## Wednesday, July 22, 2009

Everything Seems Fine On the Outside

Hat Tip: A reader who is free to self-identify

A reader pointed out an op-ed on the Lubavitch CrownHeights Info blog. The author is the CEO of Global Jewish Assistance & Relief Network and a credit repair company. He has discovered what I have been long been talking about: the house might look great, but the foundation is crumbling. In his words: "Most frum couples have been living on borrowed money to make ends meet, but the financial noose is tightening day by day."

As a service, he created an Excel spreadsheet with more categories and sub-categories than you can shake a stick out. The level of detail is a bit excruciating for me, but certainly will be quite helpful to those who have expenses all over the board.

A family that has high expenses that all over the board, is already in debt or nearing falling into debt, has no liquid savings to speak of, and doesn't have an idea of where in the world their money is going would be well served by an extremely detailed budget. When you are spending beyond your means, separating out the bakery expenses from the detergent from the nosh from the groceries is a good way to get a grip on the budget.

A few notes on the Excel Budget:

• I noticed that the budget did not include any lines for income. When I help someone make a budget I always start with income. Be the budget personal, non-profit, or business, I don't like discussing expenses without looking at income first (happens a lot with non-profits and fundraising becomes a plug figure).
• One thing I have noticed on nearly every "frum" budget I've seen is that the chagim are separated from the budget. This is something I do not do, and I think that once a budget is under control and sense has taken over, it is best to let the expenses of chagim be absorbed into general budget categories. I have a certain yearly figure in mind for what we should spend on consumer goods and food, and I make yom tov fit inside that budget. Scouring a budget is necessary for getting a budget under control. Once under control, I think it is best to limit expenses and force it all to fit within. Sometimes extra line items trick a person into thinking that the "making Pesach" is like putting on a roof.
• Another area on the excel budget is "personal simcha funds" including births, bar mitzvas, and weddings. Sadly there is no area listed for savings (i.e. retirement, emergency savings, the next car, the next roof, 529 plans). No surprise that I believe the simchas funds should take a back seat to this type of saving.
• Life insurance is thankfully one of the listed expenses. I think disability insurance should make that list too. For many, a personal liability umbrella insurance policy is a good idea. Anyone who can't pay for these should likely reconsider their summer home insurance.
All and all, it is great to see someone put together a budget to help families in trouble pinpoint all of their expenses. My head would spin if I had so many categories!

rosie said...

I was the one who sent it to you unless you got more than one person. He also spoke of the lack of job skills in the article. I was happy to see an article that actually felt that couples should budget their money because usually articles in Chabad publications advocate bitochon and tzedukah for financial woes. He mentions bitochon but feels it comes along with budgeting.
As far as simcha funds go, even if you don't make much of a party out of it, a Bar Mitzvah boy is usually given his own pair of tefillin. A new baby will also need at least something to sleep in, a car seat, some toys, clothes, diapers, formula, etc, even if the bris is a small party. It may be of less importance than eating after retirement but it is a more immediate need.
As to all of the categories, he wants people to see where they are oozing money and what they can cut back on.

LeahGG said...

Obviously, one should budget for simchas, but that should take a back seat to emergency savings.

If it comes to the point that you don't have money for a set of tfillin for your son's bar mitzva, then you can call all your friends and ask that instead of giving a gift, 20 friends should get together and put up the money for a pair of tfillin.

As for budgeting for chagim,I would argue that it is reasonable to expect groceries to cost more for Pesach. How you work it into your budget is a separate issue, but I don't think that it's unreasonable to have a line item in your yearly budget to cover the cost of matza and cleaning supplies and dishes that need to be replaced.
(though it's important to keep a list of what you have and what you need to buy, because there's really no reason that I need 3 vegetable peelers and 2 electric kettles for Pesach - it's just a total money hemorrhage)

rachel in israel said...

My first reaction was also about how detailed it is. The I realized that it is a good thing to have so many details, just a quick look will reveal easy places to cut expenses (assuming the family is willing to do it). Just think about all those lines that are extras and not needs. The more detail it has the easier it is to see where to cut. We use quicken and don't add some much detail, but we are by nature very frugal. \in fact you can probably add even more details to this one to make it easier for couples having a hard time cutting more expenses (divide clothing into yom tov/shabbos and everyday, chicken, produce, meat, etc)

tesyaa said...

