will end up short and possibly owing the tax man - not fun!]

I get paid twice a month.  The paychecks are not the same due to different deductions.  So I took the monthly amount and multiplied it by 3.

Okay - this is good.  Now I know how much will be coming in.  Next, how much is going out?

Fixed Expenses
This part is focused on my known fixed expenses.  I first looked at expenses I would pay monthly.  My categories included the following:
- Mortgage
- Mortgage overpayment
- Property taxes escrow
- Property taxes escrow overpayment
- Building maintenance fee
- Phone bill
- Electric/gas
- Internet
- Healthcare (my health care insurance is deducted from my paycheck so this is the amount above and beyond that and would cover co-pays, over the counter medicines, prescriptions, preventative expenses)
- Gym
- Housekeeper
- Gas
- Car Wash
- Supplies
- Laundry
- Dry Cleaning
- Entertainment Streaming fee
- Professional Networking (keep your hand in!)
- Miscellaneous (this provides a buffer)
- Various Savings (e.g. 2nd Home Account, Rewire Account, G2H-FU Account, Home Maintenance, Car Maintenance etc.)
- Investing  (Brokerage and additional retirement)

Next I looked at annual expenses that I needed to save for on a monthly basis.  I took the total annual expenses amount, divided by 12 and then multiplied by 3 to get to the quarterly amount.  These included the following categories:
- Home Insurance
- Town Parking Permit
- Holiday Thank You Tips
- Christmas Gifts
- Birthday Gifts
- Museum Memberships
- Tax Preparation
- Travel
- Shopping: Clothing/Shoes/Other
- Technology Replacement (e.g. Computer, iDevices, etc.)
- Annual Credit Card Fees
- New Car
- Slush Fund
- Charities
- Subscriptions (e.g. newspapers, periodicals)
***This is where you would also include any sort of professional memberships or certification fees or conference fees etc.  These sometimes sneak up but if it is related to your job, make sure you have the money to pay for anything that is required (e.g. an annual certification).

(Admittedly, the goal is to save what I can on a monthly basis for items like holiday tips, gifts, museum memberships, charities, subscriptions, travel, and other categories.  Right now I do use my bonus or any extra funds to top up.  But as mentioned in Part 1, I want to get away from that because I simply do not feel it is sustainable.)

Flexible or Variable Expenses (i.e. what is left) What is left is what I need to manage very, very carefully.  I have taken this amount and divided it by 13 for each week of the quarter.  This amount has been further divvied up among the following categories:
- Weekly cash withdrawal amount (just because)
- Grocery Food & Alcohol
- Takeaways
- Work Food
- Transit
- Minimum (like Miscellaneous, this provides a small buffer)
- Beauty
- Entertainment (with others)
- Personal Hobbies
- Car related expenses (small expenses like parking or tolls)
- Local charities
- Other charities



And that's it.  The last category of Variable/Flexible expenses is where I will need to be both creative and disciplined.  In some weeks I will need to rein in work food expenses or skip a takeaway if I want to see a friend the following week.  In every week I need to be thinking ahead and identifying upcoming expenses while also scouting for bargains and sales (especially in the food area as that is the most expensive).

This is all within my control and I need to take comfort with that knowledge.  My budget is a living document. So I will come back and adjust as necessary and I am very fortunate to be able to do so.

Pru

My 2017 Annual Budget - Part 1 of 3

This year I am doing my annual budget differently.  Typically I look at everything on a monthly basis, add in semi-annual (e.g. car insurance) and annual expenses (e.g. Christmas!) and roll it all together.  Then triple check it.

Not this year.  I want to keep a closer eye on where the money is going and tighten it up a bit.  I have realized that much reliance is placed on the bonus I receive from my company.  I tend to use that to fill the coffers (so to speak).  This worries me as when I rewire, I am expecting to drop the bonus.  (Or rather that the amount of current base salary will encompass my total compensation.)

It is fine for me to use extra monies for paying down my mortgage, investing and building *other* saving accounts but I want to avoid using it to, as an example, put money in savings for my annual home insurance fee.  IMO any bonus or extra money should be used to support you in your goals and to help protect you (e.g. building an emergency fund) but should not be used for known annual expenses.  Avoiding relying on the bonus is key.  Known expenses should always come from your base salary if at all possible.

I realize that not everyone gets paid every 2 weeks or 2x a month and may need to rely on bigger checks.  But it is important to have an idea of what the known (i.e. base) salary is and what it can pay.  Don't kid yourself.  If you are using a bonus or large commission checks to pay basic expenses then evaluate what monies you are spending on splurges/fun/entertainment/non-essentials.  Because in this scenario, you need to make sure you save as much as possible for those days, months, years when the bonus or commission checks do not come in or are much smaller than anticipated.

Unfortunately, I have fallen into a trap that many people who spend less than they earn fall into, in that I know I have a buffer so how the money gets where it needs to go is less of a concern.  Currently.  But that is a bad habit since again avoiding relying on the bonus is key.

I also use my bonus for travel which is somewhat okay because I do know that travel is a luxury.  But I'd like to aim to fund my traveling from my base salary.  This means traveling in 2017 will be very basic (if at all) and I will have to save save save for anything major.  That's life!  And that will be my life in rewire phase so I need to start getting used to it.

(Note, I am not planning to rewire anytime soon but I realize that making major changes does take time and I have to allow a time buffer for learning/mistakes.  Hence, now is a good time to start!)

This doesn't mean that I will not use my bonus for some splurges.  I do not believe there is a point to purposely living a life without some rewards.  But these need to be measured.  

Getting back to 2017's budget, this year I decided to focus on quarters which (surprisingly!) also correspond to seasons.  My behavior does change each season so this will also help with planning.

One thing that is important to remember is that most of us tend to think of months as being made up of 4 weeks but there are 52 weeks in a year.  My quarters thus consist of 13 weeks.  However, many expenses are paid on a monthly basis.  To address this, I did the following:
- Summed 3 months of my after-tax income.
- Subtracted my known monthly expenses for the 3 months.
- Subtracted 3 months worth of savings and investment transfers.
- Divided the remainder by 13 and that is the amount that I have to spend each week.

More on this in Part 2!
Pru