Looking ahead, making transfers and cut cut cut

Hopefully everyone's week is off to a good start!

I have spent this long weekend tackling my budget deficit and nearly succeeding.  I'll have to see my other January paycheck to know what I'm really working with so must wait for that.  This has largely consisted of me cutting down some of my variable expenses.  I will need to get smarter with food purchases and look for free/cheaper entertainment.  

Speaking of food it is amazing how much money you can save if you eat at home, consistently cook a lot from scratch (for most things), eat less meat, etc.  I have spent the past couple of days figuring out food for the week, trying to make certain things ahead of time that I can store in the freezer and thinking ahead for next week so that there is some coordination with my grocery shopping and cooking efforts.

It is not easy is always the conclusion I come to.  You need to be organized and just keep at it.  It is all about consistency.  (Hmmm...like most things in life...)

I also transferred some money to one account (2nd home) that should go through tomorrow me thinks.  Transferred some money to the brokerage account (about $400) and have written the check for the mortgage payment (and over-payment) so that will clear this week.

And with that I feel somewhat accomplished.  Now to relax for a couple of hours and then head back to work!

Good week all!

Pru

Frugal Friday...errr Fail?!

Okay folks today was not good. 

Well it was in the sense that it was Friday and I am facing a long weekend ahead of me - those two things are always good.

But today was also my first paycheck of the year.  And it was significantly below what I was expecting.  Like over $100.  That means I am likely facing a shortage of about $200 or so a month since I get paid twice a month.  Ugh!

This means my budget needs to be revisited and tweaked, tweaked, tweaked.  

Now I'll be honest, part of this is my own doing.  I am investing a lot via my work retirement plan.  Basically I am front loading it because I may leave my job in six months.  If need be, I can reduce those contributions.  But I would prefer not to.  

There are not too many areas for me to cut further since most of my paycheck (after paying the fixed expenses) goes towards savings for future known expenses.  But I will find places to cut.

This was already going to be the year to get creative.  Well for the next six months I might as well be an artist (a starving one most likely, lol!).

All I can say is this is life.  Figuring out how to work around challenges and just making it work.  Sometimes it's fun and sometimes it's not.  Still we move forward.

Have a good weekend!
Pru

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

Planning for the future?

Trying to get ahead?  Pru says, "Get uncomfortable!"

Like it or not, life throws a ton of crap at us.  We cannot plan for everything but we can prepare for a really shitty situation.

If you are looking to change things financially or want to build some layers of security, I recommend mentally figuring out the worst situation.    But keep it in the realm of possibilities that you can quantify.  For most of us that means:

Job Loss

This could be your job loss, your partner's, a parent or family members, even your roommate's.  The bottom line is it is going to affect you - big time.  No job and the basics don't get paid.

Budgets are very personal.  Look to articles, other people's budgets and tracking systems, etc. for ideas, but the numbers that you put down have to be related to your situation.

That means you have to have an idea of what you spend, what your basic expenses are as well as what you earn.  Once you have determined those numbers, then you can go to the "worst" situation.  

I like using job loss because you can more easily quantify the impact.  And also because depending on your industry you can also determine the likelihood of losing your job (e.g. if you are in a cyclical industry). Of course other things can happen such as a medical issue but unless you have a known medical or health problem, it can be difficult to plan for this.

Now back to job loss.  Ask yourself, ask your colleagues if you need to, if you were to lose your job, how long would it take you to find another job in the same industry/doing the same thing.  This is where it can get really uncomfortable because often the answer isn't pretty.

Assume you lose your job.  Your initial reaction is probably anger, shock, fear.  Your second reaction is likely to go find another job.  Now you are not going to look for just any job.  Your goal is to be able to pay your bills and provide for yourself and possibly your family as soon as possible.  You turn to what you know and that's usually what you've been doing in the most recent position.  (That isn't always the best decision because again it depends on exactly your situation but it is the most likely case.)

How long will it take for you to find a similar job with a comparable salary?  

Only you can answer that question.  But once you do, in my opinion, that is the number of months you should have in an emergency fund - if you are single or are the sole provider.

If you have a partner who also works then you should consider their salary as well as their potential job loss.  It's an individual situation that only you can answer.  But as an example, I knew a married couple who both worked in the same industry and back in the 2008-2009 during the last recession they were both laid off within 3 months of each other.  It wasn't pretty and it took them both a long time to find another job.

It happens.  Probably a lot more than we would like especially in certain towns and certain industries where you have one or two main employers or if you meet and fall in love on the job.