I'll honestly admit that I've never been a budgeter, but I imagine that it's important to revisit budgets frequently.

(For example, I'm able to spend much less on clothing for myself than I used to since I discovered eBay bargain shopping. But I spend a lot more than I used to on my teenage daughters, not because they're so demanding but because their clothing needs have changed since they were cute little tots. I can't buy their clothing on eBay because they really need to see things, try them on, etc. I feel like I'm teaching them a life skill -- how to look presentable -- but even a Shabbos cardigan from Target costs more for an adult size than for a small one.)

If you stick with your old budgets year after year, you're probably not reflecting reality.

ProfK said...

We differ, SL, in how we think of details. The budget presented is a good start, but I believe it's not yet detailed enough and needs some tweaking. For instance, he mentions pharmaceutical co-pays (prescription drugs) but doesn't mention a real budget buster--over the counter medicines and health items. Check most people's medicine cabinets and bathrooms and what you'll find is mostly OTC stuff, not prescriptions.

I'm still a little puzzled as to why mikvah payments come under utilities. Under travel he fails to put in hotel charges. Under help he makes no mention of items such as electricians, plumbers, lawn maintenance personnel, painters, carpet cleaners etc. Clothing is too broad a category as well. Under Health and Beauty he misses haircuts. And I think the grocery area needs more categories.

You need to see the pennies before you can reduce the dollars, you need to see the details. Seeing $5ooo for clothing doesn't tell you much about where to cut. Seeing 13 pairs of simcha shoes and 4 pairs of boots and 314 tichels might give you a clue. As I said, it's a good start but for me, and lots of others, the devil is in the details, and this isn't detailed enough. Anonymous said... I agree with ProfK. The devil is in the details. I note that there was no entry for wine/liquor, which in some homes can add up even if its only for Kiddush. Same for flowers. I also think that some people filling out the spreadsheet might miss some items that only arise every few years. For example, although there is an item for home maintenance, if you own your home, you need to understand that a hot water heater will go every 10 or 12 years, a furnace or air conditioner or refrigerator might need to be replaced every twenty years, not to mention new roofs, etc. We budget a few hundred dollars a month for those items. Same for the big car repair expenses that might be light one year, but will come up every few years. Anonymous said... The comments on the crown heights blog were interesting. One woman said she can't budget because the family doesn't have a fixed income. I'd say budgeting (and saving) is even more important if income fluctuates from month to month. If you are spedning, even if its not a lot, you need to know where your money goes. Lion of Zion said... "Check most people's medicine cabinets and bathrooms and what you'll find is mostly OTC stuff, not prescriptions." i've been mulling posting about this. in sum, brand medications (Rx or OTC) are generally for suckers (check with MD/pharmacist for exceptions). can save big bucks here. also, a lot of tablets can be split (check with doctor/pharmacist first on which ones; in some cases splitting can be dangerous), so you can get a higher dose (which often costs the same anyway) and just split the tablet in half. and forget about all the herbal crap. even if you think a particular herb actually works (they generally don't), you literally have no idea what is actually in the bottle when you buy it. Lion of Zion said... and forget about certain vitamin supplements such as vitamin c. PROFK: "Check most people's medicine cabinets . . ." do you make a habit of this? remind me never to let you use the bathroom in my home :) Thinking said... Why is it that in the frum community the budgets calculators are always excel spreadsheets with blank spaces? At best, with a worksheet like this you can see that you are spending more than you have. The best calculators are the ones that say: How much do you make? Ok, this is what you can afford. If you want to really help people learn to budget don't have them go through the exercise of listing their expenses. You will spend the rest of your time arguing about how important each item is. Everything can be rationalized. I just did this with a young couple who recently got married. They gave me their income and savings and we went through a similar sheet but instead of them filling it in, I filled it in. I showed them how much rent they could afford, car, utilities, savings etc. This forced them to make some tough decisions about what to rent, having 2 cars, not needing a home phone etc. We need to be more assertive if we really want to help. Anonymous said... This blog always shocks me at how much and where people spend their money. There is a lot of fat in that budget list of things that are not needed at all. Then again, I spend about$100/year on my "drugstore" purchases - which include diapers, wipes, detergent, soap, shampoo, toothpaste, deoderant...and just about anything you can buy at CVS.

