Budgeting « The BudgetSketch Blog

Archive for the ‘Budgeting’ Category

Chronic Vagueness

March 3rd, 2011 by Dewayne | Posted in Budgeting, Consumerism, Good Advice, I Need a Plan, Uncategorized

One of our users coined this term to me the other day and honestly, I’ve been thinking about it a lot lately. What is Chronic Vagueness, and how does that apply to personal finance? The answer is certainly much more clear than the term.

I guess if we apply the definitions of these two words, it makes more sense. ”Chronic” means, constant, habitual, continuing a long time or recurring frequently. ”Vagueness” means, not established, determined, confirmed, or known. Putting both together, “Chronic Vagueness” could be a constant, habitual thought or set of actions that are done without an established, determined, or known set of facts. Does that describe how you feel about your personal finances?

One of the things I love the most about what I do is talking with people that are clearing the chronic vagueness from managing their personal finances. Just recently, I spoke with a BudgetSketch user that was struck by the fact that her and her husband were understanding clearly their financial position for the first time, and BudgetSketch was working to help them create new habits and patterns of thinking about their finances. Since she could see her budget plan in one view, she manages it daily by tracking her actual spending against her plan. She said they have eliminated several hundred dollars of wasted money per month, and have already planned the payoff of their second vehicle over the next 3 months. All of this is happening because they’ve changed their habits, and have a clear well-defined plan for moving forward. I hear a lot of stories like this, and it’s music to my ears.

Many people “manage” their personal finances in a state of chronic vagueness. Spending behavior is habitual, with no plan for how their money will be spent or even knowing if they can afford the constant spending patterns they’ve established every month. Once a person tries to get a handle on this, it seems daunting, as it could be really hard to get their arms around.

BudgetSketch is as much a tool to remove the “chronic” spending behaviors, as it is medicine for removing the “vagueness” out of establishing a plan or even knowing your true financial situation. It does this by first showing you a clear picture of your financial situation, and then it works to change chronic spending behaviors. In BudgetSketch you’ll plan to spend, not just spend.

If you’ve made a plan to only spend $50 this week for work lunches, and by using BudgetSketch, you know you’ve already spent $50 by Wednesday of the week, you have a decision to make for the 2 remaining workdays. In the past, you may have just continued to buy your lunch for Thursday and Friday, spending $70, but since you now know you’ve already spent your plan for the week, you can make some modifications. Maybe you bring your lunch the next two days, or perhaps you reduce $20 from some other budget item. Regardless, when you know, the vagueness is removed, and the chronic behavior of spending an extra $20 for the week on lunch is now a decision to make, not just a chronic behavior.

This is working for my family, and for many BudgetSketch users all over the world. I would love to hear about your successes or best practices to remove the “chronic vagueness” from your personal finance management. You can do it!

The Cart and the Horse

July 12th, 2010 by Dewayne | Posted in Budgeting, General, Good Advice, I Need a Plan, Uncategorized

There seems to be a flurry of activity these days when it comes to conversations about personal finance management. What applications are best to use, what are the best methods of tracking your finances, who has the slickest tools, account aggregation, etc. Two and a half years after creating BudgetSketch, it amazes me how little this conversation has changed.

When we set out to solve our own personal finance issues, it became painfully clear to me that tracking expenses alone was an almost fruitless exercise. My wife and I tried many personal finance management tools, but they all did the same thing… tracked my spending. I would look back at what I spent last month, then still scratch my head as to why our money was just gone. I could see things like a hundred dollars for the month being spent at the local coffee shop, but nothing about that information told me if I could afford it or not, only that I spent it. It all seemed so reactionary and frankly frustrating.

“Putting the cart before the horse” is a common phrase meaning to reverse the accepted order of things. This statement is also an example of a hysteron proteron in Greek, in grammatical terms, meaning a figure of speech used to describe a thing that should come second, but is put first. We’ve all said, “Put on your shoes and socks” to our kids, but we all know that you must put your socks on first before your shoes.

The same applies to personal finance. We spend so much time focusing on the need for expense tracking (“The Cart”) that we fail to see the Cart is really useless without “The Horse” (a Budget). It began to dawn on me that my plan for how I will spend money is the first thing to establish, then I should track how well I’m doing against this plan.

