Budgets Archives - MoneyWatch101

Over Consuming Usually Leads to Financial Failure

Let’s discuss a major problem that is taking residence everywhere in the US. Over consuming in general is a problem for millions of people and these people actually think that no real issue exists with the behavor. When you take money, primarily income and you use all of it by spending it on consumables, you fail to use it towards imperative financial goals.Thus you might be headed down the wrong path because over consuming usually leads to Financial Failure.

The little squirrel in the picture is actually showing you an example of what happens in today’s modern day spendthrift society, we earn, we spend, and then we spend some more. If all your income is headed towards, living expenses, food, transportation, stuff, services, utilities, gifts, and more things something is fundamentally off. As you are a very astute person to see, that several important categories are missing to complete the big picture in a simple budget, and they are Saving, investing, and Donating. The trick is never ever remove saving or investing from an efficiently established personal finance budget.

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Why I’m not Buying Sneakers In 2016

As many of you know I am a sneaker fanatic. But I am coming to a realization that I need to reign in my expenses and I already have sufficient kicks to last me a decade. So in this new year I will not buy sneakers for 12 months. All year long I will not buy any sneakers for personal use. If I can find a good deal that I can later sell for a profit then I might buy something to resell. But I will only consider any sneaker purchase if and only if it makes business sense. (To buy and flip only) Why I’m not buying sneakers in 2016? Keep reading to find out why.

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The Personal Finance Ratios that Matter

Let’s just imagine you actually had the opportunity to run personal finance ratios for your situation. If you handled your personal life like a business I’m sure things will run smoothly and efficiently compared to how you handled your dollars beforehand. A budget is for the most part in disarray before running the household finances within the personal finance ratios that matter.

When I say within I mean keep things in a preferred range for each ratio. Now a days some people think that paying for vacations which equals 30% of the yearly income is financially smart. I will tell you this person is not being financially aware of the personal finance ratios that matter. Because if they did, the vacation ratio which falls under entertainment and or vacation category should only be 15% of the annual income.

For a simple example let’s assume this person makes $3,000 dollars a month, net pay or about 50K monthly off annual income. (About the national Average)

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3 Ways to Construct a Company Budget

3 ways to constuct a company budget — Everybody needs a Budget

This is a Guest Post.

Having a company budget is like creating a map. It will help you see where you’ve been and where you’re going. You can use that map to decide where you can cut costs, where you can and should expand the business, and to confirm that you’re staying within the financial constraints of your business.

Analyze Where You Came From

Image via Flickr by 401(K) 2013

When constructing a budget for your company, the first step is to analyze past expenses. If your company has been in business for a year or longer, use invoices, receipts, and other results to create a clear idea of where your money is coming from and going to.

You can track this information in a few different ways. The best way is to group together similar items. For example, for expenses group together overhead, raw materials, staff, utilities, etc. For incoming cash flow, group together sales of specific products or types of products, similar services, etc. Do this for each month so that you can see how the numbers change throughout the year. Look for causes of dips and peaks of money.

If you haven’t been in business long enough to do this, use research in place of experience. Talk to vendors, estimate costs, and interview other business owners, preferably ones within the same industry. Many websites can offer you tips and tricks which will tell you about investments strategies in order for you to find more information about your finances.

Decide on Where You’re Going

Once you’ve determined what you’ve spent in the past, or researched potential costs and sales, next you’ll want to start filling in the blanks. Using a spreadsheet or budgeting software, create a finance budget that includes fixed expenses, variable expenses, and estimated income. You’ll want to do this for every month for the next 12 months so you can get an idea of where you’re headed for the next year. Remember that each month will be different. There will be changes that vary throughout the year, like having increased sales because of Christmas.

Once you have a clear picture of what your budget will be in the coming year, create a plan for the two years beyond this with a general guideline per quarter. Set goals for your company that may include increased sales, expanded line of products or services, and increasing your workforce.