Anonymous said...

Thnking: You raise some good points, but I think it also is important for people to see what they are actually spending and, if it's more than the income figure out where to cut. While people may need some help in fuguring out where and how to cut, no one else can know someone else's priorities. Some people might chose one car so they can spend more on child care. Two cars might be more important for another family, so they make up for it their choice of housing. Other people might have prescription/medical expenses that can't be cut without great risk to their health. Ultimately, families have to do their own prioritizing. They need to learn how to do this themselves for this to work in the long-term, not be treated like chidren with someone saying you will pay $1000.00 for rent,$500 for groceries, etc.

ProfK said...

Aw Lion, I don't go snooping in people's medicine cabinets--you're safe! I'm working backwards from the reported sales of OTC products. Given the number sold I can assume pretty surely that most homes, if not all, have some of these products. Things like aspirin (different strengths, adult and kid), tylenol (different strengths, adult and kid), advil, some sort of stomache-type product like maalox or tums, bandaids,multi-vitamins, pre-natal vitamins, rubbing alcohol,some type of product for diarrhea or constipation, thermometers, vaseline, maybe an anti-biotic cream like neosporin, some type of anti-itch product for mosquito bites or contact with poison ivy, otc antihistamines, eye drops, cough syrups and lozenges, chap stick, creams for diaper rash etc. These products don't last for ever, have an expiration date and need to be replaced fairly frequently.

JS said...

I thought the budget was completely unhelpful due to its level of detail.

You have to understand that the people who are in desperate need of a budget are the ones LEAST likely to use one. Having excessive detail like this just makes a person throw their hands in the air and give up - it's too hard! Who keeps all these receipts! It will take me a year just to fill this out!

What a person needs (at least initially) is a BROAD set of categories. For example "Groceries" and every single receipt for the grocery store is put there no matter what was purchased even if it's cleaning products, diapers, food, or a new mop. It doesn't make sense to divide every receipt out initially as there may not be a problem in this area. However, if the "groceries" line item is totally out of whack, THEN you should investigate why so much is being spent in that area. Is there too much junk food? Too many brand names? Too much meat?

Same thing with savings. There should be a general savings line item and then the total amount that would be saved per year can be looked at to see if it's enough to cover everything.

The budgets I use at home have maybe 15 categories of expenses and as long as everything individually and taken as a whole look good, I don't sweat the details.

rosie-Thank you for sending this.

rachel in israel-The categories (and there are things that don't make the list) are a HUGE clue as to where to start cutting a budget. I'd say anyone in debt with a line item for manicures might want to start there.

tesyaa-Agreed that budgets change.

ProfK-I believe that most people with budget trouble won't even be able to fill out this spreadsheet. That is how they got there in the first place!

The reason I don't separate out diapers from produce (my broad groceries and other household products sold in grocery and drug stores) is that I am very frugal. I rarely buy produce that is more than a dollar a pound. I don't pay for toothpaste and shampoo (rebates, extra bucks, etc). I clip and combine coupons.

As for OTC medications, if a person finds they are always buying such things, perhaps a line item is necessary. I don't use that much of these things, nor do I feel the need to replace when the expiration date hits (on the advice of my doctor who tells me it will still work).

Continuing. . . . keeping a family budget should not be overwhelming. I think that the author has done a tremendous service by creating this budget, but I agree with JS that you don't want people throwing up their hands in despair.

There are many ways to budget and I don't believe there is any single right way. I don't maintain this type of detail because I am increasingly frugal and the numbers are reflected in my broad categories.

The devil is definitely in the details, but I think those with a lot of trouble probably don't have a handle on the details. As such, a spending freeze on certain identified items (perhaps flowers, wine, and manicures) might be more effective.

I'd say budgeting (and saving) is even more important if income fluctuates from month to month.

Absolutely!!!

