Wednesday, October 16, 2013

Financial Tips for Our Generation (Automatic Budgeting and Saving)

I usually like to start my posts with disclaimers, and this will be no exception. I am in no way a financial advisor. This is a post for people who are looking for an easy way to start/improve your budgeting. You would have to speak to another author of this blog for investments and such as that is his expertise and career. I do, however, work with money and budgets in my job. I've also been characterized as frugal, thrifty (my new favorite) and "the cheapest and most money conscious mutha fugga I know" on more occasions (Jonny Casanova) then I care to share. I've helped my parents get their finances in order, friends and my live-in. I enjoy helping people with some of the tips and things I have learned that make me a bit more fiscally responsible. In this day and age there are alot of means to budget electronically that everyone doesn't know that can make budgeting automatic. There are a four pillars to this automatic budget strategy. Income, bills, savings and allotments/accounts. Also learn to utilize spreadsheets. Put that education to work pimpin.

I n c o m e what you make. I'm surprised by how many people that ask me about finances that have no idea how much money they make each month after taxes. This will be your barometer for everything you do. Look at your pay stubs for your net income as that's all that really matter. Uncle Sam is going to get his until you die. Chalk it up as a loss. If you get paid twice a month, times the net income on one pay stub by two. You now have your monthly income. Don't worry about those months you get three paychecks or whatever. Trust me, its always better to low ball it. If you work on commission, give yourself a modest estimate. I'll tell you why later.

B i l l s off, fuck em. Now that that's out of all of our systems time to add them up. There are fixed bills and variable bills. Fixed bills include things that just won't change from month to month by more than $10. Rent/mortgate, utilities (I'll tell you how to make utilities fixed next paragraph), student loans, minimum credit card payments, car note and insurance, and home/renters insurance are some of the heavy hitters. Time to factor in your variable bills. These include things that can change every month depending on use. This is where you can save some money if possible. Groceries, gas, transportation means (if you use public) are the first ones that come to mind for me, but you probably have others. Be very generous with this number, nothing worse than spending more than you planned.  Keep fixed and variable bills separate but they will both be taken from your income but you might be able to find wiggle room in variable costs. You should have a number now. Look at it and say fuck em again. Feels good right?

Utilities can be made fixed by calling up your water, gas and electric company and seeing if they offer budget billing or monthly installment options. This is where they take the average amount of utilities you or the previous tenant use and charge you that amount whether you go over or under. Try your damndest to be conservative and always be under that average no matter the time of year but especially in winter since you shouldn't be running the a/c. You'll receive a check when they re-average it every six months or so. It'll make you smile when you get it because its your money. I'm under about $40 a month by opening windows and running fans. Six months times $40 means I'll get about a $200 check. Nice! (in my Fabolous voice) If your utilities don't offer budget programs, add them to variable bills. Won't make too big of a difference I think.

S a v i n g s
Now add what you want to be SAVING per month to your bills. IT IS A BILL. You owe yourself for being awesome homie. Pay up. You should figure out what you want to see in your savings in six months realistically and put that much away before you even see your check. This is the key to this strategy. You'll do this with the next step in allotments. This category is your everything, you can't afford to forsake it. Even if its only $100/mo, make it happen and do AS MUCH as you can. This is the account that needs to see growth every month no matter what.

A l l o t m e n t s/A c c o u n t s
Allotments are just money separation. Most employers pay in allotments if you do direct deposit. I'm not sure on the limits for everyone, but usually there is more than one. My job offers up to 8 allotments. Allotments are basically where you want your money to go for doing your job. I have four personally that I use. I term them as follows: long term savings , short term savings, real life checking and my fun checking.

Long term savings are for big future purposes like cars, homes, grad school and retirement.
Short term savings are for bigger rainy day purchases you didn't see coming like unexpected car repairs. I put up like $30/month. It may not fully cover the expense, but it can definitely help chunk them down when they come.
Real life checking is for all those bills you added up earlier. The absolute minimum you can put in here is all of the bills you added up plus $100-$200. If you can afford more, dump all the left over money here for now. Unless you're balling and can save a ton, this should receive your biggest allotment.
Fun checking is for things like eating out, hitting up happy hour, video games, getting nails did etc. Anything you don't NEED should come from this account. If you want a new big TV work on saving the money in this account. Eat out less, drink less, video game less to get that big fun purchase.

If for some reason your job doesn't do direct deposit no worries. Its 2013 and you can do all of your banking online and you should. Its easy to learn and easy to monitor, If you know what days you get paid set up recurring transfers to the accounts you've set up in the amounts you've budgeted. I use Bank of America and you can call right now and tell them to give you an e-checking account and its free. You'll even get a debit card for it for free. I'm sure your bank has some version of this.

T h e   S t r a t e g y
If you've made it this far, its time to put it into action. If your employer can do the allotments, tell them how you want them, and that's it. If no allotments, just set up the recurring transfers I described above instead. I was using the four allotments I spoke about before, though I recently set up a recurring transfer from my real life checking to my fun checking weekly (since I get paid bi-weekly). I let the recurring transfer for fun checking hit on Thursday night so I know my "allowance" for each weekend/week rather than for two weeks. Just easier I feel. So I guess my employer only has three allotments now since I combined two. They are still separate accounts. When its spent, its spent. No exceptions for "fun".  You could also give yourself cash in place of the fun account, but I like my debit card.

Set up all your bills to be paid automatically at the fixed amounts. I set my dates for rent on the first and utilities on the 15th. It happens without me having to even think about it although I do monitor is often to ensure its going according to plan. So nice. Adjust amounts as you see fit as you go along as nothing works out perfectly the first time. your savings grow with every pay check without fail. You'll love it. Also, set an upper and lower limit for your real life checking account. Take your total bills a month and add $500-$1000 if you can. Then on around the 25th of the month, make sure that account is within ±$300. If you've followed the strategy so far, you will definitely be on the plus side. If its over $300 over, move the excess to your long term savings. Bonus time for being good! Example: Your bills are $1000 so your checking goal at the end of the month should be $2000 ($1700-$2300 to allow the ±$300). If its above $2300 and sits at $2400, move $100 to long term savings or stash it in short term savings for that big trip you want to take.  My strategy is all about hiding your money from the person who endangers it the most. Yourself.

That's about it. Happy budgeting. If anything is unclear or you have a suggestion, leave a comment. I'd be glad to clarify or discuss.We can all improve.



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