If you are planning for the future you have to have a contingency or back-up plan for when things get crazy and ugly.  If you don't have an emergency fund or if it may be on the lighter side, that needs to be factored into your budget.  You may only add a few bucks to it each month, but those few bucks could help pay a utility bill or buy groceries in a bad month.

Generally no one likes to think about the bad things that can happen.  But it gives you an enormous amount of confidence just facing the numbers head on and saying I have a plan.  This doesn't mean it can be done overnight.  It may take a very long time.  But no one said it would be easy.


Shortly after I graduated university (eons ago), I attended an alumni event focused on personal finance.  I remember it was a really good event with the audience actively participating and asking a ton of questions.  The following year my university held another alumni personal finance event very similar to the first one.  This woman stood up and she said something to the effect of, "I attended this event last year.  It's been 12 months and it has taken me all of those 12 months to save up one month of my emergency fund."  

I got to know this woman later and she was working for a nonprofit and barely making any money.  I remember her and her boyfriend (I believe he was a young lowly paid teacher) would once or twice a month go out and they would share a $6 sandwich and that would be their treat.  No drinks just the sandwich purchased with money that could have bought a lot of groceries for them.

She continued with, "This year it will be easier to keep saving.  I think I'll be able to save another 1.5 or 2 months.  It has taken a long time but now I have separate savings just in case something happens."  Yeah...it may take a very long time.  But that isn't what matters.

Identifying the potential need and working towards it is what matters.  Something can happen before you get to the goal but at least you will have a small cushion to fall back on.

Really think about your situation and who is depending on you.  Take me as an example.  I am single but do have family that depend on me (and will more so in the future).  Just focusing on me, I have a senior-ish position in a specialized industry.  Oh and I'm not a kid.  If I lose my job today, I can't find another tomorrow or the next day.  

First of all, I am assuming that I was laid off and not fired.  That is important because if my company is laying off people, there is a  chance others are too.  (Problems in the industry or the general economy?)  If that is the case there are going to be others in the market looking for jobs.  But there are not going to be as many jobs because companies will be eliminating positions.  Now in this situation, I have known people in my field at about my position that found a new position in 12-18 months.  

12-18 months is a long time.  A very long time.  But I know that number and so I know what could be a problem for me.  I now have something that I can work with as I plan my budget.

Additionally, I earn a high enough salary (I'm no spring chicken!) so it is questionable as to whether I could even find a comparable salary.  Some companies might prefer someone one or two levels below me who earn a lot less.  This means I may have to take a pay cut.

In this scenario (which is very realistic because this does happen to older workers), it's not only impacting my calculation of an emergency fund (12-24 months to be safe) but it should also be informing my thinking about current and future expenses.  I should be realizing that if things are happening in my industry or in the economy at large that look to potentially impact me or my company, I need to quickly think about what I am spending because should I lose my job and end up with a lower paid one, how will I cover my basic expenses?  Do I have a buffer between income and expense (i.e. left over monies, or savings)?  How much flexibility do I have?

A lot to think about!  The important thing is to do the thinking.  And to tailor it to your personal situation.  Don't just say I need to have or start budgeting for 6 months of income for my emergency fund.  You may need 3 or you may need 12.

And remember this isn't a one time deal.  Consistently budgeting means consistently assessing and evaluating where you are, where you want to be as well as the risks to those two things.

No it's not a huge amount of fun when you work through what could happen in a job loss situation.  Over the years I have built up about 2 years worth of expenses and it is kept in a combination of cash and easy-to-access mutual funds (not the subject of this blog).  It is money I can't spend but in my situation I have to rely on myself (no family, friends who could support me and my expenses).

Think about it and crunch some numbers! 

Pru

Food! Glorious Food! Ummm budget diaster?!

One of the first ten things people will tell you is to look at your food spending.  Getting in control of food spending is key because it is an easy win and because most of us tend to spend more than we realize.

It is important to first be realistic about what you are spending.  Identify where it's going - take aways, restaurants, coffee shops, groceries (main grocery shop + top-ups), vending machine, etc. etc.

I say put those categories into your budget.  Then assess where you need or want to cut back.  Hint:  more value is at the grocery store :-)

I have only been budgeting annually for a couple of years and I'm learning how to get better at it each year as I tweak, tweak, tweak.  I highly suggest it though - it is a great exercise but like most exercises can seem very long and painful.

Last year I discovered a post on the blog Canadian Budget Binder that blew my mind.  I am usually trying to lower my expenses as much as I can to send money to various pots.  But the reality is that we cannot always decrease expenses.  That is not the way finances in life work.  