Expense tracking has it’s place in our arsenal of tools, but only implemented to help validate how well we’re sticking to our Budget plan. So it has to make you wonder why there are so many tools focused solely on expense tracking with a spending alert feature masquerading as a budget. If you’ve reached that conclusion… you’re not alone.

The saying is best said, “Never put the cart before the horse”, so why do we try and manage our financial lives this way? Take hold of your financial future by taking the reins and tell that horse where to go. Establish a solid budget plan and stick to it, and only look back long enough to validate how well you’re moving forward.

It’s time to change the conversation about personal finance and get real about solutions instead of allowing ourselves to be convinced by who has the best pie charts. Personal finance is about a plan, everything else is a support mechanism for that plan.

It’s time to change the accepted order of things… one budget at a time.

Goodbye Wesabe. Good luck HelloWallet.

July 4th, 2010 by Bill | Posted in Budgeting, General

Here in the United States we take our independence seriously. So I took offense to a claim of independence made by HelloWallet in a recent Fast Company article that also mentioned the demise of another competitor, Wesabe and left a comment.

I suppose it’s all about perspective. HelloWallet aims at differentiating itself from its primary competitor Mint, which arguably became a bit less independent when it was acquired by Intuit, more than HelloWallet desires to irk the founders of an upstart like BudgetSketch but be cognizant of the fact that in making their claim, HelloWallet is speaking about their company not you. In contrast BudgetSketch was founded to secure financial independence for its users. Period.

Let’s be frank, most “for profit” personal finance sites are interested in two things, your financial data and the ability to sell access to you to the highest bidder, or in this case often the lowest interest rate bidder. BudgetSketch has always maintained that while the folks at Mint have proven such an approach is very lucrative for site creators and their backers it is less helpful to the site’s users. Again speaking frankly, we hope to stand that model on its head. We aim to make you wildly successful financially while proving that you can make a living helping others first. More on this in a future blog post.

Profit driven personal finance sites focus on tracking your spending because that’s the data they’re most interested in. We believe that this “water over the dam” approach is not only wrong but counterproductive. We believe that the solution to most personal finance problems begins by looking forward, not back, with the creation of a budget. Budget in hand you can then track your performance against the plan by tracking income and expenses. Sites that generate what they call a “budget” from past spending data only ensure the persistence of bad habits.

Ironically, the failure of Wesabe boiled down to finances. BudgetSketch operates by the principals under which it was founded and the counsel it provides to its users, and has been built patiently, via hard work, using commonsense, with an eye on the bottom line. We are beholding to no venture capitalists and no creditors, only ourselves and our users, and we’re very proud of that fact. So goodbye Wesabe. Good luck HelloWallet. As for BudgetSketch and our users, we choose hardwork and commonsense as we work toward our personal independence days.

BudgetSketch and Irregular Income

March 29th, 2010 by Bill | Posted in Budgeting, Good Advice

One of the most rewarding aspects of working on BudgetSketch has been the opportunity to share ideas with our users. We also get a lot of questions about personal finance and more. One of the more common questions is essentially, “How can I use BudgetSketch if I’m paid on an irregular schedule?” Admittedly, BudgetSketch seems tailored for regular incomes but we think it is well suited for self-employed users, those whose salaries are commission based, or anyone whose income varies significantly from month to month.

The key to any budget is to be thorough no matter what your pay schedule looks like. While we think BudgetSketch provides an excellent means of seeing all your monthly obligations in one simple view, you can use anything from a sheet of paper to a spreadsheet to list all your required spending for the month. To be extra thorough you should add the appropriate percentage of bills you pay bi-monthly and quarterly.

What you should have then is a minimum income you will need to earn every month from your various sources of income. If you are self-employed, then you should add about 30% to this to cover your tax obligation. For example, if your monthly obligations are $4,000 then you will need to earn about $5,200 ($4,000 X 30% = $1,200) in order to meet all your obligation and pay your taxes. Either way consider this total to be your monthly sales goal that you do not want to miss unless you’ve got a decent sized emergency fund built up in your business account.

This brings me to my next point. You should absolutely maintain a business checking account separate from your personal account. This will vastly simplify your business and personal tax filing each year.