Thinking-Thank you for the great comments. Starting with income is the only place to start. Everything can be rationalized. But when you know how much you have to work with, then the only way to rationalize an expense is by increasing income.

I have NEVER formed a budget without looking at income first. And I have objected to such with clients and with non-profits for which I have served on committee. (I may be the only person listening to me though).

Then again, I spend about $100/year on my "drugstore" purchases - which include diapers, wipes, detergent, soap, shampoo, toothpaste, deoderant...and just about anything you can buy at CVS. I love CVS extra bucks. I think my last receipe told me I have, to this point, spent$15 cash on over $300 of merchandise. Keep on recycling those extra bucks and you will have a drugstore for the kids to shop in right in your own cabinet. SephardiLady said... Anonymous 9:51-- My own observation is people who tend to overspend in one area, more likely than not, overspend in other areas while those who are frugal tend to be frugal across the board. This isn't to say that there are not families in which a second car isn't traded for a more pricy babysitting service. But my own experience shows that when one area of a budget is out of control, so are other areas. Ahavah Gayle said... JS - I keep all my receipts and enter them into quicken once a week. My budget is also done on Excel, and if you think that one is complicated you should see mine! But however you do it, you need to make your shopping lists so that you only spend what you can afford to budget. If you don't like the spreadsheet way, and don't like programs like Quicken, then use graph paper and make your own chart. Put your takehome pay at the top, and then subtract your regular monthly bills - surely you know what THOSE are. What's left is what you have to work with - divide it into housewares, groceries, clothes, gifts, and put some into savings. (You don't need to have a separate savings for each category, either - just put it all into one to start with.) The idea, however you do it, is to live within your take-home pay. If you haven't been doing that, then you have a problem and it needs to be fixed. That's the idea behind the budget, however crude it may be. Hope this was helpful. Anonymous said... I think most of the posters/readers here are not the ones spending over their means and getting into debt. Not everyone needs a complicated spread sheet. I pay all of my bills on line through my bank, use my debit card for almost everything (drug store, grocery store, gas (except when discover card is having 5% cash back) and do all of my charitable contributions by check. That way I can look at my on-line bank statement and see exactly where everything is going without having to save receipts and enter items into quicken or a spread sheet and I can also see exactly what's left for the month since debit charges appear right away. This may not work for everyone, but it works for me. Offwinger said... The problem is not the "level of detail," but rather the lack of scale in choosing what to categorize/sub-categorize and relegating the costs of various lifestyle choices to entirely different parts of the spreadsheet. As noted in other comments, you have things like home, car or medical costs not broken down into more sizeable chunks (based on life-span/replacement time). But you also have itemized things like envelopes and paper! Why not use a sub-category of office supplies? (just as it lists school supplies) Magazine subscriptions? Why not have a category for home entertainment (music, books, subscriptions, etc.). I can see how this level of detail would scare away some people. The key is figuring out what needs to be itemized and what doesn't. If you're offering a template, it's better to be slightly broader & to let people know that they should think about whether they need to add in certain specifics. For some, pizza needs to be a line item. For others, Starbucks/coffee should be. Etc. Beyond that, I simply disagree with the over-arching organization of the spreadsheet, because it separates the costs related to "money sinks." There are many different ways to lay out a budget, so I'm not advocating one specific approach. However, the primary point of a budget is to show you where the money is going, to help you prioritize among expenditures, and to be able to "balance" your budget, based on your intake. Here's one example: Keeping "insurance" as a category separates out home insurance from costs related to home ownership, and car insurance from costs related to owning cars. Yes, it makes sense to cover all forms of insurance (life, disability, home, car, medical, etc.) in your budget. But when you move it to a different part of the spreadsheet, you aren't getting an accurate picture of how much owning a car or a home is costing you. Or a 2d home or 2d car. That said, I applaud the effort to even try to offer a budgeting tool for people. I hope that anyone who sees this tool is not deterred by the lack of organization and bizarre choices of detail in the template. Some kind of budgeting is better than none at all. There is no one size fits all template, so hopefully readers will be inspired to edit the spreadsheet to turn it into a tool that helps them. JS said... What's ironic is that I am the most detail-oriented person and am almost obsessive compulsive about spreadsheets, grpahs, projections, etc. I know my way around Excel and the financial functions in Excel like the back of my hand. I use Quicken and have every single thing recorded there and I download my transactions into it daily. I do end of year comparisons between budget and actual to revise next year's projections. I think you get the idea. And yet, as I said before, I think having too many categories is crippling. Not just because it gives one a sense of despair and is simply overwhelming to fill out and keep up with - separating everything out from receipts, for example. But also because sometimes it's OK to spend a lot on one area if you cut back in others and breaking things down so finely glosses over that point. For example, I have a broad category of groceries and everything I purchase at any grocery store (kosher or not) goes in there. I don't check if it's for meat or produce or cleaning products or what have you. It simply doesn't matter, all I care about is: am I spending too much at the grocery store IN GENERAL. If so, I need to cut back on that or cut back somewhere else - like maybe another broad category "entertainment" which includes movies, eating out, all cash purchases (again, I don't itemize this at probably 90% of cash purchases are for entertainment anyways). You have to remember the forest - saving money and living within your means - the trees are just a way to help you do that. Focus too much on the trees and you're liable to lose sight of the forest. Offwinger said... JS - When you're already organized and frugal (for the most part), it's easy to say that you realize all entertainment can be substituted, so if it starts to spike, you can worry, but who cares if it stays the same because in one month you choose to see more movies while eating out less. Same is true with grocery expenses - you get used to the ebb and flow over a year. Produce costs do change by season (sadly, going up when the choices are more limited). Most people buy more animal proteins for chagim. And so on. The problem for people new to budgeting or living frugally is that these same categories might be hiding unnecessary expenses. This is especially true if you don't know what a healthy benchmark would be for that bigger category item. If you don't know if groceries or entertainment could or should cost$20, $100,$250, $500or$1000 for 1-2 weeks worth for a family of 4, then having a catch-all grocery or entertainment category is probably not the best place to start.

