Reviewing My Finances and Tightening The Bootstraps
This year has been an interesting year for me with many ups and downs. You can read my archives and probably guess when it was a good month or when it was a bad month. Some months, my income was high and expenses were low. Some months, my income was average and expenses were equal. There were even one or two months when my expenses exceeded my income. I try to avoid that situation, but yes, it happens.
As I was reviewing the numbers in my spreadsheet, I thought to myself, “I’m content. I’m comfortable with my income and my expenses are under control. There isn’t anything I want, need, or would like to do but can’t.” It is these times, everything is kosher, when you should plan for the rough patches. And what better time than the present! So I’ve decided to re-evaluate my budget spend plan and tighten the bootstraps. If I ever have a real emergency or decide to buy/do something really expensive, I’ll be ready.
Here’s my new plan:
Income
I took a conservative approach when recalculating my income. I included net income from the CSS, rental income, and online income earned from contractual agreements only – all rounded down to the next $10 increment (ex: $156 is $150). I did not include any fluctuating income; such as child support, bonuses, random freelance gigs, sponsor ads, etc. If/when I receive any of these, they will be considered “found money.”
Savings
Before ANY bills are paid, I will continue to save, but now I’m going to commit to saving or investing a minimum 25% of my estimated net income. This 25% will include after tax IRA and 529 contributions, as well as regular savings and non-retirement investments. Depending on how my variable expenses fall, a portion of any “found money” may be added to savings, above and beyond this minimum 25%.
Bills
My rent is fixed until May ’09 so that one is easy. As for utilities and other regular bills (electric, gas, water, cell, and car insurance), I have tracked them for 1.5 years and calculated a monthly average – all rounded up to the next $10 increment (ex: $156 is $160). Whenever necessary, I will make adjustments to expenses labeled “bills” to ensure that their combined total is never more than 35% of my estimated net income.
Business Expenses
This category includes anything related to my rental property or any expense incurred under Fabulous Financials. I don’t have enough data to estimate these expenses with accuracy, but for now, the only guaranteed expenses are mortgage and website maintenance.
Variable Expenses
This category includes everything but the kitchen sink – medical, groceries, household essentials, gas, car maintenance, personal maintenance, BabyGirl, my pooch, dining out, entertainment, shopping, gifts, donations, travel, and other miscellaneous. Of all categories, this one will be affected the most.
While some of my variable expenses are easy to estimate, many are not. So I’ve decided to limit the combined total of all variable expenses to $1,000 per month. This may seem excessive, but on average, my variable expenses have run more than $2,000 per month. Which means I will have to make a concerted effort to plan and prioritize my expenses. I will not restrict the expenses individually, but if I overspend in one area, I’ll have to cut back in another. If, and only if, there is any “found money” to use, this category should not exceed the $1,000 estimate.
Now that I’ve put my thoughts on paper, they seem reasonable in theory, but I’ll let you know how easy or difficult they will be in practice.
Fabulous Financial Tip
For those who have sent me emails about where to begin to improve your finances, this may be a good exercise for you too. Follow my lead…
- Track your spending for a few months to see where your money is going.
- Calculate all of your guaranteed income.
- Determine how much you want to save and always save FIRST.
- Make sure your regular bills are not more than ___% of your income. My maximum limit is 35%, but the % may vary for you. However, if your total bills are more than 50% of your income, find ways to reduce those fixed expenses.
- Limit your total variable expenses (non bills) to a predetermined amount. Stick to it.
If you put your plan on paper AND follow through, your finances will be on the road to recovery.
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On your 4th tip, is debt in the calculation of monthly bills? I know you personally don’t have cc debt but I’m thinking of myself and the monthly amount I apply to my CC debt. Would that come from the 50%. I’m asking because if I added my cc payment it would take me over the 50% mark. But its a regular bill in that I need to pay it every month and I try to pay more than the minimum.
Ah shoot! When I think of bills, I think of household, cell, and car insurance. So I was really only referring to regular, recurring bills. My apologies. If you have debt, consider it a top priority (right next to savings) so you can get rid of it as fast as possible. This is a prime example of how “debt” can get in the way of what you REALLY want to do with your money. [-SM]
“Before ANY bills are paid, I will continue to save” …… very important! most people do the opposite.