You can use your business account to pay for legitimate business expenses and of course to pay yourself a regular income. Easy right? What could possibly go wrong? You know how much you need to earn each month. You’ve got a business bank account that you’re pouring your income into on an irregular basis. You’re making regular payments to your personal account from that business account. Oh wait, what if you don’t make enough money one month or two to meet your obligations?

Well, if you find that your missed your income goal one month then you’ll be showing a negative cash flow in your business account but unless you’re just starting out you should have accumulated a surplus in your business account over the months. Many irregular earners feast during the good months and starve during the lean months. To avoid the latter you should avoid the temptation to spend each month all the income you receive for that month. You must limit your payments to your personal account to your financial plan (AKA “your budget”).

If you’re just starting out or are preparing to, then we encourage you to save up, if possible, so that you can offset any start-up costs and deal with any initial short-falls as you’re ramping up your business. If you’ve been at this for a whole and if you are unable to accumulate a growing surplus in your business account then you have a bigger problem than budgeting can solve. You have a career problem.

You typically want to run when you hear a sentence like the one I’m about to write but… Take our word for it. We, the creators of BudgetSketch, are irregular income earners and we adopted this method of budgeting over a year of trial and error and it hasn’t failed us yet but as always we’d love to hear what works for you.

Simplicity is the Ultimate Sophistication

March 18th, 2010 by Dewayne | Posted in Budgeting, Good Advice, I Need a Plan, Uncategorized

Life can certainly be complicated. Juggling work with family responsibilities, combined with financial stress is all too common in many households. Notice I said, “can” be complicated. Many times we work against ourselves and make challenges into very complicated matters. Managing your finances is no exception.

I’ve been on a bent for the last several years to find ways to simplify my life. I look at my growing children and think, “How much am I missing because my life is disorganized?” Understand, I’m in no way qualified to be an expert in organization, but I do believe we can simplify our lives. Reduce the noise and the stresses, but continue to do the things that matter the most to us.

While I’m in no position to offer suggestions in many areas of life, one I feel very confident in is how to simplify money management. Recently, I came across an excellent article written by Jennifer Derrick at SavingsAdvice.com, where she talks about simplifying financial management.

Jennifer wrote:

When people set out to make a budget or adhere to a financial plan, they sometimes make things so complicated that they have no chance of success. They set up accounts at many institutions, they open ten credit cards to maximize the rewards, they make too many rules about what can and cannot be bought, and they try to divide their budget into too many categories. As a result, they end up with a financial plan that is too complicated and that even they don’t understand.

When a financial plan/life is super complicated, you don’t want to deal with it. The thought of balancing all those accounts, paying all the different credit cards and dealing with the rewards, tracking all the budget categories, and adhering to all the rules is exhausting. You may only be able to keep up with a complicated plan for a month or two before you throw up your hands, declare it’s all too hard, and give up, leaving your finances to go their own way (which is almost never in the direction they should be going).

This is why it’s important to keep your financial life as simple as possible. The simpler something is, the more likely you are to keep up with it and actually live by that plan. When dealing with your accounts and your budget is easy and not too time consuming, you’re more likely to find time for it instead of putting it off.

Jennifer couldn’t be more right! Managing your finances is not something that should be complicated. You may have some complex financial issues to solve, but a simple plan is the most effective way of unraveling that complexity. If you’re committed to losing weight and improving your health, a complex diet and exercise plan won’t be sustainable for most people. Same goes for effective personal finance management.

The place to get started is a simplified financial plan. BudgetSketch was specifically designed to simplify the management of your finances. Get started by creating a budget and getting a visual of your financial situation. Remember, keep things simple. Reduce clutter and complexity, and begin to feel empowered again! I know you can do it!

The Debt Free Vacation

September 9th, 2009 by Dewayne | Posted in Budgeting, Good Advice, I Need a Plan

I recently read an article by Sadie Morris talking about this subject on her A Life Without Debt blog. No, she’s not talking about taking a “vacation” from your debt free plan, but about how many people do incur debt just to go on vacation.

My wife and I love to travel. We love seeing new places and certainly getting away from life’s normal schedule. To be honest, we haven’t taken a “qualified” vacation since 2003. By “qualified” I mean a vacation that costs more than $500 and lasts more than a weekend. We have been working hard over the last number of years to overcome past financial ~~disasters~~ decisions, and allocating funds to vacations just hasn’t been a priority.