That's why when someone seeks financial counseling & organization, it is usually recommended that they record ALL spending for a set amount of time (e.g., one or two weeks). The goal is not that you should always be that detail-oriented or obsessive compulsive all the time! It's to play detective and try to figure out how you should be tracking your own finances. Some things might require a more detail-based approach. Other things can be left to larger, but predictable/stable categories.

JS said...

I pretty much agree. If you're already frugal the level of detail perhaps doesn't matter as much.

Before I was married I kept much more detail, but my wife was being driven crazy by my asking what such and such expense was for. She was totally right, it didn't matter - we weren't overspending and the level of detail was a hindrance, not a help.

My point is that going into so much detail is often unhelpful - regardless of whether you're frugal or not.

The problem people haven when they are spending too much isn't that they're categories are too broad, it's that they have no idea what their expenses even are!!! They don't know if they spent $1000 last week or$100. Therefore, just getting a loose grip on their expenses is helpful and is something they may actually be able to do. If you ask someone who doesn't keep track of anything to suddenly keep track of every little thing and divide out receipts it will never happen. It's an issue of conditioning and how their minds work. You need to slowly get someone into a frugal mentality and the 1st step is for them to just figure out what the heck they're spending money on.

Next is to figure out if these expense are above income levels and then finally to find out what can be cut. Once a person is in the swing of things they'll realize on their own what subdivisions of categories make sense for them.

As I was trying to say before with the forest and trees analogy, you have to remember the goal - these people have serious financial problems caused by years of bad habits and lack of knowledge. It needs to be changed slowly and gently. You can't ask them to go through every receipt and figure out how much they spent buying carrots and how much on oven cleaner.

Offwinger said...

There are different ways to get people into good habits.

I'm not advocating a 1 or 2 week recording/inventory as a method of getting a person into a habit of budgeting/recording. I'm advocating it as a starting piece for observation. And I don't mean to break it down by line item within the receipt of a particular store to begin with.

This technique is not easy and is best used with someone else who can help you figure out how to set up a system for tracking and understanding your finances.

BTW - The same is true for healthy eating. A 1 week food log of writing down everything you eat is extremely useful for learning about your beahviors to get a starting point for introducing changes. The goal is not to log all your food forever. It's to become mindful about how you eat.

