Archive for November, 2013

Credit Card Float

Welcome to the Black Friday edition of my blog.

With Christmas coming up, what better time to talk about credit card float?

What is credit card float?  Most credit cards give you a grace period, when you are charged no interested if you pay your bill in full.  Many use the credit card to pay for something this month, then pay it off next month, avoiding the interest.  While this sounds like a smart thing to do, it is really a trap set out before you.  Card companies are sly and will wait patiently for you to take the bait.

Let me explain how this can go down.  Let’s say it’s October, and you just got a shiny new credit card.  You buy groceries, gas, fancy coffee, and everything else you want/need on the card.  November arrives, along with your bill, and you pay it in full.  Things worked out so well last month, you repeat the cycle.  December arrives, along with your bill, and you pay it in full.  Hey!  Christmas is coming, so you buy everything you normally do, along with all your Christmas presents on your card.  Perhaps you spent a little more than you planned, but it’s okay, you’ll be able to cover it in January.

And they probably have just got you snared in the trap.  You are most likely now in the situation where you can’t both pay your credit card balance in full and pay for the current months expenses.  So, you keep spending on the card to pay it off next month.  You are in a self-perpetuating cycle that is very difficult to escape.  Once you have gotten into this situation, you are riding the float.  You are just one emergency away from having to run a balance from month to month, which is where the credit card company gets the reward for their patience.

Don’t think that Christmas is the only way this can happen.  I just used this example because it’s coming up, and it is something that people can easily relate to, but if you continue using your cards in this manner (without budgeting your spending) for any significant length of time, you’ll probably fall into this trap too.

So, how do you escape the cycle?

You must realize that this is really debt that you’ve built up, and you must make the conscious decision to break the cycle.

You need a Budget, so you can start making the best financial decisions that you can make.  Seriously, You Need A Budget.  This is the software I used to get my financial life in order.  You don’t have to use it, but the concepts they teach were key to me getting to a better place, financially.

In my case, I stopped paying my credit card in full each month, and considered it a long-term debt, paying only a portion of it each month.  Yes, this means I did have some interest charges, but it was necessary for a short time to break the cycle.  I began budgeting my spending so that all of my bills were handled and I knew how much money I had available each month for debt reduction.  Within just a couple of months, I had the credit card paid off in full, and I’m now about 2/3rds complete with the task of eliminating consumer debt altogether, all in about 7 months.

I probably could not have done this without You Need A Budget (which I affectionately call YNAB).  YNAB is brutally honest about your financial situation.  In fact, you might think it’s too honest when you are first starting out.  But you need that honesty, so you can fix the problems.  The YNAB website has lots of videos showing how to use the software, it has a free 34 day trial, and they even have free classes to help you get started.  During the classes, you’ll have the chance to win a free copy of YNAB.  They sometimes have sales, but the normal price is $60.  But, if you click this link, you’ll save $6.00 more.  Full disclosure:  I also get $6 when you use my link, which adds up to a grand total of about $6 every couple of months, usually.

November 29, 2013 at 12:20 am 1 comment

Migrating an app from one database to another

We have a bunch of apps that run against a database, dating back about 10 years.  These apps have grown over the years.  The original database was done in MSSQL.  The apps that access this are mostly done in PHP.  We’ve recently needed to add a few fields to the database, but instead of trying to get them added to the MSSQL database, I took the approach of building a class to access the data.  This class actually reads some fields from the original MSSQL database, and others from a MySQL database.  The update logic is built into the class, so it doesn’t matter which database contains the field, it will perform the update to the appropriate DB.

So, this has all been working well now for the last 5 or 6 months, and now we want to take the next step.  We want to move all the fields that are still relevant to the MySQL database, and just stop using the MSSQL database altogether.  This is made more complicated by the fact that numerous apps access the MSSQL database directly.  In particular, there is one old VB.NET app that we want to eliminate.  I’ve already created a web page that does the majority of the things this old VB.NET app does, and it uses my new class.  There’s still a little work to do to get everything, but it’s close.

