Budget

No Job is Secure

Not to scare you, but rather to suggest planning ahead and putting aside some savings. Back in the 1990s, I had a job that felt very secure and stable. Management put effort and money into developing the employees. They paid for my BS in business. We had good health insurance, life insurance, 401k with company matching, tuition reimbursement.

Life was grand.

Then someone far up the executive ladder had an idea. They sold off the part of the business I worked in and shifted to providing telemarketing services. I watched the company go from roughly 500 managers and 5,000 full-time employees with benefits to 500 managers and 5,000 part-time temporary workers with low wages and no benefits.

We felt secure, but in fact our jobs were never secure.

Think about limiting or reducing the bills you commit to long term. If you had to pay your expenses on unemployment or disability benefits, you’d probably be working with half your existing check. Can you pay the core costs of housing, utilities, food, and transportation on half your income?

Maybe your next car should be less expensive than you can currently afford, so you can still afford it in the event of a drop in income.

Avoid buying appliances on credit. Pay once, and you still have the item even if your income drops. Scratch and dent stores sell brand new appliances for far less than department stores do. Many of them are no more damaged than they will be anyway after a month of real life use.

Maybe the luxuries you’ve come to take for granted could be partly traded in for a regular deposit to a savings account. Being able to survive a layoff feels even better than a spa weekend or a weekly poker game.

 

 

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Easy Net Worth Calculation

The idea of computing your net worth can seem intimidating. It sounds awfully accounting-ish and formal. When it’s just for your own information, it’s easy.

Take a piece of paper or a spreadsheet. Write down the value of your big stuff:

Home if you own it (https://www.zillow.com/how-much-is-my-home-worth/),

Other real estate,

Bank account balances,

Brokerage account, IRA, 401k, (just use the most recent statement. Doesn’t need to be exact to the penny.)

The amount you could get for your car, jewelry, and collectibles if you sold them, (If you guess, guess low.)

Anything else I haven’t thought of.

Add it up.

Write down everything you owe:

Mortgage,

Credit cards, personal loans, car loans, medical and dental bills, (this does not include current utility bills, only debts)

Anything else I haven’t thought of.

Add it up.

Subtract the amount owed from the total of assets.

If the amount is negative, it’s probably a good idea to work on reducing the amount of debt you have.

If it’s positive, you’re way ahead of many people, so keep on!

 

 

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Those Occasional Expenses

Bills that come in every month are predictable and easy to cope with. The ones that can throw us off are those that come in less often.

Insurance premiums, property tax, back-to-school, Christmas, and heating oil are predictable. But they fall outside the normal pattern of monthly payments. There are several ways to build up the money for these bills. You can use a Christmas club account for Christmas. You can also use it for anything due near the end of the year, such as property tax.

Another way is to divide the amount of the bill by the number of months between payments, such as six for a twice a year insurance bill. Subtract that amount from the check register each month. Then add it back when the bill comes, and write the check to pay it. If you have a separate savings account, you can actually move the money instead of just subtracting it in the check register.

For a while, I added up ALL of the irregular bills. I added an amount to save for a possible condo repair or car repair. I divided the total by twelve, and put that amount aside every month. With rare and minor exception, this method let me always have the money to pay each irregular bill as it came along. That year I bought a refrigerator, a wall air conditioner, and a (very cheap) used car, all for cash.

Some banks offer a program where each time you use your debit card, they transfer a dollar to your savings account. This can be an easy way to build up some savings. You do have to remember to subtract that extra dollar from the check register.

Staying ahead of this type of expense lets you avoid getting behind.

 

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Practice at Making Decisions

As adults, we constantly make small and large decisions that affect our financial lives. How did we learn that skill? Or did we? Making sound skillful decisions doesn’t necessarily come naturally. In addition to good advice and good examples, we need practice.

Find situations where your kids can make decisions. My mother bought the groceries and then each evening it was my role to decide what vegetable we’d have with dinner. Having chosen the vegetable, I could hardly complain about eating it. At back to school time, she’d gather a group of outfits and let me chose which five to buy. Notice that these early lessons had a failsafe built in since she chose the group from which I then chose. I had daily and yearly experiences of making successful decisions with good results.

I received a small allowance and could do as I pleased with it. I bought dumb stuff and wasted a lot of money, and that was a GOOD thing. I got all those impulse buys and scam situations out of the way before I was old enough for it to matter. NOTE: The reason I learned from this is that once I wasted my money, no one gave me more. I experienced the results over and over until I learned.

Help your kids and grandkids by making room for them to learn.

 

Focus and Goals

Years ago I knew someone who was intensely focussed on the goal of paying off his mortgage very early. This is an admirable goal, but he was so intense about it, his kids were doing without and the family didn’t have any fun.

Goals need to stay in balance. Sure, make advance principal payment on a debt, but also go to the discount movies once in a while.

If you hyper-focus on building up a savings account, there’s a risk you might spend more on the credit cards. If you have to put a bit less in savings to avoid accumulating consumer debt, so be it. Keep the balance.

 

 

Ideals are Different From Goals

In a perfect world, Henry, age forty, might have his house paid off and ten thousand dollars in the bank in case he loses his job. Should these be Henry’s goals?

I think not, because unless he earns twenty bazillion dollars a year, they aren’t attainable in a realistic time frame. If Henry set these as goals, he would soon become discouraged. It’s fine to hold these as ideals, but goals should be attainable.

His short-term goals might be to reduce his expenses enough to make periodic principal pre-payments on his mortgage. To have a little money automatically transferred to his savings account from every paycheck. You have to start at the beginning.

Because people are only human, we need goals we can realistically meet, and meet them soon enough to feel successful.

A Two-Pronged Approach to Spending Less

One way to think about cutting costs is to come at it from both ends. What do I feel I absolutely must spend money on? And on the other hand, what are the obvious extravagances I have no difficulty in identifying and letting go of?

Perhaps one insists on having a home, not living on the street. That’s a good baseline for the housing part of the budget. On the other hand, perhaps one could cross expensive artwork for decorating that home off the list of future expenditures. That’s fairly obvious too.

Maybe have to have a vehicle to get around in a normal fashion, so I spend on that.  On the other end of the spectrum, maybe I don’t need to spend money having an optional moonroof installed on my vehicle.

These are wide extremes. As I’ve worked through the process of cutting expenses, I’ve gradually come closer and closer to the middle balance in all budget categories.