Same here - you have to become mindful about how & where you spend money. And you have to become educated about how you can make better decisions that are right for you.

That said, I understand that there are different people and different approaches work best for different people. The goal is to get people educated and paying attention.

Anonymous said...

Not to judge, but if you are saddled deep into debt, I don't know if your budget should even have a line for "summer home". ? I understand if you have already purchased one and are unable to get rid of it, but it just seems like if you are borrowing money left and right already to get your kids into private school, it is pretty presumptious to have a summer home.

Ahavah Gayle said...

What's "complicated" about mine isn't that I have excruciatingly detailed categories - though I do break out the principle from the interest from the PMI from the insurance from the taxes on our house payment when I enter it into quicken (and as you know you really only have to enter those things once and then just "memorize" it to repost each month). Those kinds of things I do in quicken, not on the budget sheet. The budges sheet is much more broadly categorized, but I have it broken down by individual paychecks each month - what is being paid out of each, 2 for him and 2 for me (if I have any earnings - I don't go out of my way during the summer to take on any assignments when the kids are home all day).

The idea behind the budget sheet that I use is to track things by due date and pre-determine at the beginning of each month what is going to be paid from which paychecks. It's not everybody's cup of tea, of course. For me, all I have to do is print it out at the beginning of the month and then I know exactly each week which bills to go online and pay and how much money I have for groceries (which, like you, includes everything I buy at grocery stores, even non-food items).

It's a little different than most people do it, but it works for me and it makes sure all the bills get paid in a way that doesn't leave us short of food money or school supplies (for example) at any time.

This gives unexpected expenses (such as an ER bill for a co-pay amount after insurance has been calculated) to be put in the monthly budget at the paycheck with the most "give" if you see what I mean. I'd recommend this method to anyone but it does take a bit of organization skill to pull it off.

rosie said...

I think that what Lazar Avtzon is trying to impart with his spreadsheet, is that after all the spending is done, there is din v'cheshbon. He was used to seeing people go into debt with the bitochon that it would somehow get paid. In some cases that bitochon meant relying on some supernatural miracle to pay the debts and Jews are not supposed to rely on the supernatural.
He should have a line for income and break down expected home maintenance into categories. He welcomes everyone to email suggested changes since he wants to use this method to whip a whole community into shape. Don't be shy either about posting on the blog. You obviously don't need to be a Lubavitcher to log onto the site.

Anonymous said...

Ahava: I'm glad your system works for you, but I'm a little confused as to why you distniguish between your and your husband's paychecks. A family's money is fungible. Once the check is deposited it shouldn't make a difference whose name was on the paycheck. I think in some families there can be a risk of thinking "well my check paid for the mortgage, you pay for the food." This is a different issue from each spouse having some of their "own money" in serarate accounts that they are each free to use as they sit fit, i.e. girls night out, a new gadget, which is useful in some families.

If what you are saying is that you look at each paycheck because every week you can only pay those bills that match that week's paycheck, you might feel better and be safer if you manage to build up a cushion, so you are paying bills with last month's paychecks rather than waiting for a current check to clear and so you can deal with those little emergencies like an ER co-payment when someone falls off a bike and needs stitches, even if it means taking on some tutoring or other jobs over the summer. If you are comfortable with your system, that's great, but it would make me a little nervous, but I'm the anxious type.

Ahavah Gayle said...

Because we're paid on different schedules. He gets paid every two weeks, I get paid twice a month. The money itself is fungible but the timing is not.

For example, a wireless bill - a bill now due on the tenth of the month could not be paid out of my first check because I don't get paid until the 15th - but it USED to be due on the 15th or 16th and could be paid online the day my direct deposit hits the bank. The due dates of bills (especially store cards and credit cards) is different every month because they bill in 21, 25 or 28 day cycles now - meaning the due dates slowly but surely slide around the calendar (they do this, by the way, to get 13 payments a year out of you instead of 12 - and it's perfectly legal).

If you just set up your payment system once and never adjust it, in three or four months you'll start racking up late charges. If his check isn't enough to cover x,y, and z expenses PLUS the wireless bill now due on the 10th, then something with a more generous late fee policy or later due date needs to be shifted to the 15th. For example, utility bills often don't get their shorts in a wad if you're a few days late paying them, but Visa, MC or store cards do. See what I mean?