I’ve been trying to think of how to best handle the DB migration.  I see a couple of options:

1.  Duplicate the fields exactly (column name included) from the MSSQL DB into the MySQL DB, and have the class stop using the MSSQL DB.  This would require all the apps that access the MSSQL DB directly to be switched to MySQL.  That’s a lot of work, and will likely take a few days, perhaps even a week or so (especially given this time of year and the vacation days people take).  During that coding time, some apps are using the records from MySQL and others are using the MSSQL DB.  Since these apps manage the configuration of hundreds of routers and thousands of switches in about 700 remote sites, we really don’t want anything going wrong, as it could be a major pain to fix.

2. Create new fields in the MySQL DB to match the required fields from the MSSQL DB, but name them differently.  This gives us the ability to search easily through source code that accesses various field names (the MSSQL versions) to make the MySQL changeover.  This would be nice, but I believe this would also require us to code the class so that the class would synchronize the “duplicate” field in the MySQL DB with the appropriate field in the MSSQL DB.  If a record is updated using the MySQL field name, it would need to also update the corresponding MSSQL field with the same value.  Similarly, if the update used the MSSQL field name, it would need to update the MySQL field.  Finally, upon each load of data into the class, we’d need the class to compare the  corresponding fields, and if the values weren’t equal, make a decision on which one “wins”, and is then copied into the “loser” field.  The start with, we’d probably want the MSSQL side to win.  When we are certain we were done with all the code changes across a few servers, then it would be time to drop out the MSSQL code altogether.

I’ll probably give this a good bit more thought, and look through the source code a while before I come to a 100% answer, but I’m leaning toward option #2 at this point.  Once the coding is done to the class to keep everything in sync, this should allow us more time to finish the other coding changes.

November 27, 2013 at 12:21 am Leave a comment

Thanksgiving

It’s traditional each year to talk about the things that you are thankful for in the past year.

Here are a few of mine, including a big one that I’m sure would have been a surprise to me this time last year:

First off, I’m thankful for my wife, children, and Church.  There are some rough edges with the kids sometimes, but so often I find myself surprised and delighted by them.

I’m thankful that I’m employed in a stable good paying job in a field that I enjoy, working with people I like, while so many others are looking for work.

I’m thankful that my family vehicles have lasted another year, and hoping they will last a few more.

Aside from the people in my life, the one thing that I’m most thankful for is, as strange as this is to admit, software.  The personal budget software YouNeedABudget has changed my life this year.  It’s changed the fundamental way I think about money and I expect it will have a major effect on the rest of my life.  About the only way I could make a major purchase (appliance, vehicle, etc) was on credit.  Debt seemed impossible to eradicate.  After using YNAB for about 7 months, I’m down from over $20K to about $7.5K in debt and expect that to be wiped out by the middle of 2014.  I sleep better, knowing exactly how much money I have (and how much money I owe) and it guides me to make better spending decisions.  With this guidance, I don’t expect to wake up in January to Christmas credit card bills I can’t pay.  Plus, I expect to be able to send my children to private schools next year.  I have peace of mind about money.  All of these things, thanks to YNAB.

No, I’m not the author of YNAB (nor do I work for them).  I’m just one very thankful user that has seen my life get better because of it.  Can I do all the things I want yet?  Of course not, but I see a pathway and YNAB is helping me to get there.

Happy Thanksgiving to you all.

November 26, 2013 at 9:22 pm Leave a comment

YNAB for future planning

One thing the YNAB classes espouse is to only put money into YNAB when it arrives in your account.  They say putting money into your budget before it arrives is playing with “monopoly money”.  For people who have irregular incomes, and if you aren’t fully buffered, I would agree that putting things into YNAB ahead of when money shows up in your account might lead to some bad things happening.  However, if you have a very regular income and are fully buffered, doing this can be helpful, if done wisely.