Now… I know the common argument, “you’ll burn yourself out if you don’t take a vacation.” While I’m sure there are studies out there to prove this point, should a person that is working to payoff debt decide to incur debt to take a vacation? That certainly depends on the individual and how committed they can make themselves to paying off any debt incurred. I would assert that if you are truly inspired to be debt-free, it might be hard decision to incur debt for a vacation.

So where is the balance? How can I make a vacation happen and still feel good about my financial plan and not sacrifice my promises to myself?

Decide how you will allocate vacation funds. In my house, we haven’t allocated any funds to this category since 2003 because we haven’t been able to get past other priorities with any funds left to allocate. Next year is shaping up to be our first year that we will plan a vacation that costs more than $500 and lasts longer than a weekend! As we plan, we will use the following guidelines to make our 2010 vacation successful and not compromise our promises to ourselves:

We have to decide to pay cash, and not incur debt. I can assure you right now, if we wanted to go to the Bahamas’ next year, there is no way to do it unless we incur debt. So, making a decision based upon priorities, we have decided that any vacation must be paid in full with cash. Sorry Bahamas!

Picking a destination is also important. Many people will select the destination, then decide how they will pay for it, or in a lot of cases, finance it. Set a dollar figure that you know you can attain, then select destinations that will fit the bill so to speak. We have a short list of places we would like to go, but we won’t make a decision until we know we will hit our vacation savings goal. This keeps us from over extending ourselves!

We also must decide if we will take several smaller trips through the year, or use all our funds on one nice vacation. Don’t get caught in the trap of finding that you have spent your vacation dollars throughout the year and end of “having” to put the planned trip on a credit card. Traveling debt free can be done, but not without proper planning and discipline.

Speaking of planning… I use BudgetSketch to help me plan for vacation. (there’s my shameless plug!) I have a goal entered into the system called, “2010 Vacation Fund”. I have set the goal amount and I track each month how much money I am allocating to it. I simply allocate a portion of each month’s surplus to the fund… but I do have funding priorities. I have other goals that are higher priority than my vacation goal. Things like emergency fund, car maintenance fund, medical deductible, etc. I fund all of my goals as a list of priorities. Given this, my wife and I have forecasted we should be able to fund all of these goals and still meet our vacation goal.

Since we are committed to not incurring debt, should one of our other goals have a higher priority need and require additional funding, i.e., an unforeseen car repair that exceeds our allocation to that fund, then in our case, the vacation fund will suffer a bit, unless we can make up some ground somehow. In years past, we would have told ourselves, “We know the transmission was unforeseen and it cost more than we expected, but we owe it to ourselves to take this vacation anyway because we have worked hard!” “We’ll make it a priority to payoff the credit card we use!” Famous last words…

If you can manage your credit balances well, and I have friends that are excellent at this, then it’s always an individual choice to finance your vacation with debt or go debt free. However, no matter your choice, I can assure you, paying cash is much cheaper and whole lot more rewarding.

We would love to hear about your experiences or good tips on how to have fun on your debt free vacation!

I Need Some Help!

May 29th, 2009 by Dewayne | Posted in Budgeting, Consumerism, Good Advice

When we decided to build a tool to help people take control of their money with the idea that we could help teach people how to reduce their amount of debt spending and be better equipped to make sound financial decisions, we knew that we must live how we are trying to teach people to live. That is… live from an intentional budget plan, stop spending future income (incurring debt), and begin to reduce debt.

My personal goal is to take this all the way to a debt free lifestyle. Your goals maybe different, and that’s fine, but the tools and methods we use to reach our goals are the same. We need an effective budget (that we can follow) and learn how to make smart financial decisions. In my household, we have our budget plan working effectively thanks to BudgetSketch, but I need some advice on how to proceed with downsizing a particular debt, namely, my vehicle.

Some years ago (pre-enlightenment) I purchased a fairly new Mercury Mountaineer. Very nice vehicle, safe for the family, comfortable, but extremely expensive to own. The vehicle payment is high enough, but the yearly operating costs exceed what our budget can handle. So, in keeping with our contract with ourselves to pursue the goal of living debt free, we made a decision to sell this vehicle. We found a buyer and are ready to let it go… ah… feels good to get that liability off my balance sheet! However, I now have a new problem to solve.