Ahavah Gayle said...

Oops - one point I forgot to mention. You said "build up a cushion," and that's nice. We have amounts allotted to be transferred out of various check into savings for various things - that's part of the budget. But for us, there's not a lot of wiggle room and for people with thousands of dollars in credit card debt and home equity loans, etc., that they have ALREADY gotten themselves into, they are not going to have a lot of extra income to put away just to be able to fudge the budget.

For me, the point of having the budget in the first place is to NOT ever have to spend more than the take-home pay each month. If you're dipping into savings to pay your regular bills you're doing it wrong. As for the ER and other unexpected things, the point was by placing it correctly in the next month's budget, you don't HAVE to dip into savings.

You may not agree, but I don't see savings as being a slush fund - that is the slippery slope to relying on it to cover normal monthly activities, and that leads to depleting your savings and ending up in debt. I think a lot of people have gotten into trouble always dipping into savings when they should have just budgeted more carefully.

Of course, you are probably far too motivated and organized to fall into that trap, but most other people aren't.

Anonymous said...

Thanks Ahavah. Got it. That's an excellent point about the due dates of bills changing. I never use the auto pay feature for my on-line billing paying except for the car and mortgage payment which is due the exact same day of the month each month and is the same amount each month (until the escrow for the tax and insurance component of the mortgage is adjusted each year). Discover card will send you an email reminder each month before the bill is due if you opt into that feature and I suspect other cards have a similar feature. With the credit card, mortgage and car payment set each month, I'm less likely to be late on anything that has serious consequences. The other biggie not to be late on is insurance since you risk getting cancelled and not being reinstated. You are correct that being late a day or two on utilities usually doesn't have any negative consequences (i.e I don't think they charge interest or report you as late to credit rating agencies but that could change), but I don't recommend late payments if it can be avoided.

Anonymous said...

Hi Ahava: Me again. Thanks for your second clarification. Your original post made it sound like you were living paycheck to paycheck. The fact that you are saving each month, and then reduce your regular expenses if something unexpected comes up is comendable. I do consider some of my "savings" as something for the big expenses that will eventually come up every so often, like if I need new brakes and tires or the furnace needs to be replaced. Those biggies can't come out of the monthy budget, but I do consider it part of budgeting because I know I have to save each month for the unexpected that might only come up every few years if we are fortunate, and those savings are separate and apart from retirement savings. I don't think of that as a slush fund.

JS said...

I understand your system, but it sounds way too stressful for me to have to time paychecks to bills perfectly. I leave enough cash for about a half month's worth (give or take) of expenses in our checking account so we don't have to worry about this (half a month is enough cushion as one of us has been paid for sure by the time the 15th rolls around). We spend less than we earn and when the "excess" rises to a certain amount, I pull out a chunk and put it into a savings account or mutual fund.

Maybe I lose a little bit of interest on the money in the checking account, but it's worth it to not have to worry about timing everything perfectly. I can just pay my bills and not worry if the cash is there or not.

Anonymous said...

JS: The on-line bill payment feature at my bank also lets me do electronic transfers from savings to checking. I can look and see how much I need for outgoing bills and if there isn't enough in the checking account (plus a cushion for debit card purchases), I just do an electronic transfer at the same time I do the electronic bill payment. (I think you are allowed six electronic transfers a month under federal banking security law). I'm not as careful now about trying not to keep too much in checking instead of savings since the savings account interest rate is so pitifully low, but this is another method.

looking for deals said...

SL, you've mentioned that you use the CVS extrabucks program. Would you mind posting which website you use, if any, to find the weekly deals? Also, are there any other drugstores you'd recommend?

Also, if you don't mind sharing, I'd like to know which grocery chains, in your opinion, are the best to shop at.

Anonymous said...

For those in Bergen County, New Jersey--Shop Rite.

looking for deals-I get the CVS and Rite Aid ads in my Sunday newspaper. This blogger has an introduction on using the CVS Extra Bucks. (http://savingmoneyideas.blogspot.com/2008/09/cvs-101-learn-cvs-game.html)

It is a rebate that can be used for more merchandise before the experiation date, normally 2-3 weeks later. I normally find more items to keep recylcing my Extra Bucks on.