Track It, Each and Every Month

Once you’ve created the budget, you’ll want to keep track of projected expenses and income with real expenses or income. By knowing what the differences are and then analyzing why there’s a difference, you can use it to decide what needs to change. It could mean cutting out unnecessary expenses, moving to a smaller or larger office, or focusing more on a product that is doing better than expected.

This should be done at the end of each month to see where your company is at. Then use it to revise the next month’s budget. As you use these checkpoints to determine where you’re at, you can be sure that your company is moving in the right direction.

It’s easy to deal with business expenses and income as they come in, but by having a plan, your business is more likely to succeed and thrive.

Comment if you have other company budget ideas?

Can You Find Extra Money

The best place to find extra money is to earn it, negotiate it, save it and not to waste it. These simple steps will give you a leg up on your emotional spend thrift self. The not wasting it part is basically allocating funds to the right place month after month, and it is called a budget. The savings part is simple, but will provide you retirement leverage due to the compounding effect. Everyday you’re purchasing power is getting less and less, thus making retirement that much harder. Can you find extra money? Look right at your paycheck first. Then look in the mirror second.

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The Cycle of Expenses

2011 Oxygen Sensor and Water Pump for Camry

2011 Tires for the Old Camry

2012 New Laptop

2012 New Mattress

2012 Brakes for Mini-Van

2013 Cell Phones for a new Provider

2013 Tires for the Mini Van

2013 What will the next thing be?

The expenses cycle never ends as many things need replacing and others are needed to save some dollars. The list above is a small breakdown of the things I needed to replace in the past 2 years that I can remember. Whenever I feel positive about saving some extra dough something almost always comes up. What is wrong with this picture? What can be done to eliminate the dreaded cycle with expenses affecting our lives? Maybe it helps to have a plan in place to cover the future needs and wants. As soon as I buy the tires for the minivan, should I begin to save for the next set of new tires in 2 years or is that considered going overboard. I will take the new purchase price of about $400 and divide that by 24 months, which gives me a monthly amount of about 17 dollars.

Should I have a replacement fund for everything in my life or is that going overboard as well? What if there isn’t enough money to cover all the replacement funds, on top of retirement funds, emergency funds, and college funds. What would somebody do then? Increase your income is my only answer.

It may seem like a lot of whining but there is something to ponder behind the madness going on in my head. If I eliminated a car and found a job where I can walk to work I will eliminate a lot of unnecessary expenses. I will also save on gas and insurance costs, but my time will take a major hit as commuting by foot takes added time. Maybe I can invest in a cool road bike to slash my walking commute by a third. Let me not get ahead of myself as I first I need to find a job in my town. Ha Ha

Sacrifice now for a better tomorrow is a way of life that needs to be taken seriously by people. A little here and there will not do much to improve your situation, but if you consistently apply this mentality you will win big later. Keep pouring on the focus to better all situations and you will be a part of the secret society, the one I just made up in my mind. LoL

How do you sacrifice to win big later? How do you handle the cycle of expenses?

I like to think optimistically in this life for the most part, but when things like the list above happen to strike unexpectedly I tend to say what in the F— is going on, out loud from time to time.

Comment if you have a good luck or bad luck in recent times with random unexpected expenses.

Rich Uncle EL

Budget Max Percentages

Your income consists of 100% of your spending as a whole, but do you actually know how much you should spend on certain monthly expenses as a percentage of your salary.

25%- Housing Costs (Max is 35% of income)
15%- Debt Reduction ( If not in debt use this to allocate to other items)
15%- Retirement/Savings Goals/Emergency Fund
10% -Transportation
15%- Food
10%- Utilities
10%- Personal
10%- Charity
5%- Recreational
5%- Clothes
5%- Misc

If you add up all the percentages they are over 100% of your Income and it’s your job to balance it out by increasing and decreasing certain categories. This is just an example of what each category should be percentage wise give or take. The lower the categories to bills the more you can allocate to the good things in life like savings/goals, personal, and recreational.

Obviously this is not set in stone, but this is what the experts recommend. If you were hell bent on getting rid of your debt then you can allocate funds from other places and increase your debt reduction amount. Even lenders who are working with new clients on a mortgage loan; notify their clients that the mortgage payment including interest and taxes can not exceed the maximum of 35%.

