Saturday, 28 January 2017

How We Budget

Our blackboard freezer door - ever changing messages.


As you all know there are a zillion different ways to budget, however I thought I would share how we budget and perhaps in so doing there might be something in our method that you can introduce as your own - all in the spirit of sharing so we all can improve.

Our way of budgeting works for us at the moment. It will most certainly change as our life circumstances change. It certainly is not the paragon of budgeting, but still worth sharing I feel.


Short cold wash cycles are perfect for
day to day clothes washing.



Some Initial Thoughts On Budgeting

TALK - this is the most important part of budgeting if you are part of a couple. It takes courage, honesty and trust to talk about money to each other, but if we do not talk about money honestly then we may as well not even budget. For instance, it takes courage and honesty to talk about that credit card balance that only we privately knew about......

WOMEN BEWARE - women, please be fully involved in your finances.  I see so many women still living in the past when it comes to finances and often (knowingly or unknowingly) getting the raw end of the deal.  I could devote a whole post to women and money but I will restrain myself from doing so in this post....maybe another time.

MEN - men often are able to earn more and keep more of their earnings than women (for many and varied archaic societal reasons which I will not elaborate on in this post). Whilst this inequity is changing for the better, we are still light years away from both sexes enjoying earning parity and life-balance parity. In short...listen up men....men need to take responsibility for their contribution to their family and society and ensure their families and communities are provided for FIRST.  I am truly gobsmacked at so many men whinging about how many shoes and dresses their ladies have and yet do not see the utter hypocrisy of HIS very expensive fishing boat (on hire purchase) sitting in the garage, HIS zuped-up sports truck (also on hire purchase) sitting in the carport, HIS rifle collection, HIS racing dirt bike in the shed (on a personal loan), HIS shed, HIS....oh, you get the drift. meh.  Yes, I know this comment may not be popular but I am just sayin' what I see too much of.....and I am a man.

BE REAL - budget 10% more for bills and 10% less for savings. Life will happen (strange that!) and if our budget is leaning towards idealistic, then it will topple at the first little shake that life gives it. Lean into change, plan and budget to have the proverbial pizza (or its budgeting equivalent) every so often because you know what?....we are NOT going to cook from scratch every single day of the year - especially if living frugally is relatively new to us.


Home made meals from scratch.



How We Budget

Our budget is now divided into the following eight categories.

  1. Basic weekly living expenses
  2. Regular predictable bills
  3. Irregular bills
  4. Set-aside savings for specific future events
  5. Debt payment
  6. Self-Insurance Saving
  7. Investments
  8. Giving

Each fortnight when our pay packets drop into our accounts, EVERY LAST DOLLAR is automatically ALLOCATED to each of these categories via internal bank transfers the same day. We bank with ING and can have up to nine interest-bearing saving accounts linked to our two main keycard accounts for free. I am sure many banks offer a similar set up.

If you do not allocate every last dollar, then those unallocated dollars will just disappear.



Vinegar 'mother'



More Detail On The Eight Categories

  1. Basic weekly living expenses 
This is things like food, petrol, train tickets, any allowance for yourself - this must be withdrawn from the bank each payday as CASH.

  2. Regular predictable bills
Things like electricity, gas, car insurance, mortgage payments, car payments, personal loan payments, medical insurance, rent, phone bill - these need their own account from which obligatory direct debits will come out of and auto Bpays will get paid from...the more automated the better.  You will have calculated the exact amount that needs to go into this account each payday and this transfer must be automated to occur each payday into this account.

  3. Irregular bills
Things that get paid less frequently (i.e. yearly or quarterly) water, car registration, car maintenance, land rates, yearly subscriptions and fees etc. Again, you will have calculated the exact amount that needs to go into this account each payday and this transfer must be automated to occur each payday into this account.

  4. Set-aside savings for specific future events 
This is an important category that is often overlooked and ends up getting plonked on credit cards or personal loans due to lack of forecasting and planning. Things like Christmas expenses, education fees, car replacement cost (this one is UTTERLY important), wedding/s, birthdays, holidays and the like. Yet again, you will have calculated the exact amount that needs to go into this account each payday and this transfer must be automated to occur each payday into this account.

  5. Debt payment
This category is NOT about paying your minimum payments on debt, loans, mortgages etc - those basic minimum payments are all done under category 2.  This category is exclusively about EXTRA payments of debt. It is imperative to agree and budget on a set amount each payday to dedicate to extra payment off our debts. Do not rely on the we'll-see-what's-left-over approach as this invariably is short-lived. It matters not what debt reduction method you use be it the snowball method, the avalanche method, the spread method or some other method....whatever method THIS is the account that you use to allocate that extra payment against debt. Automate it to pay out of this account to whatever debt is being tackled the day after every pay day. And yes, again, you will have calculated the exact amount that needs to go into this account each payday and this transfer must be automated to occur each payday into this account.

  6. Self-Insurance Saving
Some call this a mojo account or an emergency fund - but really it is a self-funded insurance policy. The aim is to have six months worth of all expenses set aside in this account. This may seem an impossible undertaking to some, but plenty of people have achieved this on very normal incomes or less. It is fully achievable by budgeting a set amount every single payday into this account - the tortoise wins this race absolutely. Patience is a non-negotiable 'must' here. The deep  freedom and quietude this account will give us is immeasurable. Break this down into steps....first aim to have a weeks expenses set aside. When that is achieved then increase it to a fortnight, then a month, then two months etc. It may take five years to accumulate this six month figure - so what. It is worth it. Surprise, surprise....guess what?....you will have calculated the exact amount that needs to go into this account each payday and this transfer must be automated to occur each payday into this account.