I’ve been doing this to varying degrees since I started using YNAB.  I know what my income is going to be (within a few cents) each month, so I’ve put it in a month or two ahead of time so that I can “run things out” to see what would happen.  This type of planning lets me see when various debts (that are part of my debt snowball) will be paid off, and lets me play various “what-if” scenarios.  For example, mid-year I had to pay an $1800 fee for a private school by a certain deadline.  My planning had me saving up that money, but two months after the deadline, when a $150 fee would be added.  I found a 0% interest method that I could borrow the $1800 to pay it off by the deadline, then paid off the $1800 two months later, saving me $150.  If I hadn’t have been planning this out, I might have missed that $150 savings opportunity.

As I mentioned in an earlier blog entry, I recently found out that I’m going to a different pay frequency.

I’m currently (as of this writing), being paid monthly.  I’m paid the same amount (within a few cents) each month, very near the end of the month.  This works out perfectly for YNAB because I’m essentially fully buffered by default.  (Being fully buffered means that you are paying for the current months expenses with last month’s paychecks, in case you don’t know YNAB.)

This December will mark the last paycheck I get this way, which will cover all of January’s spending.  My first bi-weekly  paycheck will cover Jan 1st through 14th, but it will not arrive until the 21st.  This check will be for February’s spending.  My 2nd paycheck arrives the first week of February, which will also be for February’s spending.  It looks to be April (the first time I get three checks in a month) before I will be able to catch up, getting me to the point that I’m fully buffered again.  (The 2nd check in March and 1st check in April will be for April’s expenses, and the 2nd and 3rd checks in April will be for May expenses.)

In YNAB, I entered in all of my expected paychecks from now until next September, and I copied my current expenses out through that time frame.  I also adjusted the category spending to account for things I expect to happen.  Sure, I don’t know exactly what my bi-weekly check will be yet, since it has taxes and other expenses taken out before I get it, but I estimated it by taking my current monthly net pay, multiplying by 12, then dividing by 26.  The real number should be close enough to what I’m using that it shouldn’t be difficult to adjust once I find out the real bi-weekly net pay amount.  I’m also using estimated numbers for a bonus, and I used Intuit’s website to estimate what I’ll get back on my taxes.  This is where it feels like I am getting close to “monopoly money” territory, but I’m using the best estimates I have available.

There is the issue of living off of about 7.7% less money each month (for 10 months out of the year).  I was able to handle this largely by not funding my Christmas, Homeowners Insurance, and Property Tax categories until the 2nd time this year that I’ll get three checks in the same month, September.  At that point, I can fully fund most of these three categories.  All three of these Rainy Day categories fall after September, so it works out from a budgeting standpoint.

Using YNAB to plan in this way helps me feel confident that I can do something that I was very unsure about.  You see, I have three children attending private school now, along with one in public high school.  She’s in public high school because we couldn’t afford to send her to private school this year.  By going through this exercise, I feel fairly confident that I can afford to pay the various registration fees for the two private schools by their respective deadlines, and I can afford to pay the tuition for both schools while keeping current on my other bills.  Of course, if my bonus comes in lower than expected, then my entire plan could be in trouble.   I should know that before the March registration deadline, though.

If everything goes according to plan, I’ll pay off the last of my consumer debt on June 2nd, and that snowball money will lighten my burden heading into the next school year.

November 21, 2013 at 11:17 pm Leave a comment

Pay periods matter

Recently, I got some troubling news.  Starting early next year, my job is moving from a monthly pay schedule to a bi-weekly pay schedule.

From what I’ve been told, most people seem to think “Great!  That means I’ll have more money!”

Apparently, these people can’t do math.  Changing your pay period from once per month to every two weeks does not increase your pay.  Your salary is exactly the same, but it can cause you to actually have less money available most calendar months.

