Budgeting is an essential practice (in my opinion) though many people don’t do it. I used to be one of them. Up until only a year or two ago I spent when and what I wanted to and was never in danger of having my electricity shut off. Or so I thought. Turns out that, no, my electricity wasn’t one payment away from being turned off but it may as well have been. My bills were always paid and paid on time, there were always groceries on my table, and there was always water coming out of my taps and heat out of my registers. So I was in great shape, right? Um… no.

While my bills were being paid and I had food to eat, diapers and clothing for my child, and money to put gas in my car, I had nothing in savings and a whole lot of credit card debt. I used to think that because I wasn’t $10k in debt I was alright. I just had the one credit card for awhile, a VISA, and then when I bought my house in August 2007 I decided to begin switching banks and took a MasterCard through the new bank, mostly for the points earned on every dollar spent. In the case of this MasterCard, I could redeem those points towards groceries. I figured if I was using a credit card I may as well use the MasterCard instead of the VISA. Win/win, right? And I didn’t do too badly as far as debt goes when comparing myself to others that I read about and watched on shows like ‘Til Debt Do Us Part (love that show!!) but since this was my life and my debt, comparisons had no place in the picture.

One day I sat down with my online bank statements (I’m a huge debit card user and rarely carry more than $20 or $40 cash) and, going back three months, tallied up the amounts for each of those months lumping the figures into the categories of bills (ie: utilities, insurance, etc), groceries, gasoline, bank fees (my account only allowed for 10 free transactions and then charged for anything beyond that), a few others that I can’t remember now, as well as miscellaneous, which included all of my personal spending like books, yarn, fabric, and all the non-essential just-because-I-feel-like-it-and-want-it expenditures. I also totaled up my income per month. I was absolutely stunned. Beyond stunned. I was disgusted. I was spending almost as much each month in just-because purchases as I was on bills and essentials. And, of course, most of it was ending up on my credit cards; though only some was actually money I didn’t have, it was easier to use the card and pay later. I tried to pay as much as I could at the end of the month but of course it was never enough. That day was the start of my turnaround and it’s still a work in progress.

Prior to That Day, I had briefly used Pear Budget for budgeting, which at the time had a free version. (It’s now a free trial and then $3 a month.) I found it easy to use for the most part but it wasn’t what I was looking for. There were too many areas that felt rough to me or that didn’t do what I wanted them to and I made a few sporadic fresh starts before I gave up altogther.

In my sidebar is a link to the program I now use - YNAB (You Need a Budget). I don’t remember how I came across YNAB. It may have been by googling budgeting programs or on the Mothering.com forums. YNAB is everything you’d want and more. I’m currently using the Pro version but very soon YNAB3 will be coming out and it looks absolutely amazing. It’s not a free upgrade but I think I’ll be picking it up anyway just for the tweaks and new features. Check out some of the video clips here.

YNAB uses zero-based budgeting, which means that every dollar is assigned a job and your income minus your total expenses is equal to zero. Dave Ramsey refers to this as spending your month’s income on paper before you spend it literally. Wikepedia says:

The term "zero-based budgeting" is sometimes used in personal finance to describe the practice of budgeting every dollar of income received, and then adjusting some part of the budget downward for every other part that needs to be adjusted upward. It is more technically correct to refer to this practice as "zero-sum budgeting". (link)

Initially you may be living paycheque to paycheque but the goal is to get one month (or more) ahead and live off of last month’s income. I’m still in the process of getting enough "extra" money in my buffer category so that I can stop living on each paycheque as it comes in. Once established, that buffer can also provide padding for any unforeseen expenditures so that instead of taking money from the grocery budget (for example) to cover an overage in the auto repairs category, the groceries can be left as is. My budget has categories for both savings and an emergency fund as well as a buffer. In my budget, the Savings category is for savings (new car, new house, my own private tropical island?), the Emergency Fund is for those unforeseen expenses, and the Buffer is for working towards accumulating one month of income.

