• 02:25:34 am on May 18, 2009 | 8
    Tags: , ,

    Automated Budget?

    Photo credit: urbanraven

    Another great graphic! Thanks, Mark …

    Unlike those whose MM101 issues are at the fore, Mark has a good income and low cost base so the ‘pressure’ to budget, etc. seems less … but, how important do you really think it is? Any advice for Mark on his spending / saving habits?

    __________________________

    I must admit I’m not a big fan of budgeting. I did attempt to follow the No Budget Budget, but I failed miserably, hence the broken pie chart above. I’m too used to letting Quicken download my financial data and perform monthly analysis on my spending. I usually have a 12-month average that I use as a benchmark. This is how I compare against my average spending. My average spending is actually here.

    How do I compare with the average in April? It was a huge difference! I just moved in to a new home and I’ve spent about $5,800 fixing up the old townhouse for rental. That amount paid for a new heating and cooling system, painting, cleaning and fixes. I haven’t started paying the mortgage for the new home yet and I’m still paying for the old townhouse.  By comparing with the average, I can quickly identify anomalies:

    Expenses Average April Difference
    Housing

    980

    980

    0

    Gifts

    925

    88.35

    -836.65

    Auto

    267

    178.18

    -88.82

    Entertainment

    266

    694.6

    428.6

    Utilities

    256

    217.08

    -38.92

    Dining

    228

    187.89

    -40.11

    Vacation

    224

    0

    -224

    Charity

    191

    466

    275

    Rental Expenses

    0

    5807.46

    5807.46

    Appliances

    0

    358.24

    358.24

    Misc (Electronics, Clothes, Insurance, Groceries, Cash)

    406

    461.15

    55.15

    Moving sale

    0

    -223.94

    -223.94

    3743

    9215.01

    5472.01

    A quick glance shows that I’m $5,472.01 out of my norm. This is mostly from Rental Expenses that incur in April. Another anomaly is Entertainment; I just bought 8 tickets to a U2 concert and I’m going to sell some of them. I might actually make a small profit later – I’ve done this before :).  How do we record such activities in a budget?  I’ve also increased my charitable contributions and bought some ceiling fans and tools for my new house. The moving sale and a drop in gifts did offset some extra moving expenses.

    I keep questioning about having the need to budget. I know I do spend less than what I’ve earned and my savings are automatic. Should I spend more time budgeting or spend more time earning more income?

    I actually believe that savings from budgeting may not have a huge impact that I’m looking for.  Savings on big ticket items like a house, car or education should have a larger impact. Nevertheless, having good MM101 habits is very important.  We will see how I will do in May when we apply the 10-1-1-1-1 rule. Will it stop me from spending?

     

Comments

  • Diane 7:08 am on May 18, 2009 | #

    I can see where you remind me of myself and Lee, where some of our “investments” are in relationships rather than selfishly hoarded and used to grow our net worth (ergo, the huge “average” you have for monthly gifts (that $900+ is a monthly average, right, not just how much you spent the one month you took a trip?) By % or $, it seems like a lot (tho I guess if you were making $1m a year (salary, bonuses, investments, plus), $1k/mo on gifts would not seem like a lot). But those are choices only we can make for ourselves. Adrian is here to tell us what it is costing us and see if we want to change our investment strategies.

  • lee 8:05 am on May 18, 2009 | #

    According to Best of Breed Budgeting located at http://www.investordictionary.com/definition/budgeting.aspx
    “Sticking to a realistic budget allows you to pay off your debts and save for the proverbial rainy day”.
    So Mark I’m thinking that you have so little debt that for you perhaps your time would be better spent working on the earning more income.
    Oh by the way I really enjoy your emails.

  • Scott 9:30 am on May 18, 2009 | #

    Mark, just in my personal opinion and experience over the past couple of years of focusing on our finances(our net worth has grown by over 2400% annual compound growth rate in the last couple of years), the easiest thing i’ve found to do is to simplify your finances or what I call your “personal overhead”.

