Planning Ahead

I try to create a rough budget ahead about a year out for non-ordinary expenses, and about two years out for other major interruptions to cash-flow. 

Right now I'm hoping to completely remodel the kitchen next summer, and hopefully take care another big outdoor project. We'd also like to take a weeklong vacation, where we can stay at decent hotels and eat at nice restaurants and not worry about sticking to a meager budget. And of course there are a couple weddings that I'm in, which will require me to host or help host bridal showers and bachelorette parties. 

Initially I figured that we could afford to tackle both renovation projects, saving and paying cash as we go. With the vacation, the weddings, and a few other expenditures in the works, I don't think we'll be able to save enough to cash-flow it. 

I can't believe I'm writing this, but I'm already thinking about going ahead with both projects anyways and just putting it on the credit card. My card will be paid off completely by then, and Husband's card will probably be in the $6-8k range. We'd probably be able to save enough to pay off whatever was charged by early 2011 (six months or so later), so the interest accrued wouldn't be too bad. 

I want these projects to be complete, and I hate to delay them until the following summer (two years from now). We've talked about changing jobs and moving elsewhere, and having these projects complete would make it much easier to sell the house. We've also talked about starting a family, and I would want these things to be done before then. 

Mid-Month Budget Status: $850 short

I had projected that we would pay down the credit cards down by about $6200, and beef up the savings to $8000 (adding roughly $3000 to cover upcoming short-term expenses, while keeping the rest for an emergency fund). 

According to my current projects, the actual debt repaid during the month of July will be $5575, over $600 less than originally expected. I also won't be able to reach my goal of $3000 extra in savings, it'll end up being closer to $2750. 

With the extra paycheck and self-employment money, July is still a great month financially, and we'll make a huge dent. It's just frustrating that, only two weeks into the month, we're already $850 short of where I thought we would be. And I can't account for it all...!  

Auto expenses, $60. 

Textbooks, $80. 

Medical copays, $60.

Entertainment (4th of July), $75. 

Lunches at work, $40. 

Home Repairs, $65

TOTAL, $380. 

Since I never wrote down the July budget, because it was such a crazy month, I can't figure out how I set the debt/savings goals in the first place. I'm guessing that I perhaps overestimated the income coming in (we've been working fewer hours than anticipated, which means no overtime pay), and didn't include the items listed above. 

Budget Categories

A Good Mom just posted an entry showing a pie chart with a suggested family budget (provided by the U.S. government), and asking how it compares... so I plugged in our numbers into a quick spreadsheet to take a look. Ours actually looks pretty reasonable, at least in the pie-chart. 

When we bought our house, it was very important to me to find something within a pretty tight budget - so that we would be able to someday make it on one income (if one of us decided to stay home full-time once we have kids). Our house was more expensive than most "starter" homes, but given our income level it's significantly less house than most of our friends and coworkers bought. The house category includes only our mortgages (so principal, interest, taxes, and homeowners insurance).

Our auto expenses are pretty high. We have two car payments totaling about $792/mo. I also included auto insurance and gasoline in this category. On the plus side, our cars are in decent shape overall, since they are relatively new, and we don't incur much in terms of repairs. 

The savings category only includes after-tax savings, so money going into our emergency fund & savings account. We use this money primarily to pay for tuition, vacations, and home repairs. Now that the emergency account is funded to nearly $5000, we will cut back on this and only put aside what we need for upcoming major expenses. Any extra money will be shifted to debt repayment. 

I know we spend a lot in utilities. We have a family-plan for our cell phones, and we each have a full data plan with texting added on. We have high-speed internet and cable TV at home. And we always seem to spend more on the normal utilities than most other families. Our electric bill runs about $100 during the winter months, and up to $175 in the summer. Our gas bill varies between $50 in the summer and upwards of $300 in the winter. Our water/sewer bill is about the only thing that doesn't seem ridiculous.

 

Expensive Month

Perhaps it's a good thing I decided not to make a written budget for the month of July. I knew it was going to be an unusual month, but we've already encountered a few expenses that I hadn't foreseen. 

We had to purchase a school textbook, for $80. I knew that the class had a textbook, but in the past we've been able to get away with just checking a book out of the university's library, or sometimes not buying the book at all. And when we do need to buy books, I've almost always been able to find them online (at Amazon or Half.com) for way less than the campus bookstore. It's usually under $50 per class, and then I've had great success reselling it at the end of the semester for the same price I paid. 

Unfortunately, two of last semester's books have not sold, and I wasn't able to find this semester's book for less than $75 (many were selling for upwards of $125!). 

I had my car professionally cleaned, which was an extra $60. 

And then there's our upcoming "last minute" trip, which will probably cost $250-300 (travel, parking, and food)... plus we'll have to take a few days off work, which means less money on the following paycheck.  

Budget for July: FAIL

I had every intention of posting my full budget for July on here, and then tracking how it compares to what we actually spent. 

The only problem, the July budget is completely screwed up.  It's a 3-paycheck month, so we have extra income. We're also expecting a substantial $4500 check for self-employment, but we don't know if we'll receive it in a few days or a few weeks. Together, this will amount to nearly $5900 in extra income for the upcoming month (that is, above and beyond what we normally take home).

But we're also planning to pay down a huge chunk of credit card debt, just over $6200, in preparation for the looming 150% increase in minimum payments on Chase. And I'd like to maintain a $5000 balance in our emergency fund, which means we need to set aside an extra $3000 by mid-August, to cover fall tuition and the upcoming house repair. 

