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March 02, 2007

A New Month, A New Budget

When I was in grad school, I "budgeted" by holding my breath and trying not to buy anything. It actually worked pretty well -- I managed three and a half years without overspending my stipend or going into debt, though it helped that I also had savings from my two years of work between college and grad school. I also wrote down everything I spent, which probably shamed me into spending less. The problem, however, was that I constantly felt poor and insecure because I didn't know how much I had to work with. I knew what was going out, but I didn't really know what was coming in or what the reserves were.

Now that I have a regular and reliable source of income, I would like to have a real budget, and also work toward my two personal financial goals: paying off my student loans, and building up a contingency fund in case I get Dooced. So I have been doing a lot of online lunch-break reading about budgeting and decided for March to try the 60% Solution, which I have seen recommended by several personal finance experts and bloggers. The way it works is that I limit necessary expenditures to 60% of my income. That is, 60% of my pretax income, and necessary expenditures include all taxes, health care costs, housing (from mortgage to utilities to toilet paper), groceries, transportation (gas, car insurance, and those rare times I have to pay to park). The other 40% gets allocated between fun spending, long- and short-term savings, debt service, and giving away. I have decided (for March, anyway) to give away 5% (half in donations and half in gifts), save 5% for retirement (automatically deducted from my paycheck and double-matched by UM), put 10% in my contingency fund, put 10% toward debt service (in other words, give it to Sallie Mae), put 5% in short-term savings, and use the remaining 5% as spending money (for yarn, skin-care products, haircuts, eating out, etc.).

The two tricks will be to limit my essential spending to 60% of my not-so-big income, and to limit my non-essential spending to 5%. I am already thinking of loopholes. For example, if I knit something as a gift for someone, then I should pay for the yarn from my gift money rather than my spending money. And what if I knit for charity? Then I could buy the yarn with my donation money. But what about purchases where the profit goes to benefit a cause I care about? For example, if I buy a skein of Violet's Pink Ribbon Yarn from Lisa Souza, the proceeds from which go to pay for medical care for Miss Violet of Limenviolet, who is currently undergoing treatment for precancerous breast tumors and has what sounds like the world's worst insurance policy, does that money come from my non-essential spending category or my donations category? And what if I use that yarn to knit a pair of socks for someone else? I guess nobody said budgeting was easy...

Posted by eklanche at March 2, 2007 07:20 AM


I'm telling you, just try my system.

At the beginning of the month I cash my paycheck and put all the money in my wallet. I spend wantonly and carelessly because the wad of money is so thick, but as it gets thinner I spend a little more cautiously. When it's completely gone I use the credit card until the next paycheck comes. When the credit card is maxed out I take that bucket of coins in my closet to Kroger and run them through the Coinstar machine. And when things get REALLY tight I fall down on the way to work and sue the pants off the bastards who didn't shovel their walks. On the balance I come out a little ahead each month.

So do these people with the budgeting websites make any money off them? I could go into business as an advisor or something.

Posted by: dmerch at March 2, 2007 11:31 AM

I did a budget recently too - for the first time in don't know how many years. And followed pretty much the same format. My goal? To pay the mortgage off in ten years, in order to make retirement easier. I too ran into the question about which category yarn falls into, fun or gifts, but decided not to worry about it since meeting my goal would mean giving up knitting altogether. So, I budget a little bit in for lottery tickets and buy yarn whenever the urge strikes. Actually, I only go in on the lottery with the finance dept. at work when they do, figuring they know what they're doing (hopefully). I also don't want to be the one left behind if they hit it big, a victim of missed opportunity, especially since my job is to oversee filling vacant positions. It's funny to hear musings around the water cooler, from the bookkeepers all the way to the CFO, about whether they'd stick around long enough to train their replacements. I

Posted by: khilfman@earthlink.net at March 3, 2007 11:34 AM

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