    I treat our ‘budget’ more like a business. In other words, you have a continuing goal to keep costs down and the simpler the solution you can apply to do this, the easier it is to do, the easier it is to stay on track and you basically ‘get it out of the way’ so you can do what? Focus on building income of course! 🙂 And the two together are what drives larger and larger chunks of cash into your savings account every month that you can use to invest.

    Personally I just don’t think it’s an either, or situation. We can’t just focus on making more money and have that be it. You can indeed increase your income exponentially, but we can also increase our spending exponentially to match it, hence there is no wealth being built. Some people argue that this isn’t true, that the answer is to keep increasing income, then those same individuals will point to Dr.’s and lawyers say “See how those Dr.’s and lawyers, etc.. make hundreds of thousands per year and they are not rich, they are still broke!”. The answer is in both increasing income as well as not spending it all. Both. It’s just math.

    Unless someone has the next Google, Microsoft, or McDonalds about to take off of course, but in the meantime, this is what we can be doing to insure we are working towards our number.

    At the same time, someone can’t just focus on controlling spending and save 100-500 bucks per month and expect to become wealthy, but you HAVE to do that to get started with Money Making 101 to get the financial house cleaned up and to get ready to fuel those investments, business startups, real-estate purchases, etc… so it takes BOTH the budgeting and the income increasing.

    But once again, I believe the trick(so you are not focusing too much on just the dreaded “B” word) is to get things set up automatic. Auto pays on mortgages, insurance, utilities, etc… wherever possible and then establish your PLAN on how much you are going to ALLOW for gifts, entertainment, etc.. etc.. and pull out cash and use for these things, or have automatic deposits into totally separate checking accounts for these expenses so that there is no way you can overspend. It’s just not possible, you’ll overdraft when using that debit card or bounce that check. And this will keep you in check so that you stay on track with your monthly savings goals so you can reach your investment goals with that money.

  • Lee 9:43 am on May 18, 2009 | #

    Hmmmmm Scott I like the idea of setting up a separate checking account for automatic expenses, for me that just might work. …. Thanks for the idea.

  • Jeff 10:58 am on May 18, 2009 | #

    Scott – Well stated! I couldn’t agree more.

  • Adrian 6:49 pm on May 18, 2009 | #

    @ Scott – “The answer is in both increasing income as well as not spending it all. Both. It’s just math.” Wow!

    @ Mark – You certainly keep track of your expenses and the key for you, I suspect, is to simply know what you are doing when you make those seemingly-discretionary (e.g. gifts, etc.) expenditures …

    … as Diane says: “some of our ‘investments are in relationships rather than selfishly hoarded and used to grow our net worth … but those are choices only we can make for ourselves.”

    If there’s one suggestion that I can make – and, this is in the context of creating good spending habits now that will hold you in good stead through all of your future financial up’s/down’s (family commitments; job changes; business successes and failures; etc; etc.) – it would be to see if 10-1-1-1-1 will help you divert from “impulse spending” while still allowing you to spend wherever your head/heart REALLY says to …

  • Mark 10:31 pm on May 18, 2009 | #

    @Diane – Thanks for the comment. What good is all this cash if we are not using it for the betterment of our relationships we have. I’m not making $1M though but I can still afford to send money home because my fallback 401K and ESPP are automatic.

    @Lee – Correct, I’m trying to spend more energy making money rather than budgeting since I do spend less than what I earn.

    @Scott and Jeff – I expect both of you to keep me in check. The 10-1-1-1-1 did help me prevent large furniture purchases this month. When my rental income comes in, I might splurge a little. However, both of you can remind me to stay the course by not buying furniture.

    @Adrian – Couldn’t agree more, the 10-1-1-1-1 is more effective for me compared to the “No Budget Budget”

  • Adrian 7:40 am on May 19, 2009 | #

    @ Mark – Now you’re looking ahead at my draft post for the first week of June 😉


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