Think about it.  Instead of getting 12 checks, once per month, this is bi-weekly.  So, 52 weeks / 2 = 26 pay checks per year.

Here’s an example so we can see what this does to your salary:

Let’s say you make $50,000 per year.  For simplicity, we will use gross, not net.

50K works out to a monthly salary of 4166.67.
If paid bi-weekly, that’s 1923.07 each check.

Here’s where the fun starts…  This year, 10 months will have 2 pay periods in them, and 2 months will have 3 pay periods.

For each of those 10 months with only 2 pay periods, you would end up with 3846.14 to live off of those months.  That’s $320.53 less each of those 10 months than if you were paid by a monthly salary.  That 7.7% of your monthly salary that you won’t see until one of those two months with 3 pay periods.

If you are already tight on money, this shift of 7.7% of your monthly income to other months will make things even tighter.

I’m not sure what benefits the business gets from making this change, except that perhaps it aligns better with the business cycle, so cash flow may be smoother throughout the year.  Being that our company is now owned by a venture capitalist company, there’s almost certainly a dollars and cents reason for this move.

Ultimately, if you are budgeting your income and you are aware of what this does to you BEFORE it starts happening, this isn’t a huge problem.  If you aren’t aware, however, it can be a rather shocking thing to discover.

 

November 19, 2013 at 11:17 pm Leave a comment

YNAB Improving Workflow class

The gang at YNAB came out with a new class recently.  I attended it and I highly recommend it.  I’ve been using YNAB now for more than 7 months, and I’m surprised at how much I learned in this one class.  The class covers a few things that I’m not going to talk about, but I’ll cover the two biggies that I didn’t know about:

Importing transactions

Yawn!  Sounds like something pretty standard, right?  That’s what I thought before I saw the demo.

In YNAB, you can import your bank transactions and it will attempt to match them up against transactions that you’ve already entered, and enter the ones you missed altogether.  You have to approve all the imported transactions, so you don’t need to worry about accidentally messing up your budget.  It makes sure you have categories assigned to each transaction (so it knows where in the budget to take the money from).  It learns, too.  So, if your bank calls your grocery store “Bi-Lo #5012” or “Bi-Lo Main Street”, you can change it to just “Bi-Lo”, and future imported transactions from that store will automatically get that name.

This class was essentially suggesting that you can use this feature as a fail-safe to catch any transactions you’ve missed, or if you don’t have a smart phone to enter them in on the go.  It’s smart enough not to import the same transaction multiple times, so if you go online and download the last 30 days of transactions to import every few days or so, you won’t get duplicates.

I don’t personally plan to use this feature, because I like the awareness that comes from entering in your transactions as you make them, but I can see this as a selling point for friends who want to use YNAB, but don’t want to enter in their transactions all the time.

Reconciliation

I’m a big believer in reconciling your account with the bank.  I try to reconcile my accounts as soon as my statements come out, every month.  So, what could this section possibly teach me, right?

I’m surprised to say that it was something pretty big.  They encourage frequent reconciliation.  Like, weekly, or even more often.  You don’t have to wait until your statements arrive to reconcile!  You can reconcile every day, if you like.

To me, this was really big.  I’ve posted in the past how I loved that I can mark off the cleared transactions in YNAB and the “Cleared balance” it shows then matches my bank balance to the penny.  Well, that’s the perfect time to perform a reconciliation in YNAB.  In that case, just his the Reconcile Account button, it will fill it the Statement Date with today’s date, and the Statement Amount will be your “Cleared Balance” amount.  Then, you just hit Begin Reconciliation, and you match to the penny, so just hit the green Finish Reconciliation button.

