Curb Your Spending: Bucket Budgeting

I think that I've voiced my desire to bucket budget in the past, I just didn't know it had a name. But alas! It is a tried and true budgeting technique...not just a last ditch effort for someone, like me, who is having too much 25 year old fun and thinks she spends too much on entertainment purposes! 

I'm am putting this into action in my world like NOW. For you, I just highly recommend...especially if you're not good at sticking to a budget.

Bucket Budgeting

You may have to open up an extra bank account (I did), but I'm excited about how awesome this is going to be!

The general gist:


There are three buckets for your money: two checking accounts and one savings account. (Sidenote: this is budgeting of your actual take home pay...so no 401k biz here...we're only talking about what goes in your pocket every two weeks).


There are two direct deposits made from your pay check: one to your savings account. I would say this should be at least 10% (depending on how much you put into your 401k and any other savings methods you use). The other to one of the checking accounts. Any alternate way of doing this is to have one direct deposit (if your job doesn't allow two or you don't feel like setting up a second) and then have automatic transfers from your primary checking to your savings and secondary checking account. 

The deposit to the savings stays there. Or gets transferred to further savings/investment accounts.

A portion of the deposit to the primary checking is transferred into your secondary checking accounts. Let me explain the difference between the primary and secondary.


Primary Checking: Houses the majority of your money and should be used for paying your bills. All of your bills, or as many as possible, should be automatic debited from this account on a monthly basis. 

Secondary Checking: Houses your disposable/entertainment income. YOUR SPENDING MONEY GOES HERE. This way, once you're out. You're out. And you cannot dip into your bill or savings money. It is strictly prohibited!

Three important rules for bucket budgeting:
1) No over drafting
2) No transferring additional "spending" money because you ran out
3) NO CREDIT CARDS!


This budget forces you to live within your means. Many financial advisers will attest that the number 1 way to stay financially stable is to learn to live within your means. Once you've done this...everything else is downhill from there.

This budget prevents you from having to micromanage your finances. All of your direct deposits and automated transfers move your money around for you. All you have to do is watch it go and only spend what you've given yourself. 

The article points out that this budget also creates "artificial scarcity" and forces you to learn to live on less. I agree andddd I love, love, love it!


WHAT I'D LOVE FROM YOU: If you try this and it works, comment and let us know. If you try this and it doesn't work, comment and let us know why not!

Curb Your Spending: Brew vs. Buy

Us twenty somethings are serious about our coffee. And while this is okay with me...we need to be equally serious about our spending habits early on...

While I drink for taste (always getting decaf because I don't consume caffeine)...I'm still as addicted (ok maybe slightly less) as my peers who cannot go a day without their morning (or afternoon) cup of joe. Since I've made my job transition, I've picked up a very bad habit...spending $4 a day on my 'grande decaf no foam skinny vanilla latte' from Starbucks. If I'm in a good mood, I'm getting a pastry too.

A regular coffee from Stabucks runs about $2.20 (I've got the specialty drink disease). I hear some smarty pants out there rolling their neck and saying, "Well that's why I get my morning cup from McDonalds or Dunkin' Donuts. It's good and slightly cheaper. I spend less than $2 a day on my morning cup of Joe." You think you've outsmarted me. Think. Again.

A morning cup of coffee brewed at home cost about $.17/cup (6-ounce cup). So let's say you get 12 ounces with your store-bought cup...that same cup, made at home would cost you $.34/day.

I'll cut to the chase.

By buying ground or whole bean coffee from the grocer you would spend about $80 a year on coffee.

By going to McDonalds or Dunkin'Donuts everyday you are spending $480 a year on coffee.

Andddd for me, the specialty coffee whore...by buying a $4 flavored latte from Stabucks on the daily, I am spending $960 a year on coffee.That Howard Schultz is a fawkkkking genius. By the way, Starbucks sells a pound of whole bean coffee for about $12. This makes about 45 6-ounce cups which converts into $.58/day for a 12-ounce cup. This means $128 a year. Still a come-up.

You know what you could do with an extra $880 a year? No...not save it...

Buy a pair of really nice, red bottoms.

(Although for those of you who thought "save it" first...nice work, you're learning. I needed to make a bigger point though. The red bottoms make a big point.)