Zero-based budgeting allows you to plan for infrequent bills or events such as a tax bill or car insurance payments or a yearly family vacation. Each month you budget a small amount (whatever you’ve figured that amount should be) and when that bill rolls around due the money is sitting in that category ready to go. I pay my car and house insurance every four months so each month I budget for 1/12th of the annual amount. When April, August, and December arrive I have accumulated the amount for that 4-month portion and all I have to do is pay it; I don’t have to find an extra chunk of money in my budgets for those months. Likewise, saving for a family vacation is painless. Sit down and figure out how much you expect it to cost and depending on how far in advance you are planning, divide by the amount of time until that goal. A trip costing $1500 if planned 10 months in advance will require approximately $150 set aside into the "Vacation" category each month.

A zero-based budget works for me and YNAB makes it easy. It has helped me to see that I am wealthy. I am not able to go on frequent trips or eat out five times a week or buy the newest designer bag but I don’t want to. Budgeting has helped me to see just how much (or how little) of my expenses are essential and, once those are taken care of, how much is left over. I have money I never knew I had. And I enjoy the challenge of seeing where I can cut expenses to save even more money. As Kate Luther posted over at Wisebread:

By allocating money for absolutely everything, you can fine-tune how much you spend on eating out, going out and pleasure spending. Simply tweak your numbers until they fit with your income and you’ll discover that you can live on a budget after all.

And as Scotiabank says, "You’re richer than you think."

I still spend money when and how I want sometimes but before I do I have a picture of my financial position at any given time of the month or year. I can see at a glance where I have some freedom and where I have to tighten up. Budgeting isn’t something to be afraid of though is does take time and commitment. I’m still a work in progress but I’m enjoying the process. YNAB is making it easier for this first-time budgeter and I couldn’t recommend the program more. Regardless of which program you use, if any (a simple Excel spreadsheet will work if you know your way around that program), the trick to budgeting is to jump in and start it. You can’t do anything before you do that.

There are so many great blogs, sites, and articles on budgeting that I can’t list them all here. These are a few of my favourites: Wisebread, Mrs. Micah, Easy Budgeting, Get Rich Slowly, and No Credit Needed.

What method of budgeting do you use? How have you found it to change your habits and your way of thinking?

I am in the process of switching banks due to my first bank not working for (or with) me, just one step in my New Me financial journey. For the past several months I have been using (and loving!) YNAB as my budgeting program and it has been so helpful in planning and saving and making me more aware of what I have to work with. I am looking forward to continuing that personal and financial growth.

The other day I jumped on the 1001 Day Project bandwagon. One of my goals is to use only cash for groceries (no debit cards) for a period of one month. The hope is that I will learn that it really isn’t so scary after all not having that "cushion" and safety knowing there’s more money in the account if I need it. Additional hopes are that I will finally get started on a price book so I will have a rough idea of what my groceries should be costing me before I get to the checkout, and that with the increased use of cash, there will also be an increase in coins. Actually that cash-coin thing isn’t a hope. It’s pretty much a given. Those coins are going to find themselves all snug and cozy with other coins in a jar. At the end of the 1,001 days, I will counts those coins, faint from excited delirium, and then recover and take them to the bank to deposit straight into my savings (or emergency fund if I haven’t yet reached my goal amount).

Savings coins works for me. I’ve done it in the past on a much smaller scale so I’m very excited about a 2.75-year coin-saving spree. Bring it on! Head over to We Are THAT Family for more tips, ideas, and examples from over 225 other bloggers.

PS: Blogsome ate my previous attempt at this point. It was much more eloquent and flowing and less non-eloquent and choppy but I have a nap calling my name and a clock that keeps reminding me I only have three hours before I have to be sitting at my desk at work for night shift. I can’t re-do eloquent or flowing today.

What are you saving for?

I’ve mentioned before how much I love You Need a Budget. I bought the pro version of the program last summer, looked at it briefly and used it half-assed for a couple of weeks and then didn’t touch it again until December. I wish I had started using it sooner. It’s so simple to use and seeing money accumulating in my categories of Savings and Emergency Fund makes me want to save more. Really. Seeing it in black and white and seeing amounts grow from month to month works for me. I love how I can put $15 or $20 in a category each month and when January rolls around and I get my yearly water bill, I have the money to pay it without having to deprive other areas of my January budget. I do the same for my insurance payments (which I pay every four months) and my hot water heater rental (which is due every three months). I love the accountability and when I see the figure climbing in my savings accounts, it makes me not want to do anything to jeopardize that. It only took me 30 years to understand that a budget is the way to go. I wish I had started years ago.