If I recall correctly, Canadian Budget Binder mentioned increasing your annual grocery budgeting amount by inflation (or some small percentage e.g. 2% to 5%).  We all know that prices of food items go up and down, but in total it tends to increase. By budgeting in an annual inflationary increase, you will not be pulling out your hair trying to fit a square peg in a round hole. 

The exact post escapes me but I recommend you checking out their site.  To get you started, the following post is a really good resource with lots of their links.  You can get their budgeting worksheet (for free!).  These guys have been at it for several years now and my gosh it shows - they have got it together!

11 Habits to Help You Budget Better in the New Year

Happy reading!

Pru

Promise yourself just one thing!

If you love the holidays and having fun in December, promise yourself just one thing:  You'll budget for it in 2017.

Seriously, that simply is one of the best things that you can do for yourself.  Put aside *some* money.  Ideally you will cover all your planned expenses.  But if you can find $10 each week (office workers - bring your lunch and skip a coffee), then you will have a nice $500ish to spend and a lot less worry.  

I try to put aside money for many things on both a weekly and a monthly basis ($5 here, $15 there, it all adds up!) Life costs money and if I'm not extremely careful I would be running up a credit card bill.

[As much as I'd like to say that I wouldn't put things on a credit card (and not pay it off each month), my smugness shall we say comes from the habit of consistently putting money aside.  If I didn't do that, I have to say that yup I could definitely see myself charging and then cringing when the bill came.]

How to do it?  Well some banks, credit unions etc. actually used to have a Christmas Club.  (Some still do but not many.)  Take advantage if yours does.  Or transfer money each week or month (I do this!).  Or set up a small automatic transfer from checking to savings (I do this!) so you don't need to think about it.  Or have some of your paycheck direct deposited into a savings account.  (I used to do this!.)  Or get a sealed pot or piggy bank or big jar and start tossing in the change and bills (I do this!).

Of course the best first step is to look back on January 1st and ask yourself how you feel.  Did you have a great December?  What did you like?  What should you continue to do?  What should you stop doing?  Are you in the red or in the black?  Take your holiday temperature.  Then put a price on it.  Think about what you spent and whether you could lower that number or if it needs to increase etc. Lastly, add in a little extra for the post-holiday sales because depending on what you buy that may be a good time to pick up cards, wrapping paper etc.

The next step is to start saving!

This year I'm a little behind time-wise - well by a week.  But I don't need to go anywhere crazy busy (thankfully) to get the remaining items.  And I think I will just come in on budget.  Next year, however, I am planning a few different things so will need to increase it a bit.  Having to spend more money is not ideal but having 12 months to budget for it softens the blow.

Pru

Another Budgeting Resource

LearnVest is another resource.  It used to be 100% free but now they have some premium content.  Read the free articles and as always take what you can from it.

Knowledge Center

Budgeting 101

Happy reading!
Pru

Budgeting - Two good resources

Below are two people that I suggest as possible resources. 

But before we dive in, I would toss in the following thought:  You don't need to buy anything related to budgeting or saving money to be successful at those two things.  There are a lot of successful people out there who give really great advice and they earn money because they sell products - books, seminars etc.  But a lot is available on the internet as well as in your local library.  I highly recommend going the cheap route and just reading a lot.  If you find someone who resonates with you or a program that you think will be helpful just think twice.  Don't toss away money (that you need to save!) on something that you might be able to get for free.

Okay - just my two cents (it might even be worth a quarter!)!

First off I would recommend having a look at Gail Vaz-Oxlade.  She is a Canadian firecracker!  I have seen some of her shows and I do really love how straight talking she is.  Because if you cannot afford something, there is no way to sugarcoat that.  You simply cannot afford it and it is far better for someone to be honest with you.  Brew a cup of tea or coffee and check out her Resources and Articles pages.  I don't believe that most of her shows are available outside of Canada but you can check and see if some videos are out there lurking about.

Second off, I would suggest having a look at Dave Ramsey's site.  Dave is Christian-oriented and a lot of churches run his Financial Peace University.  People either love him or hate him.  Whether you are a Christian or not, something may resonate with you.  A quick glance indicates that Dave probably makes a lot of money off of the various people buying products or subscribing.  But again many rave that his program, books etc. changed their lives.  I say start with the free stuff and see if there is anything that you can takeaway.  How to Budget and also read the blog articles.

HTH!  Now get reading!

Pru