  7. Investments
This is specifically to fund us when we can no longer earn an income from the work we choose to do. For some it will be as simple as investing into superannuation or retirement schemes relevant to whichever country we live in. For more financially savvy folk, it will also diversify into dividend paying shares and/or positively geared property. For others, it will be the purchase of a profitable business or the building of a profitable business. Whatever method we use to invest BE INFORMED. Steer away from stoke brokers and investment advisers and their astounding fees - invest in what you truly understand and can confidently measure. Of course...you will have calculated the exact amount that needs to go into this account each payday and this transfer must be automated to occur each payday into this account, and from thence, into your investment portfolio depending on its particular requirements.

  8. Giving
This one is tricky and I need to be somewhat sensitive in what I write here. Giving is not only a morally deep action it is also a driver of true community and deepens gratitude amongst humans in general. It also feels great and gives a real sense of purpose to the giver. BUT BEWARE.....there is a whole consumerist industry built around donations and giving expertly run and marketed by charities, individuals and religions alike. KNOW where your money is going - do your research and you may be truly astounded (that's a promise). Even the squeaky-cleanest of organisations have to pay for advertising, CEO's, staff and likewise churches also have significant payrolls and costs too. If the charity that you give to does not have a breakdown of its finances that you can easily understand then don't give.  If your church does not have a financial statement that you can understand then ask to join the finance committee....that could be 'interesting' too.

Here's what I think - set aside an amount that you are going to give, then go and give it directly. Our immediate community certainly can benefit from our giving. Also remember that giving does not have to be raw cash....it can be giving our time, our expertise, our skills, our encouragement, our vote, our deciding to (for example only) shop at the local butcher run by a real person instead of a multi national.  Think outside the square and closer to home when it comes to giving. Oh, and if we can swing it to be anonymous giving, then it is all the more enjoyable and meaningful. Gosh, I'm not sure if I have mentioned this before but ...... you will have calculated the exact amount that needs to go into this account each payday and this transfer must be automated to occur each payday into this account. :-)





OK, so there is so, so, so much more that I could say about budgeting, but I think this is enough for now hey?



Take care dear folk and stay nice.

Mr HM


10 comments:

  1. We have two accounts, one for all the bills, monthly, quarterly, twice a year we check to ensure we put enough away. Our main account has our monthly things, phones, golf ect, and pocket money.it works for us any money left in our Main account is saved and these days we save most months. We give to McMillan each month, and while I work we will keep making payments, it does feel good knowing we give each month. All income go into the accounts regardless of who earns it, we are a partnership, we share everything in our lives, I really can't understand keeping anything separate. Great post

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  2. Hi Mr HM! Makes perfect sense to me, especially the one about couples being on the same page, it simply can't work if one is saving and the other is a spendthrift. Have a wonderful Sunday.
    Fi

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  3. Great post, it is interesting to know how others manage all sorts of things, but money and budgeting is one of those almost taboo subjects among friends...meh...I don't care, I'll happily talk about it if someone asks!

    I've always been the money manager in the house, mostly because I'm better at it, hubby doesn't mind one bit! I swear we both missed out on the "standard social genes". It's my husband who has a closet FULL of clothes and shoes, and I own maybe 6 pairs of shoes...I always maintain you can only wear one pair at a time, so why do you need 100 pairs! LOL And for the record I only own 2 handbags :)

    Anyway I recently had an epiphany of sorts, I've been feeling annoyed by how much money hubby gets to spend on his hobby, while I scrimp and save at every opportunity. Something I read on Facebook (of all places) triggered a lightbulb moment for me, there's a lot of history behind it, which I won't go into, but I've decided to give myself permission to spend money on myself from time to time, I'm not talking about spending money on things I need, I'm talking about spending on the frivolous. Now the tricky part is to adjust the budget to give myself a frivolous allowance, but I am chuckling to myself as I type this, I'm not about to go and spend hundreds a month! LOL My frivolous is most peoples loose change!

    Sorry for waffling on, it was just a timely post for me at the moment!

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    Replies
    1. I am chuckling, Cheryl, at what you wrote about shoes and handbags. I'm like you, I have a few pairs of shoes and only two handbags. And I don't get the huge shoe collection thing either! Meg:)

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  4. I'm so glad you included the emergency fund in your break down. Many who write about budgeting do not. Last year I needed to be my husbands full time carer pre and post operation. I was unable to work( substitute teaching). As we had always lived on a budget we made some adjustments and lived off his part pension. It was when I little dog, our fur baby, needed an operation, that I was so glad we had the emergency account. She was able to have her operation and we were able to pay her vet bills without juggling finances.
    Up until hubby got sick I gave by working a day at our local St Vinnies. I felt I was giving back to my community. I also made some great friends by doing this. I gave and received in return.
    Hope your future events includes Graduation events. Two or three of your girls must be getting close to finishing their studies.
    Jane

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  5. This is a magnificent post Mr HM that is going to help a lot of folks. It belongs in the finance section of the newspaper. We are at the comfy end of our life's journey, with still many more years ahead, hopefully, but in earlier days when there was a mortgage, renovations, youngsters, etc, this would have been a life saver.

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  6. Thumbs up again on this topic. I too have been volunteering at a local community organisation, but a recent accident has taken my Hubby out of the game for a while, so I have started studying with a view to going back out to work if he is not able to. Even if he is able to, my intended part time work will become our living expenses bucket and I have made notes on this post which I will be putting into practice even before I am able to get into work. Well done you!

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  7. You are very organised, Mr. HM. I like the breakdown of your budget categories, think they are very helpful. This year, I have started using an online budget tool but in a way that also lets me add in categories of my own and so I can record actual amounts spent too for things that are a little less predictable. Meg:)

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  8. Very well written and extremely practical, thanks for that! Whenever I see a bargain online, I just click and buy it straightaway, which is not good for my home budget. I should learn a lot from you!

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