 And because we decided to use the entire $4500 check now, instead of setting aside some for income taxes,  we had to modify our income tax withholdings at work so that they're taking out extra. If we didn't, we would end up owing nearly $2000 next April, which would kick us into the category where we'd also have to pay interest and penalties for underpayment!  Instead, I estimated what we should pay in estimated quarterlies, and just divided that by the number of months left in the year. The end result will be the same, come tax time, but for the rest of the year our take-home pay will be $275-300/mo less. 

July is going to be an unusual month for budgeting. Lots of extra money coming in, huge extra payments towards debt/savings, and a reduction in normal income. Dollar-wise, I think it all works out. In terms of cash-flow, I have no clue how it will shake out. There's plenty to take care of all the essential bills and minimum payments this month, I'm just not sure when all the extra payments will actually be made. 

So instead of posting an itemized budget, I'm just going to post the targets for the month of the July:

• Reduce credit card balance from $32,747 (as of 6/24) to $25,780
• Pay off completely all but two largest credit cards
• Increase emergency fund to $8000 ($3000 of which will be short-term savings)

Redoing Budgets

In order to come up with enough money to cover the extra $525/mo in increased minimum credit card payments to Chase, we sat down and reviewed our finances. We evaluated monthly expenditures, paring things back where possible. Overall, we didn't find much that we were willing to eliminate, so the majority will come from deferring money that would have gone to the emergency fund or other credit cards and instead paying it to Chase. 

We decided to cancel an insurance policy, which will save us $356/year. The policy was up for renewal anyway, so we are going to just let it lapse. Otherwise, we would have had to pay half of it by the end of next week. 

We also decided to put a 90-day hold on our NetFlix account. It's only $9.53/mo, but every little bit helps. I thought about canceling it altogether, but I love being able to stream movies at home - and it's far cheaper than going out for a date. I'm hoping that 90-days will give us enough time to get a grip on the bills, and then decide whether we want to keep it or cancel it. In the interim, we don't have to pay the monthly fee, and all the movies we've added to the queue won't be deleted! 

The biggest decision was to pay off several credit cards with smaller balances (and higher interest rates, ranging from 13-20%). In total, we have decided to pay off three credit cards with a combined total of $6204. The money to do this is going to come from a few different sources: 

• $4500, from some self employment work ($2000 of this was supposed to go to the IRS in September for estimated quarterly income taxes, but we have instead modified our withholdings for the rest of the year, so that take-home pay will be around $300/mo less than normal)
• $1150 in reimbursement checks (from a medical flex spending account, the overage on the mortgage escrow account, and for some items we purchased for someone else) that should be coming any day
• $150, for selling some older electronic items that we no longer need
• $400, from the emergency fund

Once these are paid off (by the end of July), we'll be left with only two credit cards - both with a large outstanding balance but with low fixed interest rates. Paying these smaller cards off won't have much impact on monthly payments (roughly $150/mo, which will be going right back to Chase now), but I'm hoping it'll give us extra momentum to keep going with the debt payoff.  

Financial Goals for 2009

I like to project out estimated expenses & income, and figure out where we'll be at various points in the future. I usually just do the rough calculations on a sheet of scratch paper, or on the back of a napkin, and don't often keep 'em or track how that compares to reality. 

The last time that I set written financial goals was in October 2008, and that's when I established the following list of "goals" that I hoped to achieve by the end of 2009: 

1. Contribute $200/month to emergency fund 
2. Achieve balance of $5000 in emergency fund by end of 2009 (current balance = $1900) 
3. Eliminate credit card debt by end of 2009 (current balance = $12590)
4. Pay off Perkins student loan (current balance = $1626)
5. Pay down Stafford student loan to <$25k (current balance = $25502)

Right now it's hard to say whether I'll be able to accomplish all of them. I still think it's possible, but it's going to be a bit tougher than I'd originally anticipated. We had a critical home repair in January that cost $1700, and was paid for using the emergency fund. My decision to go back to school (made after I wrote those goals) will also set us back by about $2500 this year (for tuition, textbooks & fees). 

Because of the economic climate, I've been contributing far more than $200/mo into the emergency fund, so that the current balance is already over $5000. I've also already taken care of #5 (just barely!). 

I'll definitely be able to pay off the credit card debt referenced in #3, but I'll possibly have to make a decision whether to wipe out the emergency fund to do so. Hopefully I'll be able to earn some extra money working overtime, and my company will give a holiday bonus at the end of the year. 

Household Bills - June 09

This month's household bills have all arrived, here are the numbers:

Mortgage #1: $1321.16
Mortgage #2: $ 229.50
Electricity: $ 56.67
Gas: $ 53.79
Cable: $ 105.18
Cell Phone: $ 127.08

TOTAL: $1893.38

3-paycheck month

Like many others, I get paid on a biweekly basis - every other Friday. My paycheck tends to vary quite a bit, based on how many hours I work, so I estimate what I'll make and then set the upcoming month's budget accordingly.

Since there are 52 weeks in a year (so 26 pay periods), but only 12 months (with the typical month having only 2 pay periods), twice a year I get a third paycheck. This year, the third check happens to be in July, so that'll be a nice chunk of extra money.

I'd really love to take that extra money and go on a vacation, or use it to help pay down credit card debt, but I've got a $2000 college tuition bill that will be due in August... the extra check won't cover the tuition, but it will make a substantial dent.

Initially I'd looked into getting student loans to pay for tuition, but the interest rate on federal Direct graduate student loans sucks. It's at 6.8%, and is fixed at that for a few more years (it used to be that student loan interest rates would reset every July 1st, but the feds changed that a few years ago). Since the interest rates on my credit card balances are generally lower than that (averaging around 6%, thanks to many low-APR balance transfer offers over the past few years), it doesn't make sense to take out student loans just so that the credit cards can be paid off a few months sooner (when in the end, I'd end up paying slightly more in accumulated interest, plus origination fees for the loan).