One related feature I love about YNAB is that you can press a button and hide all your reconciled transactions.  This gives me a short list of transactions that I have to look at for each of my accounts.  Perhaps I like it because it lets me focus in on current transactions.  Whatever the case, I just love that feature.  Since I like having a short list of transactions, it bugs me is when I get so many transactions that I have to scroll to see them all.  Practically every month, this happens with my AMEX account, since I use it so frequently.  Since I now know it is safe to reconcile any time, I do it frequently.  This means my list of uncleared transactions stays very short.  For example, my Visa card currently has 0 transactions listed because they are all reconciled.  My AMEX has 7 from yesterday, today, and the payment that I have scheduled for next Tuesday.   If I had stuck with the monthly reconcile schedule, I’d be at almost a full page of transactions, with about two weeks left in the month to accumulate more.

I think I love this feature so much because it gives me confidence.  My banks and I agree, to the penny, about how much money I have (or owe) in each account.  This confidence in “knowing where I stand” helps me to feel so much better about my finances.  Probably helps me sleep better too!

At any rate, I highly recommend signing up for the class yourself.  The advantages of the class is that you can ask questions along the way, and at the end of each class, they give away a copy of YNAB.

You can sign up for this class, or any of their other classes, right here.  They are completely free.

November 16, 2013 at 7:45 pm Leave a comment

Thinking Different with Credit Cards

Soon after I been using YNAB to budget my spending, I started to handle my credit cards a little differently.

I have an American Express card that gives me cash back, and this is my “daily” card.  I use this to buy gas, meals, groceries, car repairs, etc.  In short, a majority of my spending goes through this card.  In addition, I have a Visa card that is used whenever the place I’m going doesn’t take Amex, which is only a couple times per month usually. In each case, when the bill arrived, I’d pay it off.

As I was helping a friend start using YNAB, I noticed that while he used his cards for the majority of his purchases, he paid them very differently than I did.  He would pay them down about every other day or so.

It struck me that since I’m now using a budget and only spending money that is in the budget, this method of paying made sense.  Before I started doing this, I’d end up with a $1500 – $2000 bill that would come, which I had the money to immediately pay off.  Now, the bill that comes each month is usually only a few hundred dollars, because I’m paying things down about once per week now.  One benefit of doing this is that it makes reconciliation very easy, since I’m checking my Amex account at least two or three times a week and marking off the cleared items.  If anything odd shows up, I can see it and react more quickly.

The other day, I realized another reason to pay like this.  Recently, in YNAB I created a Computer category, which I intended to spend on software and/or hardware upgrades.  It wasn’t long afterward that I had a hard drive that started giving me trouble.  I ordered a replacement (an SSD) and put that against my Computer category.  Unfortunately, that category was about $200 short.  I’ve altered that category balance to push forward to future months, so it’s treated like a debt that I’m paying off a little at a time.  Since I purchased this SSD on my “daily” card, and I’ve been paying down a portion of my new expenses every week, the bill that came in was about $525.  By the end of the month, I’ll have charged up another $1500 on the card, but since I’m paying a little each week, the balance by the time my next bill gets here will probably still be around $500.  From the view of AMEX, I’ll have already paid off the SSD, so I won’t have to pay any interest on this debt.  Next month, I’ll put $50 more into my Computer category, and aside from my weekly spending, I’ll pay an extra $50 off.  By doing this, each month, I’ll end up having paid $0 interest on that SSD purchase, even though it will take 4 months to pay off completely, as this rate.

I don’t recommend anyone to get into the habit of doing this method of paying down things over a long term.  It will only work when you have a relatively small amount per month that you are carrying forward.  Keeping track of multiple categories like this will only increase the difficulty of doing this.  This might be a nice trick to squeeze an extra couple hundred bucks out of your Christmas category, but use it wisely.

November 10, 2013 at 11:14 am Leave a comment

F5 as a WPAD web server

WPAD stands for Web Proxy AutoDetection.  Most browsers default to trying to find a proxy using WPAD.  If you plan to use this on your network, you need to test not only each major browser, but each major version as well.  In testing, we’ve found that IE 8 works differently than IE 10 in ways that we didn’t expect.

