Thursday, August 16, 2007

The Boring Budget

There IS a big picture. Being debt free. Saving for an apartment. Being financially stable. All of the above and then some. But the devil is in the details. And before you are overwhelmed with retirement numbers, you have to go through financial planning step by step. And the first step is mandatory. Thankfully, it is also the easiest.

Everybody needs a budget. You need a clear idea of just where your bank bleeds. Because I will tell you right off the bat that if you don't have zero revolving credit card debt, an emergency fund of three months expenses (also to be used as first and last month's rent plus brokers fee of 10% annual rent- for those all to frequent you got out-gentrified moments), a fully funded Roth IRA, then you need to get there. Because those are the basics. And now that I've gone and said them, just get them out of your head if you don't have them because it'll make your head hurt and it doesn't need to. Right now all you gotta be is boring as all get out.

Take a pen and paper, it could be your favorite pen and your favorite notepad, or the back of the nearest scrap paper and the pen you're sitting on, and grab a calculator. Or practice basic addition, subtraction, and long division. And write down the absolute basics. Not needs, we'll get to that part, but your needs and small wants. Like rent and wi-fi. Like so.

RENT 1000


CON ED 80 (average monthly cost, so august will be above $100 and december will be below)

GAS 40

Metrocard 80

Verizon 80 (phone and wi-fi)


FOOD 400

Now add it all up, and our budget expmple is $1880 in monthly expenses. This is made up and based on a single person in their own apartment, obviously adjust if you share expenses with someone.

One thing I do is always include food. If I can't shop at KeyFoods and do bodega runs for a hundred bucks a week, then I need to start. Ideally, since I share expenses, this hundred buck item would also include going out to eat once a week. I include it because the reality is that in New York City, we love our restaurants. We don't have a stocked walk in pantry, because we only shop what we can carry (not what we can throw in the trunk), but we have a restaurant on every block and a bodega on every corner, so if you don't include it in your budget you are going to come up short at the end of the month.

Now you subtract what you make. So waitresses, add up the average tip every night for the week and get your weekly total. Let's say it's $600. Multiply it by 4 weeks, and you have a monthly take home of $2400, subract the monthly expense total of the budget you just did, and you have your difference. Also, if you survive on tips, you know that your weekly income varies, so if you have a crap week one week, next week's tips will have to cover last weeks short. I'll get into underwear drawers next post. Now you know how much you blow, how much you thought you had but didn't, and/or a quest for a new job. In this example, $520 isn't a heck of a lot left over. It means that you would really have to spend only a hundred bucks a week on food, and when you went out that night for drinks and dancing at mon mon mon amour last thursday, you can't buy that comme des garcons wallet you almost stole from a friend. What it does, most importantly, is put things in perspective. So that you are more aware of what goes in and out of your wallet, and spending is thoughtful impulse, not blind impulse.

So that was easy, right? A little too easy. Because I am here to tell you the secret to it all. Spend less than you earn and save the difference. This is the part that hurts. I don't care how much debt you are in, you must save no matter what. You must make habits to break habits, and other trite little lecturous bits of wisdom. Let's say that you should save 20% of your income and live off of 80%. It might look easier than it sounds, or not. In either case, it aint easy. Which is why you should start at 10%. Even if you are brokety broke. Kill the wi-fi. Lower your phone bill. Anything. Our pretend budgeter above would start saving $240 a month. That's sixty bucks a week. Let's say our pretend budgeter is a waitress, so we'll just call it the A-hole tip jar. Ten percent of your customers are grade A numbnuts, or ten percent of your workload is complete and total BS, and it's your hard earned labor with them that you're not gonna piss away.

How, where, and why will be the next entry. Unitl then, please feel free to ask questions as we go along.


blissterbank said...

a note on the battle of the budgets. everyone thinks about money differently, the budget above is but a sample of many different ways to track your spending. yes- you need one, but it must be intuitive.

i sent off a link to my blog to friends, and immediately several wrote back with their budget versions. one email was from my old college roommate. let's just call her H. H is a D, which means to say Diva. if my college were the type to have a valedictorian, she would be it. she wrote and delivered one of the greatest commencement speeches ever. i remember she woke up well before i did and went to sleep well after i did. she is what is commonly referred to as an over-achiever, but she's so damn fierce you lose the disdain. i digress. so H said she eschews the budget, because she doesn't do diets, which is what a budget seems like to her. but she tracks her spending, every penny spent is written down as it's spent, then transferred daily into an excel sheet. by tracking her spending, she can eat the lobster burger without guilt, and knowingly go out and earn the dough to pay for it. if the end result is that you are tracking your spending, then like they say in the 'hood, it's all good.

she mentioned gerrold mundis' "get out of debt, stay out of debt, and live properously"- i think i'll check it out.

MyATM Holdings said...

That's true! We all have to start saving and spend less than what we earn. This is such an interesting and very helpful blog. Thanks!