I now need to replace our family car with another safe vehicle. Considering we are a family of 4, my wife and I decided that the next vehicle needs to be a minivan. Plenty of room, safe, and much less cost to operate. We decided we will pay cash for this next vehicle and have set a budget of $3500.

Here is where I need some help. In my past life, I never bought a vehicle that was over 2 years old. I was good at the debt creation game back then and never had to worry about “Will this vehicle be reliable?”. The cars I bought were always new or almost new and had warranties. I see today that I wasted a TON of money just to make sure the vehicle was newer with a warranty. Some big payments too I might add.

This time around we are spending no more than $3500 on a minivan, probably something built from 1999 to 2002. I found a few vehicles that fit the bill, but I am apprehensive about how to make sure I am buying a good vehicle that will last us at least 3 years. Most of these vehicles have 110,000 to 165,000 miles on them. How do I make sure I buy a good quality vehicle that won’t nickel and dime me at the repair shop? Keep in mind that I am not mechanically inclined enough to work on my own vehicles. I will certainly need help from a mechanic when things go wrong.

So… I need some advice from some folks that are good at this sort of thing. How do I make sure I am not buying a bunch of problems, what kind of minivan should I buy, and how to make it last.

Thanks for your help!!

Calling All Spreadsheet Budgeters!
Win an iPod Touch!

April 13th, 2009 by Dewayne | Posted in Budgeting, General

Are you managing your personal financial budget using a spreadsheet, but looking for a way to share that budget with your spouse or an accountability partner? Yes, we’re talking to you Dave Ramsey followers!

We invite you to try BudgetSketch®, our free Web-based budgeting application. BudgetSketch® is intended to be a simple, yet effective tool to help you create and maintain a monthly zero balance budget. BudgetSketch® is NOT intended to pay your bills or to track your expenses, however, using BudgetSketch® will allow you to create your personal financial plan in its most elementary form, a budget. Nothing more. Nothing less.

In an effort to make BudgetSketch® the best budgeting tool on the web, we are introducing the BudgetSketch® iPod Touch Giveaway!!

Here’s all you have to do to enter to win a brand new 8GB iPod Touch:

1.) Sign up for an account between April 13th – June 13th.

2.) Set-up 2 months worth of budgets, (April & May) or (May & June).

3.) Submit at least 1 feedback comment to us detailing your thoughts about BudgetSketch® and your ideas for additional features. (Just use our “Contact Us” form while logged into the application.)

Once you have completed the 3 steps above, your email address will be entered into a drawing for a brand new 8GB iPod Touch. The winner will be selected and notified on June 15th, 2009. No purchase necessary.

Our intention is to create the most simple and effective personal budget management tool available for free on the Web. We thank you in advance for helping us refine and improve BudgetSketch®, which will always be free to use for anyone seeking to gain control of their personal finances through sound planning.

Good Luck & Happy Budgeting!

Are you smarter than a 4th grader?

April 10th, 2009 by Dewayne | Posted in Budgeting, General, Good Advice

The National Foundation for Credit Counseling runs a yearly “Be Money Wi$e National Financial Literacy Poster Contest” The contest is designed to get young students thinking about how to manage money effectively and offers them a creative outlet to demonstrate their knowledge. The chosen winners are recognized nationally, and the winners receive US savings bonds.

One of the poster winners for 2009 was Jenna Fink. A fourth grader from Sparks Elementary School in Frisco, Texas.

09elementarywinner

She touches on all aspects of proper personal finance management, and created an ingeniously simple illustration that anyone can understand. Awesome!

Jenna… you’re a very smart young lady, and I’ll bet your parents are pretty smart too!!

If you would like to learn more about this contest, you can visit the NFCC contest website at http://www.moneywisepostercontest.org/

Teach your children in the way they should go

April 7th, 2009 by Dewayne | Posted in Budgeting, General, Good Advice

I’ll have to admit, I really didn’t “get it” about budgeting until a few years ago. Needless to say, I have had my own financial struggles as a result. I really didn’t realize that my spending was controlling my financial future instead of me controlling my financial future by controlling my money.

The unfortunate thing is that it took me 35 years to finally realize I have been managing my money in the wrong way (I use the term managing very loosely). Although I am very grateful to good friends that did “get it”, and were willing to impart their knowledge and experience to get me on the right path, it shouldn’t take each of us our whole lives to figure things out!