We serve our WPAD files from an F5 load balancer.  The reason is because of the built-in redundancy of an F5 pair, and because of iRules.  We mostly want to use WPAD for client machines, but because of user related Group Policy settings being applied against servers as users log in for maintenance, we need to have it work for them as well.  Generally, you don’t want your servers going to the Internet for anything directly, unless it’s required by the application.  This makes for a more secure environment, since if something does try to infect your servers, they won’t be able to easily get out to malicious command and control servers.

Back to iRules.  A long time back, we created an iRule to serve the wpad.dat and wpad.pac file (needed for different systems, in our case).  Essentially, the rule turned the VIP it was enabled on into a web server.

With our servers, we wanted them to NOT use a proxy server unless we specifically designated them to do so.  We didn’t want an Admin logging into a server and having his GPO applied, causing WPAD to turn on.  But, then, we though, what if it didn’t matter?  What if everyone could use WPAD and it could intelligently just work?

You see, our servers are confined to several subnets, separate from the client machines.  The vast majority of the servers do not need to use a proxy server.  In fact, if they accidentally get set to use a proxy server via WPAD, it can break applications.  (Remember the GPO thing I mentioned.. Yep, it’s not speculation, it happened.)

We used this arrangement to our advantage.  We rewrote the iRule to use F5’s Data Lists.  One data list contains the subnets where all the servers live, lets call it the wpadblock list.  This list is in place to specify which subnets we do not want to use a proxy.  We have another data list containing individual hosts we’ll call the wpadexceptions list.  These are for the few servers that we have that do need to use a proxy server.  The iRule looks to see if the Client IP is in the wpadexceptions list.  If it is, it serves the normal client WPAD file.  Otherwise, it checks the Client IP to see if it is a member of the wpadblock list.  If it is, it serves a tiny WPAD file that specifies that the machine is to go Direct (and not use a proxy server of any sort).  Finally, if the requesting client is on neither list, it gets handed the normal client WPAD file.

Using this iRule should allow us to have all devices pointing to a central location for their proxy settings, with the result being that each device will get the settings appropriate for itself, automatically.

November 8, 2013 at 9:27 pm Leave a comment

How to get ahead financially

The formula to get ahead financially is simple, really.  Spend less money than you make.

That’s much easier said than done in today’s society, however.  Everywhere you turn, you have marketers trying to sell you this or that.  I’m sure if you explore your closet/attic/basement/garage, you’ll probably find some items you bought that remain unopened, in the original packaging.  You fell victim to marketing and needlessly spent money.  If you bought that on a credit card, you may still be paying interest for that item.

Some industries try really hard to hide their best deals from you.  Take the cable industry, for example.  Ever try to get a price list from a cable company?  Something that’s clear, without any room for confusion?  If you call them to get their lowest priced plan, people being paid on commission will try their best to push you into a more expensive package.    The cell phone industry is another offender, though I think they are even better than the cable companies.

How do I get started getting ahead?

With so many people trying to get into your wallet, you may need to change the way you think about money.

Many months ago, I went through this change myself.  Previously, I would buy whatever I thought I needed, or I might buy an item when I found it on sale, if I thought I would need it later.  I wasn’t really keeping track of my spending and didn’t really have any sort of emergency fund built up at all.  I was buying practically everything on credit, and paying the bill off when it came due (most months).  This sort of worked, but I wasn’t getting ahead and saving up for my goals.  Money seemed to flow through my hands like sand.  I couldn’t tell you where it all went!

Your First Step

Think of your finances like a boat.  A leaky boat.  If you are taking on water, you know you have a leak.  The first step to fixing that leak is finding it!