Rite Aid has a simple rebate system and you can fill out the rebate form and request a check online.

I'm told that Walgreens has a good system too, but I haven't learned it.

As for grocery stores, I go everywhere. See this post:
http://orthonomics.blogspot.com/2008/07/organizing-cost-effective-grocery.html

I don't have any one place that I find the best deals in. Those deals rotate. It is all about finding a groove.

Anonymous said...

looking - Also, if you don't mind sharing, I'd like to know which grocery chains, in your opinion, are the best to shop at.

Here in South Florida, we shop at all the local chains (Publix, Albertsons, Winn Dixie) depending on what is on sale at the time. We are lucky that they are all quite convenient to places that we go almost everyday anyway (to avoid extra driving).

Mark

PS - The captcha word on this comment is "sotagal", Oy Vey!!!

Ahavah Gayle said...

Anon:

Our auto and homeowners insurance is with the same company and for a service fee of only $2 a month they will combine the bills, divide the premiums into 12 equal payments and auto-debit them on the 15th or 28th of the month. You might check and see if your insurance will do this. The$2 is worth it, IMHO.

Anonymous said...

Thanks Ahava. My home, auto and umbrella insurance is with the same company too, but the mortgage company makes me escrow the home insurance premium and then they pay the bill. For auto, we pay in full once a year since there is an extra charge if you pay in installments that really amounts to about 2% interest. This is a good remineder that I need to shop around a little when the policies come up for renewal. I've been with the same broker for years and inertia has kept me from shopping around. I also need to challenge my real estate assessment -- I did some on-line research and learned that my house is assessed way more than nearby larger, newer, nicer homes. Getting competing quotes for insurance and challenging your assessment if it is out of whack with your neighbors are two ways to try to help your budget. Be careful, however. I learned that there are certain time limits and deadlines on when you can challenge an assessment.

Avi said...

@Anonymous 2:22 PM - Are you talking about the way your house is assessed by the local government for property taxes, or the way your house is assessed by your insurance company for their policy? Because one of the items on my to-do list is to get my home insurance policy assessment raised significantly. Right now, I suspect we're under-insured. C"V if we need to file a significant claim, I don't know that we'd be able to rebuild/replace everything for the amount we insured the house for 11 years ago when we bought it. I imagine the mortgage broker has some minimum that they require for insurance, but it may not reflect your actual replacement costs.

Anonymous said...

Avi: Sorry I wasn't clear. I was talking about the city assessment for tax purposes. You are correct that you need to make sure your property is adequately valued for purposes of your homeowner's policy and that you have appopriate coverage to rebuild in the event of G-d forbid a fire or other disaster. You need to talk to your agent to make sure that replacement cost means true replacement cost. For example, if you have plaster walls, solid oak floors and wood moldings, you don't want the insurance company to pay only what it costs to build with sheetrock walls, laminate wood floor and plastic moldings.

ora said...

I agree with JS on complexity. I think it's a lot easier for people who are just getting started budgeting to start with very basic budgeting -- how much for repairs, how much for groceries, how much for medical, etc, without breaking it down into dozens of categories.

(That's what I love about the shopping with cash method that's been mentioned here a lot, btw -- for those of us who find written budgets difficult, it makes it very clear how much is being spent (in other words, instead of saving each grocery store receipt and then sitting down with a calculator, only to find that nothing adds up because apparently some of the receipts were thrown away or chewed on or used to color... etc... I can just look at see that it's been two weeks, and there are 650 shekels left, so we must have spent 850 so far.) It's not ideal, but as they say, don't make the perfect the enemy of the good).

I do think the budget is great though, it's nice to see people making an effort to help each other in this area. And just to see awareness of the issues in general.

Agreed that income should always be the starting point. Especially because often that's what needs to change -- ie instead of trying to cut groceries to $150 a week for five people, or to find an apartment to rent for under$1000 a month, it makes a lot more sense to find a way to add income. At least that seems to be the case with younger couples; I imagine that later on the situation is different.