Note: These calculations are assuming Mon-Fri, 48 workweeks in a year (bc most folks get 4 weeks vacay and holiday time off)...so 240 days. If you get coffee on the weekends and your off-days...you can recalculate for 365. I just would prefer NOT to see those numbers. smh.
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*Introducing: Curb Your Spending*
I received an email from a reader and she would love to see more on spending. She asked for one post. I decided, wouldn't it be fun to have a segment called "Curb Your Spending" where I talk about spending habits and advice on a regular basis.

Debit Diet: "Where da, where da cash at?"

I'm in complete reform mode. Last night I did my federal tax return, started on my FIVE state returns (traveling all of the time has it's cons), and put together my debt snowball budget! I'm happy to say that my snowball has me paying off all of my debt (with the inclusion of my private school loans and the exclusion of my federal school loans) by the time I'm 30. I will see my first major payoff (credit cards) by May 2011 and I will have paid off a small school loan by the beginning of 2012. My car loan and larger school loans take a little longer but either way it goes...I'm stoked!

In addition to implementing the snowball, I came across another one of Dave Ramsey's amazing ideas that I am very excited to share! Dave Ramsey's....

Cash Envelope System

The way it works:

1. Label envelopes with different budget categories such as, food, miscellaneous, entertainment, gas, etc. Dave says you can do this for all of your budget categories but for me, I'd probably only want to do it for the ones I actually spend money on throughout the month. I have no need for a bills envelope because I pay all of my bills via automatic debit, which many of you may do as well.

2. Once you get your paycheck, you cash the amount of money you are to spend on these categories, and put each respective amount in its envelope.

3. As the month goes on, whenever you make a purchase, you take the money for that purchase out of its rightful envelope and you record the purchase on the envelope. Once all of the money in an envelope is gone, you can no longer spend money from that category.

For those of us who don't want to carry a lot of cash on us, or fumble around with 5 or 6 cash filled envelopes, we can do the same thing with our debit card. Instead of putting cash in the envelopes, we can make a debit card purchase, then record the purchase on the respective envelope and insert the purchase receipt in the envelope. Once we've reached our monthly max in any category, we can't use our debit card for those purchases anymore until the next month.

I'd like to add a component to this that I don't think Dave came up with. Once putting this into practice for maybe three months or so, I'd like to challenge us to deposit any excess money unused at the end of the month into our savings account. Of course that money could rollover to the next month but in order to help with discipline I think it would be more beneficial to get used to being limited to a specified amount of money each month. If you don't use it, you save it. Just a nice way to beef up the savings over time as well.

I'm going to implement this spending system in March. I shall let you all know how it goes! And  for those who would like to take the journey with me, let me know!

P.S. I wanted to name this post...Don't be surprised when she ask...."Where da cash at?"...and I would've, but it was too long.

Ta ta!

New Years Resolution: The 50/30/20 budget

I read an interesting article on MSN Money discussing "how much you should spend on..."

The writer discusses a very simple question I'm sure we all ask ourselves everyday: "How much should I be spending?"

She then suggests the 50/30/20 budget:

• 50% of your take home (after tax but before insurance and 401k deductions) should cover your "must have" expenses which include, rent, utilities, transportation, food, insurance, minimum loan payments, etc. Any purchase that can be delayed for a few months with no serious consequences is not a "must have" expense. Anything you're contractually required to pay is a "must have" expense.
• 30% of your take home pay goes towards your "wants." Vacays, clothes, eating out. The trick here is that some bills may overlap in the "must haves" and "wants" categories. Internet and television is technically a want but if you have a contractual obligation it would go into the "must have" category.
  
• 20% of your take home pay should go towards savings. Remember minimum loan payments go into the "must have" section but any payments you make on loans above the required payment would fit here. Additionally all retirement savings including 401k, IRA and stock investments are included here. Last but not least, your emergency savings fund fits here as well.
  

The writer adds that it takes time to get to these percentages. Starting out she was at about 60% for must haves. It took a year for her to get to 50/30/20.

I quickly computed my ratio as of now and came up with 60/20/20. I'm sure if I take a more in depth look those ratios would become a little less pretty.

Take a look at your ratio starting out 2011. Where can you shift things around? Are you spending more in places you should be spending less? What goals have you set for long term spending and saving? Challenge yourself to achieve a new ratio by 2012.