Budget Busters

by mike on August 27, 2009

How many times have you and your spouse said “That’s it, we are going to live on a budget”?  It seems like you never have any money at the end of the month.  Bound and determined to fix it once and for all, you set out to create a budget.  So, you and your spouse (or maybe just you) sit down and write everything out for the month and you feel pretty good about it.  You have a plan.

The problem most households encounter is over the next few weeks “unforeseen” things keep coming up.  The whole budget just blows up.  Then, you are sitting there, frustrated, wondering why in the world that this budgeting thing just doesn’t work for you.  Let’s take a look at six budget busters so you can plan for the “unforeseen”.

1.     Gifts.

There are many times when I send clients their initial worksheets to fill out that the “gifts” category in their budget comes back blank.  Once I meet with them I realize it is not because they happened to miss it, it’s because they don’t really know what they spend.  Gifts is a category we can easily spend thousands of dollars a year on.  That is fine, by the way, if you can afford it.  If, however, you are not able to take care of your own household, then you do not need to be spending thousands of dollars on gifts for people.

What I recommend doing is being creative with your gifts.  Give people coupons for doing some sort of work for them.  Or for your family, maybe give a coupon for doing something special as a family (guys: wives love this). If you are crafty, you can make them something.  Most people will remember and treasure these gifts for much longer than another toy, tie or knick-knack.  The key is, add up what you think is reasonable for the year to spend on gifts.  Think of how many people you give gifts to at Christmas, birthdays, and try to anticipate any weddings for the coming year.  Add up a total amount you plan on spending for the year, divide it by twelve and put that amount into your budget each month.  Take that money each month and put it into a savings account and label it “gifts”.

2.     Eating Out.

One of my favorite Dave Ramsey sayings is “You shouldn’t see the inside of a restaurant unless you are working there as a second job”.  Now, he says this when talking with someone who is deeply in debt and trying to get out.  His point is that if you are barely scraping by or trying to dig out of a hole, restaurants are not a place you should be spending money.  I often meet with people who spend several hundred dollars a month eating out.  This could be at lunch, dinner or both.  Of course, I have no problem with someone enjoying a nice dinner out, but it is all about priorities.

Personally, I love restaurant food, but we did not frequent them when we were getting out of debt: ramen noodles and an occasional $1 frozen pizza was it for us.  Now, we are able to occasionally enjoy a nice meal out, but even then we keep it simple because there is so much more we would rather spend our money on.  So, my advice is take your lunch to work and eat out for dinner occasionally.  The only exception to this is if you are out of debt, have a 6 months of expenses emergency fund, are putting 15% towards retirement and have the kids’ college taken care of.  In that case, eat out whenever you want as long as you budget for it ahead of time.

3.     Clothing.

Oftentimes, this is one of those items that is also left blank on my client’s worksheet.  Many people just buy clothes and don’t think about it that much.  While there is still debt and no emergency fund, only reasonable clothing should be bought.  This means that you can replace clothes for the kids as they need them.  Make sure to utilize hand me downs (from siblings or cousins) or take a look at your local consignment shops.  You might be surprised how nice the clothes are that you can find.  Most are barely worn.

Many of us adults have plenty of clothes, so we can go quite awhile without having to buy new.  Again, look at consignment shops or, at the very least, buy off of the closeout rack for 70-90 percent off.   If you buy winter clothes in the summer or summer clothes in the winter, you can usually get a steal. The key is to budget for clothing, but keep it reasonable.

4.     Insurances.

Insurance premiums are often billed every 3 months, 6 months, or even once a year.  If you don’t plan for this, you may all of a sudden get hit with a $1200 bill that you forgot about.  This will really wreck havoc on your budget.  Treat non-monthly insurance premiums just like gifts: add up your total insurance premiums for the year, divide it by twelve and take it out each month and place it into a savings account and label that money “insurance”.  The sense of relief and peace when the bill shows up and you just have the money in savings specifically designated for that purpose is priceless.

5.     Car Repair.

Oil changes and tire replacement are things that are going to happen on a regular basis.  Once again, figure out how much annually you spend on these things and put back enough each month in a savings account to cover them.  For example, if you drive two cars and get the oil changed every three months at $30 a piece, you would want spend $240 per year on oil changes.  Make sure and budget $20 per month for oil changes and you’ve got it covered.  Also, research how much new tires would cost and assume you may need them every three years or so (this obviously would vary depending how many miles you put on your car).  So, if new tires would cost you approximately $360, add $10 a month (for 36 months) to your oil change savings for a total of $30 per month for car repair.  As other unexpected repairs come up, they can be paid for using the emergency fund or the budget can be tweaked to cover the expense.

6.     Taxes.

Saving for taxes can be needed in a couple different circumstances.  If you own a home and do not have an escrow account with your bank, then you need to be prepared to pay real estate taxes.  The total for the year divided by twelve method works great for real estate taxes.  Second, if you own your own business, then you need to hold back 25-30% of your income into a savings account so that you can pay your quarterly estimates of your income taxes.  For example, let’s say you mow people’s lawns for a living.  If you make $1,500 in a week, put approximately $450 of that in a savings account and label it “taxes”.  That way when you have to pay your quarterly taxes, once again the money will be there.  The IRS is not someone you want in your life chasing you down for money.  They will get it.

The moral of the story is with some proper planning, budgeting does not have to be frustrating.  Keep a close eye on these six items and plan for them.  From my personal experience and through my clients’ experience, just knowing you have the money to cover all of the “unforeseens” goes a long way to lowering the stress level in your household.  Less stress means more unity and harmony in your marriage.  That truly is priceless.

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