I’m saving for a three-month emergency fund and for home improvements. I have $5470 on my LOC and I want to pay that off and get the balance back to zero. I also have approximately $1200 on my MasterCard to pay off. I’m putting regular amounts each month towards those. I know that some recommend gathering that emergency fund first before putting more than the minimum towards debt but I’m tackling both at once. My debts are so low that I don’t want to carry them. I have only the one credit card and the line of credit. I used most of the $7000 LOC (to pay down the credit card (yes, it got out of hand a little; however, I’m delighted to say that I haven’t used it in over a month) and I need to pay back the LOC a bit before I’ll feel comfortable using it on the credit card again, which I will do to pay off whatever remains because obviously the interest rate is so much better.

On the home improvement front, I have a window I’d like to add (above the toilet in the bathroom) and a window to replace in the living room, the last of the windows to be done. I’d love to take out the carpet in the living room too. It was put in after I bought the house so it’s not old but I’d also like to take out the linoleum in the kitchen and put in wood (laminate) to unify the spaces (the kitchen is open concept) and in order to create a dining area in the kitchen end of the current living room space. (That’s a post for another day though; no room for pictures today and no pictures to show.)

The bathroom is awful. This picture is from when I was moving it so the cabinet now has its drawer back in, the shower rod has been changed, and there is not a shower curtain. Everything else is the same. The only things I don’t mind are the floor (which needs new grout) and the cabinet. The tiles are on all four walls of the bathroom floor to ceiling and are pink and I am not a pink-loving girl. My plans are to take down the tile, replace the drywall behind it, put in a tub surround and new counter (the counter is cultured marble and the basin is crazed with big ugly lines), replace the awful mirror/medicine cabinet and lights, replace the taps in the tub and sink, put in that window, and take down the ceiling, which is beyond popcorn or blown and well into "dripping Cool-Whip". I’m thinking I’ll likely use beadboard on the lower portions of the walls and regular drywall above. The grout in tiles will either just be freshened up (currently brown, which I don’t mind) or changed to natural. I’m not sure on my colour scheme but I’m thinking a nice spring green and white and an accent colour of something else. Deceisions, decisions… I’m hoping to have it down by late summer so let the penny-saving continue!

I hate needles. I barely make it through the times that a blood draw is required. Like today. I had made a doctor’s appointment in relation to seemingly inexplicably putting on 15 pounds over the last year, being very tired much of the time, and always being very cold (I’ve always been on the cold side - see the picture from yesterday in which I’m wearing two t-shirts, a zipped fleece hoodie, and a buttoned sweater along with slippers in a 20C (68F) house and I was just comfortable). I haven’t had bloodwork done in a couple of years so I figured I was due. As luck would have it I hadn’t eaten breakfast this morning (rushing out the door) so I was within the timeframe of the 12-hour fast and was able to go straight over to the lab to have the blood drawn and the requisite urine sample provided. I wasn’t able to get in for a follow-up appointment until February 12, so it’ll be awhile before I know what, if anything, is going on.

It was a good day and a bad day and definitely a busy day. I left this morning to take B to school at 8:15 and didn’t get back home until one o’clock.

The good: a city employee passing by in a loader moved the snow from half my lawn and dumped it across the road. The entire lawn had been level or slightly higher than my front porch (which is seven steps high) and it was getting very difficult to shovel my driveway as it was getting harder and harder to get the snow tossed up there.

The bad: I spent $70 on clothing (for me and B) at Value Village today. The bad(der): I didn’t budget for clothing this month so I had to shuffle to get out of the red on my budget page. They were items that we need but not that we need, if you know what I mean. I picked up two long-sleeved t’s for layering for him and a pair of so-ugly-they’re-adorable sandals for him for this summer and some long- and short-sleeved t’s (for layering) and jeans for me. I have one pair of jeans that I wear regularly and they’re getting worn out. I wish I could find another pair like them but I haven’t been able to. I picked them up at the same store a year ago and they are the perfect fit.

I use YNAB Pro (You Need a Budget) for my budgeting and I love it! This is only the second month in a row that I’ve stuck with it but so far it’s working out wonderfully. I find that I need to enter my transactions the same day they happen or I get too behind then it becomes easy for me to just let it go. I’m actually excited for February to come so I can plug in all my numbers for that month.