The same is true of your finances.  If you are just making ends meet (or getting further under water) each month, your financial boat has a leak.  With a real boat, locating the leak should be as simple as looking around for where the water comes in.  To find your financial leak, you need to do a little work.  You have to track your spending.  I’m not talking about sitting down on a Saturday afternoon and writing down all your monthly bills, then estimating how much you spend on various expenses.  I’m talking about really tracking each and every expense.  This takes effort on your part, as you’ll need to do this every day.  Either put your receipts in your wallet and put it in a spreadsheet at the end of the day, or write it down in a pocket-sized notebook you carry everywhere with you, or some other system that works for you.

If you do this, you will almost certainly find that you are spending a lot more on certain categories than you think you are.  Think you are spending $150 a month eating out?  You might find that it’s more like $400!  Spending $4.50 on that Starbucks coffee doesn’t seem too bad, but when you realize that you do that four days a week, that adds up to almost $80 a month on coffee!

What, you say?  I can’t have Starbucks anymore?  No, I’m not saying that.  You can, but you just have to realize the true cost of things.

One more thing before moving to the next section – You can use a budgeting tool to track your spending as well.  I use one on my iPhone, but there are Android versions too.

I Know Where the Leak is, Now What?

Once you’ve figured out what you are spending, you can take steps to change things.  You probably won’t find that all your problems will be solved by going to Starbucks a time or two less per month.  Most likely, where you thought you had several small items you bought each month that didn’t amount to much, you’ll probably find that you are spending far more than you thought in several categories.

For the next step, I recommend you set up a Zero Based Budget.

For most people, budgeting is a bad word.  People feel that budgets are very restrictive and that you can’t have any fun.  If you approach it in the right way, you’ll realize like I now do, that budgets are freeing.  Do you enjoy worrying about your billing coming in?  Worrying about where you’ll get the money to fix the roof?  How you’ll possibly be able to afford to send your kids to private school?  Budgets are your friend.  Or do you enjoy being out of control?

Continuing to do the same thing over and over expecting a different outcome is a popular definition of insanity.  Take the step of making a budget so you can take control of your money, instead of letting it control you.

What’s a Zero Based Budget?

Quite possibly the best method of budgeting known to man.

The point of a zero-based budget is to make your income minus your outflow equal zero.  Wait… What?  How can I get things under control if I plan to spend everything I make?  No, I don’t mean you must spend every cent you make every month!  But, you have to plan where every dollar goes.  If you don’t put each dollar into a spending category of some sort, you are leaving yourself with a pool of money that you’ll inevitably find something to waste it on.  If you put that money somewhere, such as into an Emergency Fund category, or in a Debt Payments category, you’ll be putting that money to work.  Remember Starbucks?  Give yourself a Fun Money category and spend it on whatever floats your boat, but realize that the money you put in that category isn’t going to lowering your debt, or saving up for that roof/appliance repair that you need.  That doesn’t mean you don’t get any Fun Money.  We all need to have a little fun every once in a while.  This category of spending is a little money you can spend on whatever you want, each month, without feeling any guilt.  In my case, it’s $35 a month.

I won’t go in depth about Zero Based Budgeting here.  There are many other resources on the Internet that deal with it in depth.

I will quickly put a plug in for the particular tool I use for this job.  It’s called YouNeedABudget (or YNAB for short).  I’ve been using YNAB since March 2013.  By using it, I’ve gone from just over $20K in consumer debt to about $7500 in about 7 months.  They don’t just sell you the software and leave you on your own, either.  They have multiple live classes every week, dealing with a variety of topics related to the YNAB flavor of Zero Based Budgeting.  In fact, even if you don’t use their software, their website is a great resource for budgeting.

Don’t run to buy YNAB now.  Try it free for 34 days, and if it works for you, then buy it.  If it’s working, you’ll know it and the price won’t seem unreasonable.  You can use this refer-a-friend link to save $6 off the regular price of YNAB.

Building a Budget

Set up your Rainy Day categories.  These include bills that are due on an annual or semi-annual basis, like Homeowners Insurance, Auto Insurance, and Property Tax.  For bills, such as Property Tax, look at last years cost.  Divide that number by the number of months you have until it is due.  That’s the amount you must save every month so that when the bill arrives, you’ll be ready for it.