Some people will argue that a portion of your income up to about 10% should go to giving others or a charity of your choice. But if your income can not sustain this amount consistently on a monthly basis then your only left with the first option, which is to take care of your household first in order to survive. On the other hand if your housing cost as a portion of your income is only 15% then you can definitely afford to give to your favorite charity. See my new page under Budget tab as to help you set up a easy to use budget printout that you can have as a visual reminder.

I will actually be up front with you all that my budget is not in line with the recommended percentile amounts listed above. For the sake of this post I will release my percentages to you as I continually am attempting to improve my budget. I know what your thinking that I am not doing as I preach, but for arguments sake my budget is in line except for two maybe three categories in which I am over the max limit and unfortunately are a current necessity.

Housing %- 40% (Over)
Utilities %- 8%
Food %- 1% (The Misses takes care of this)
Transportation%- 4%
Clothing %- 2%
Personal%- 23% (Child Care) (Over)
Recreational%- 5%
Debts%- 13% (School Loan) (Over, as this is a category you never want)
Savings%- 4% (After Tax savings- I do a total of 12% of my income before tax)

Total = 100%

Comment back if you have ever ran these numbers as a percentage of your income. If you feel up to it post your actual percentages for your preferred categories on the same comment.

Now we all can be better aware of how our budget gets allocated.

Night Life Costs Broken Down

Go Barack Teach her how to do the Salsa!

I wanted to find out what the average person spends on drinks and night clubs/entertainment and share it with my readers. Obviously this would be an average for someone in their 20-30s who goes out about 3-4 times a month. One thing to consider is where you live and how the prices of drinks vary by location. For example a drink in Paterson, NJ will cost you about 7-8 dollars while a drink in Las Vegas will cost you about 21 dollars. So you will have to run your specific calculations based on your actual location and prices.

Scenario 1 – NJ Night Club

Pre-Game Bottle at home $40 / 2 split it with a buddy= $20 Dollars each.

Night Club Entrance= $20 Dollars

Drinks while Clubbing = 3*7 = $21 Dollars

Total for 1 night of entertainment = 61 round it down to= $60

Total for the month 4 nights out is – 4 * 60 = $ 240

Total for the year 12 months – 12 * 240 = 2,880 Round this up to – $3000 for other expenses like – Haircuts, Gas, clothes, Etc.

This scenario is obviously on the low end of the spectrum because the prices are low estimates. The point I am trying to make is that if a young person spends this much on just night life then the possibility to save $$ gets eliminated or vastly reduced. Many people do not have an extra 250-500 a month after all expenses to splurge on night life and still be able to save adequately for future goals/retirement. That’s why most usually fall under either savers or spenders. I also understand that every situation is different and that some younger individuals may be living rent free in good ol’ mom and dad’s house. If this is the case then those folks can maybe get away with it in for the time being. But as soon as rent/mortgage payment gets thrown into the equation saving $$ should take priority over the expensive night life option. For the sake of being fair I will run the calculation on someone that goes out 2 times a month and saves the other half in a mutual fund for 10 years.

Scenario 2- Half Fun / Half Save

Total for month is = $120 night life round this up to 150

Total for year is = $1,800 Night life expense and 1800 Saved in Mutual fund. = $ 3,600

Go to the calculator at the bottom of the page and plug in $150 a month X 10 years to save.

The Grand total with a 4% savings rate is about $22,000 dollars.

In conclusion if you cut your night life spending in half and save the rest you can have a good foundation for a better life in the future. Everybody always makes regrets later in life, but those who take action will never be caught off guard financially. We all can find the right balance between fun and saving for the future. The problem some people have is that they do all fun and not one penny to save. If you’re in a situation where you don’t have money left over at the end of the month to allocate to savings, then just increase your income or do the half fun/half savings strategy I mentioned in the example above.

Make a plan, stick to it and watch how your savings grow.

Another excellent way to watch your money!