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Thursday, July 31, 2014

Sustainable Living group takes on Household Budgeting

The Sustainable living group is off to a good start with the number attending meetings increasing.  This month we had a lively discussion about household budgeting which is so much bigger than just crunching numbers.

People have different goals in budgeting.  Some do it to save money and to stretch their dollars further.  Others are discovering new, better, more economical ways to live.

It takes discipline to set goals and stick to the plan to meet those goals.  And getting the whole family on board with a new system can be one of the biggest challenges of all.

Some folks have a vision of a budget, but nothing on paper.  Some have no plan, but are in a reactionary mode to the bills as they come in.  And still others are keeping track right down to the penny.

Is there a right way and wrong way to budget?  Is one way better than another?  What is a budget?  And why don't they teach us about this in school?

There is definitely a right way for you and your family to budget.  And it may or may not be the right way for me and my family.  You may have to try a few different tools until you find the one that works best for you.

Simply, a budget is a plan for spending your income.  It includes your regular bills and expected expenses; as well as, your plans for the future -- vacations and retirement.

Start your budget by looking at your income and expenses for the last month.  That will give you a guideline for getting started.  You'll want to set some targets for each category that you set up based on what your spending has been in the past.  And it will take you a few months to really get these numbers accurate.

The easiest and least expensive way to start a budget is with a pencil and full size notebook.  At the top of the first page, write Income and next to that write the amount of your last paycheck.  That is how much money you have to work with for this pay period.  No more. No less.

Now, my husband gets paid weekly and so we've worked out our bills to a weekly system.  That is how I am going to share it with you. If you get paid bi-weekly or monthly or 2x each month, you'll have to adjust for that, but the basic system is the same -- allocate all your money to a category so that none is lost in the cracks.

Below your income, start listing your expenses, beginning with your 4 walls -- house (mortgage or rent), travel (car payment, fuel), food, and utilities.

Our rent is paid weekly so that's easy.  Food and fuel are cash funds for us so I go to the bank each week and take out the money for those envelopes.  Our utilities are all billed quarterly, so we transfer money from our checking account to our sinking funds savings account for each of the utilities and for car rego/insurance.

We have cash envelope funds for food, fuel, household (cleaning and toiletries), family entertainment, chickens, date night, clothes, and pocket money for both husband and me.

What is a sinking fund?  Sinking funds are expenses that are known and can be planned for, but they're not paid monthly.  We know every 6 months, the car rego and insurance will have to be paid, and we know how much will be needed.  We take that total amount and divide it by 24 (6 month x 4 weeks per month).  That is the amount we save each week for car rego/insurance.  Same for the utilities except we use an average amount of what the bills usually are and divide by 12 weeks.

Our sinking funds categories are emergency fund, phone, internet, water, electricity, gas, car rego/insurance, medical/dental/eye, education, clubs/memberships, gifts/celebrations, and vacation.

Example:  water bill averages $36 for the quarter.  $36 divided by 12 is $3 per week. We transfer $3 from the checking account to the sinking funds savings account each week so when the water bill next comes due, the money will be there.  I track how much is in each of our sinking funds on a separate page in our budget notebook.

Across the top of the page, I have each category and down the left is the date of each deposit or withdrawl (payment).  Each week, I write the deposit (payment) and then calculate the balance in each category.  When we make a payment, it won't always take the balance to 0 because we put extra money in during summer to cover for the higher usage in winter.

Our plan is loosely based on the plan Dave Ramsey lays out in his book Total Money Makeover.  His plan is solid and it makes sense to us although some of it doesn't apply just because he's in the US and we're in Australia.

I really like his baby steps which go like this:
1 - Build an emergency fund of $1000.
2 - Pay off all debts from smallest to largest, not including mortgage.
3 - Build a fully funded emergency fund of 3 - 6 months of your monthly expenses.
4 - Start investing in a retirement fund.
5 - Set up a fund for your children's college funding.
6 - Pay off mortgage
7 - Give

Follow these steps in order for steps 1, 2, and 3 you'll be amazed how things turn around for you.  Once you're up to steps 4, 5, and 6, you'll find you're doing them all at the same time, but it might vary which you focus depending on your age and other considerations.

Dave goes on to say that if you're behind on bills related to your four walls, you have to get current with those first.  Stop paying on debts (credit card and other consumer debts) and get those four walls solid.  Then go to step 1 and get a small emergency fund in place.

Having that emergency fund in place will give you a buffer so when the car breaks down or an appliance dies, you have cash to spend rather than relying on credit cards and loans.

After your emergency fund is in place, start working on paying off your debts, smallest to largest.  Make minimum payments on all of them with any and all extra money going to the smallest payment until it is paid off.  Then snowball that payment into the next largest payment until it is paid off.  And so on until they are all paid in full.

Dave Ramsey wants to see us all get rid of all our consumer debts.  The only good debt is a mortgage for a house.

Imagine the freedom that comes from being current on all your bills and having no debts.  Being able to pay cash for a vacation and being secure that when you retire, you won't end up in the poor house.

If you prefer to use excel spreadsheets to using pencil and paper, I highly recommend the formatted spreadsheets I found on I am not affiliated in anyway with this site.  I just love their spreadsheets.  We use their budgeting, debt snowball, and savings goals spreadsheets.  They're simple and straight forward.  Just plug your numbers in and the graphs and tables will update automatically.

 I'm sure we'll come back to the topic of Budgeting at future meetings and dig more deeply into what to do when ends aren't meeting, and paying off debts.

That is the freedom that comes from having a budget.  Budget isn't a bad word.  It isn't about depriving yourself or your children.  It is about planning for the future.

Plan for our next Sustainable Living meeting on August 26 discussing Gardening. Gardening season is right around the calendar and it's never too early to start planning.  And September 30, we're taking on the topic of Christmas -- how much to spend, who to buy for, what to give, etc.  Don't you just love Christmas?  :)

Just one last thing that is the a Community Garden in Dalby.  There is interest within our group and in the community to get a Community Garden going and to do this, we need a core committee of at least 6 people to come together and get it started.  If you are interested, please contact me directly for more information.  And please ask others if they would be interested.

Thank you so much!  I love reading your comments.

Recommended reading on budgeting:
The Total Money Makeover by Dave Ramsey
down to earth by Rhonda Hetzel (Both her book and her blog of the same name have sections on budgeting.)
Your Money or Your Life by Joe Dominguez & Vicki Robin

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