Other important Rainy Day categories are things like Christmas, Birthday, Car Maintenance, and Emergency Fund.  For things like Christmas, decide how much you want to spend on all gifts you plan to give.  Start putting some money aside each month so it’s there when you need it.  Same thing goes for BirthdayCar Maintenance is a little different, in that you’ll want to build up at least a few hundred and just let it sit.  When you do need it, you’ll be glad it’s sitting there waiting for you.  Finally, the Emergency Fund.  It’s the money you’ll want to have if something major happens.  If your A/C goes out, or a major appliance, or your roof springs a leak, it is there to catch you.  As for how much to put in the Emergency Fund, advice is all over the place.  I’ve seen some people suggesting 6 months of expenses, some more, some less.  Even having a single month as a goal is reasonable when you start out.

Why is a Budget so Important?

A budget is vitally important because it consists of concrete information that guides your spending decisions.  Whenever you make a spending decision, it should always be based on concrete information with all the facts available.  If you look at your checking account and say “I have $1200, so I can afford the new iWidget”, that may be concrete information, but it’s not complete information.  You may have outstanding checks that haven’t cleared yet, taxes or insurance due soon.  Even if you are uncommonly good with math, you can’t possibly be keeping all of the various spending categories and their independent balances in mind, especially with a new iWidget at stake.

Okay, I’ve got a Budget, Now What?

When you are about to make a spending decision, look at your budget categories to guide you.  Do NOT consult your bank balance to help you see if you can afford to spend money.

You’ll have money in “must spend” categories, like Rent/Mortgage, UtilitiesGas and you’ll have money in discretionary categories like Eating Out, Clothing, and Entertainment.  Realizing that you don’t have an unlimited supply of cash, you can move money around among the discretionary categories however you like.  The key is to prioritize what is really important.  If you want to spend the extra $25 for that new pair of sunglasses, you can move that money to Clothing from Entertainment, but it means that you’ll be going to see one or two less movies that month.

This may be where some people might stop reading.  You might be thinking that this is the restrictive part of budgeting that you don’t like.  Yes, you’ll have to make choices with a budget.  But here’s a secret:

Unless you are independently wealthy (in which case, why are you reading this?), you are already on a budget.  It’s a very vague budget, consisting of your Income, and a few “must spend” fixed cost categories floating in your brain, like Rent.  The rest sits in this big amorphous Miscellaneous category that includes just about everything else I’ve mentioned above, and more.  When you make decisions about spending, you are making budget decisions.  If you have concrete information when you make these decisions, they will be better decisions.  Without concrete information, you are much more likely to make bad decisions.

But I’ve got Debt!

Getting out of debt should be your top financial priority.  Some people suggest you build your Emergency Fund first.  Their reasoning is that if you have a problem, you’ll immediately run to credit cards to fix it.  I think the best approach is a hybrid approach, mostly targeting debt elimination.

I suggest this because your debt has a monthly maintenance cost.  By getting rid of that debt, you are lowering your monthly debt maintenance cost.  On a $6500 loan with the decent rate of 6.25%, this was costing me a reasonable $35 per month, a cost that has only gone down each month as I’ve paid more and more against it.

Back to your budget plan.  I suggest taking about 20% of the money you have available after funding your Must Haves along with some reasonable discretionary categories, and place that 20% in the Emergency Fund.  The other 80% should go to debt reduction, with the lower interest rate loans getting only the minimum payments and the highest rate getting the rest.  When you pay off that highest rate loan, in the following months, move all the debt reduction money to the 2nd highest rate loan.  Repeat until all your loans are extinguished.  This may take a year or two, but you might end up saving yourself $100 or so per month in interest charges alone, if you have very high interest rate cards!

 

November 6, 2013 at 8:57 pm Leave a comment


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