I think people have to make a habit of it until it becomes naturally.
man, I remember when your “goal” bars on the right side of your blog were debt payoffs, now look at you!
:)
Aww man. *reminiscing* I remember that too. LOL My debt payoff will be a year next month. [-SM]
By the way, I received a question via email and I’ve decided to share my answer here just in case anyone else was wondering:
You mentioned child support as a fluctuating income. Is it your experience that it does fluctuate, and that you should count it as such? Have you ever considered your child support as regular income, or has it always been fluctuating?
I consider child support as fluctuating income because I don’t always get it. Sometimes he pays, sometimes he doesn’t so I don’t consider it in my financial goals. On the rare occasion I do receive it, maybe 6-7x per year, it’s “found” money to me.
I beg to differ on the child support inclusion/exclusion, but ONLY if you receive it on a regular basis and have a standing court order.
I have a court order but still don’t get it regularly. In the above comment, I already explained why *I* don’t include it as regular income. Also in my fabulous financial tip, I recommended including all “guaranteed” income. If child support is guaranteed for you, then I agree, include it. [-SM]
you all single moms out there-you are going to laugh or cry depending on your situation:
Starting October 1, some states (I do not know if all), started to charge $25 administrative fee once you reach $500 total paid in a fiscal year. so if by February 2009 you received $500, they charge $25 in March, until the next fiscal year starts in October 2009.
Here is the kicker: the fee is being charged to the RECEIPIENT of the child support
Child support agencies are state governed, so I figure we already pay taxes to cover that cost
Oh, yeah, and welfare receipients who get child support ARE NOT CHARGED that fee
now my blood is boiling.
I read about that a few months ago. I wonder who came up with that ridiculous idea and how they determined it would be in the best interest of the child. [-SM]
Well, it is a federal law (yes, federal, someone has to pay for all that bailing out going on ) somehow)
here you go-from NY child support website-see below
New $25 annual service fee starts October 1, 2008
On October 1, 2008, New York State will be implementing the federal law that requires each state to charge an annual fee of $25 for child support services. Note: The fee does not apply to TANF recipients. If you receive or have ever received TANF benefits, you will not be charged this fee.
The fee applies only to parents who have never received TANF benefits and who have a case with more than $500 in support collected during the federal fiscal year (October 1–September 30 of the next year). The fee will continue to apply each federal fiscal year.
A “Notice and Return Mailer” about the new service fee will be mailed to each parent who has never received TANF benefits. If you get this notice and you have received TANF benefits, in New York or in any other state, complete and return the mailer by October 24, 2008. You must notify us by October 24, 2008 if you have received TANF benefits.
What about if I intentionally choose to pay extra on my CCs evey month – I am striving to be like you SM-I do too remember the time when your goal bars were more to the left than middle and I was like-no way this chick is going to pay those balances in the time she alloted herself for it. But look at you now, you did it, and it was a great inspiration – I cut up all of my CCs and only left one for emergencies, and slowly I am climbing my way out of cosumer debt
now back to me paying extra towards my CC balances every month – I chose not to save anything beyond 401K so that I pay it off faster, now that is waaay more than %50 of my income, now should I try to save 25% and cut my CC balances pay off or should I continue paying off as fast as I can and forget saving %25 for now until it is all paid?
As previously mentioned in my response to the first commenter, if you have debt, consider it a top priority (right next to savings) so you can get rid of it as fast as possible.
I didn’t recommend saving 25%. That is the % *I* choose to save because I can. Under the tip, I said “determine how much you want to save and always save FIRST.” You have to determine what that % is for you, not what Single Ma is doing. Whatever you decide to save, the important thing is to always put your savings aside FIRST. [-SM]
Tnx, SM!
You are on fire! Excellent post. We operate in a similar way, although I don’t think we have ever set a percentage goal for net savings. We look at our fixed expenses, what the “must have” variable expenses are running (food, utilities, etc.), adjust them if we can when they seem too high…then set our savings amounts, make them automatic and then kind of leave it alone.
So, in essence, our savings comes first because we set the amount based on our plan, make it automatic so it comes off the top and live off of the rest (according to the plan). I think the result of each of our approaches is basically the same.