The bible says, “Teach your children in the way they should go, and they will never depart from it.” Now I know this pertains to spiritual teachings, but this same truth can be applied to many areas of our children’s lives, and one big area is managing money. If we teach our children good money managing habits, they will be properly equipped when they go off to college and start their own families.

So, here are some things you can do to help your children learn good money managing habits.

Teach your children that earning is fun

There are few things that give me more joy than to buy my children something I know they will really enjoy. Now, my children are young, but I still try to help teach them that you earn “things” by working, or at their age, helping Mommy or being especially good. One recent example was with my 5 year old.

Dad had an important meeting and Mom was unavailable to watch him, so he went with me. I told him, “Son, I need you to be really kind and quiet during Daddy’s meeting”. I also told him he would earn something really cool if he did his part. Well, my meeting went longer than expected (almost 2 hours), but my son was very quiet and content throughout the meeting (did I mention he is 5!). He did a fantastic job! So, after the meeting, we went to one of his favorite stores and I gave him some money to buy some really cool matchbox cars he liked. He was so happy and I told him that he earned those cars all by himself! There is a great sense of inner pride when you work hard and earn a fair wage, and children feel no different. He knew he had done well, and reminded me of that fact for the rest of the day!

If you have teenagers, certainly the incentive to earn a few matchbox cars is not going work! However, the same rules apply. My Dad told me when I turned 16 that if I wanted a car, I had to get a job first. He said I would be responsible for gas, insurance, and maintenance, but I had to prove to him I could afford these responsibilities by gaining employment. So, I went out and got a job at a movie rental store and worked there from 16 to the day I graduated high school. My Dad put up the $900 to buy my first car, but I maintained it all throughout high school. Every time I looked at that car, I had a sense of pride and ownership, and I took care of that car in the same way. It is fun to earn from hard work and personal responsibility!

Teach your children to save

One bit of advice I have received over the years is to make sure you “pay yourself”. Meaning, when you budget your money, pay your essential bills first, then pay yourself, then use the remainder for things you enjoy. We can teach our children to do the same at an early age.

I know when I was a kid, I used to get an allowance, and of course this allowance was directly tied to completing my assigned chores around the house. Even at this age, you can teach your kids good budgeting habits. When they receive their allowance, or if they went out and worked and earned some money, you can take this opportunity to teach them how to “pay themselves” first. Take them down to the local bank and open a savings account and tell them that each time they earn money they have to put the first 25% of what they earned in this new savings account. Then explain to them that this is called “paying yourself”. If they owed you or anyone else money, they should pay that money back first, then pay themselves. Then explain to them the fun part! Now that they have met their obligations and saved for the future, they can now go and have fun with the rest of the money! Even at an early age, this will work to teach your children the proper way to manage their money!

Teach your college age kids how to budget!

Now that your kids have had a good foundation in managing their money, teaching them how to budget should be a snap! If you read my previous blog post on Marketing Debt Creation Tools to Our Children, you will know that when our kids head off to college, they will be bombarded with what I call, “Banks behaving badly”. Many young adults graduating college at the age of 22 already have racked up $5,000 to $15,000 in credit card debt before they even get their first real job.

College students can easily learn how to budget. They have some type of income for living expenses and spending cash (mostly from Mom & Dad), and maybe have some living obligations like rent, food, etc. One thing we like about BudgetSketch® is that you can collaborate with anyone you like. Sign your college student up for an account on BudgetSketch®, then set yourself up (Mom & Dad) as collaborators on their account, and work with them to establish an intentional budget plan for managing their money. It will be clear to them, and to you, if they are following their budget plan or not. So the next time you get a phone call with “Daddy, I need more money”, both of you will know if they really do need more money or if they are misappropriating money to their “pizza” budget!

These lessons you teach your children will carry them throughout their adult lives. Teaching them to work hard and to be responsible with what they earn are some of the best lessons we can leave with our children. Mistakes are a necessary part of life, and sometimes the only way we learn, but with the proper foundation, fixing mistakes can be much easier and sometimes much less painful.

Teaching our children also has an intended side effect… It is not unusual for the “teacher” to learn more than the “student”

Feel free to share your success stories… I would love to hear them!!

Personal Budgeting