Build My Budget

How do you and your partner manage your funds?

Do you have one joint account and separate individual accounts or do you share one account?

There should be one joint account and an understanding that debts affect both partners in the relationship. Without the trust that is required for this to be successful, the relationship may hit a rough patch.

Establishing a joint account helps address the issue that arises if there is a major disparity between your paychecks. This inequality in your paychecks can also seem like an inequality in the overall relationship, but there’s another major challenge that couples have to overcome in establishing their financial path.

Where are you two headed?

One of the most important discussions a couple can have is one that establishes the goals they have in common along with the things they’ll do to get there.

This isn’t just a one-time discussion, either. It’s an ongoing conversation that every couple needs to have.

For starters, both partners need to lay their goals on the table. Where do you each see yourselves in five years? Ten years? Twenty years?

Those visions for the future won’t always be perfectly in sync, and that’s where the discussions begin. Instead of looking at the differences, focus on the things those visions have in common.

For example, you might want a game room to entertain your guests, with a big screen TV, Xbox, and a few chairs and couches. This might sound great to you, but what if your partner wants a pool to lounge in? This can also entertain guests, but also comes with some fairly substantial upfront and ongoing maintenance costs. So you must discuss these types of big decisions to ensure you stay on the same page, working towards shared goals.

Ultimately there should be some commonality between your shared goals.

By joining forces via a joint account and sharing the burden of carefully managing each dollar of income that hit's that account, you can stay focused on your shared goals and perhaps make them a reality.

When you share a goal, there’s incentive to push each other to the finish line instead of grumbling about the effort wasted toward something one of us doesn’t care about.

Everything becomes easier when you get on the same page.

So you’re in a relationship and it's starting to get serious. You’re thinking about marriage or some other form of long-term commitment.

Now what?

Quite often today, people are bringing significant debt into relationships with them. Credit card debt. Student loan debt. Auto loan debt.

I often get emails from readers asking me how to deal with them. Should they keep these loans separate from each other? How much debt should they really share?

This was also an issue that could potentially have become a problem when I got married. After some struggles, we eventually came to a conclusion that really makes the reality of these debts quite clear.

First of all, regardless of who actually owns the debts, they are now shared debts. When you’re married, your money effectively becomes a shared pool, whether or not you directly share that money or not. If one of you has a debt, the money to pay for that debt comes out of the shared pool. What’s left in that shared pool is smaller, reducing your opportunities as a couple to build towards other financial goals.

When we were married, for example, I had an auto loan and student loans and my wife had no debt. Luckily, neither of us had credit card debt, but I knew that very shortly we would need to replace her car.  Naturally, this meant increasing our debt load and taking on another payment.

At first, we each tried to handle our own debts. What we discovered, though, is that after covering these debts, we each had much less left over to contribute to the things we shared – rent, energy bills, food, and so forth.

Even though we were keeping our debts separate, the reality was that the consequences of those debts were shared. If the consequences are shared, then it follows that the responsibility for paying off the debts ought to be shared as well.

Which brings me to my next point: once you acknowledge the debts as essentially shared, the optimal way to get rid of those debts is to consider them all together. It should no longer matter who has the worst debt. What matters is that the worst debt is the one that you both focus on first.

When my wife and I reached this conclusion in 2008, we began to really work together to focus on all of the debts either one of us had. It didn’t matter whose name was on the credit card or on the car title. The consequences of those debts were shared, so we both benefit when any of those debts go away.

Doing all of this successfully requires complete openness. You can’t hide debts from each other. You can’t hide money from each other. You can’t hide spending splurges from each other.

Whenever you do these things, you are taking money out of that shared pool that helps you both get what you want from the future. You’re also being dishonest with your partner and, likely, you’re undermining your debt repayment plan and other financial plans for the future.

This type of dishonesty is acid to any relationship. It opens the door to other forms of dishonesty that can completey destroy a relationship.  I've seen it happen first hand and it's really not a pretty sight.

Any relationship where things are not completely in the sunshine is a relationship that’s eventually asking for problems.
If you’re not comfortable with that openness, then your relationship needs work. This goes beyond mere finances. It’s an indication that there are trust issues in your relationship and as long as those trust issues exist, you’ve got a gigantic fault line in your relationship that can easily erupt into a earthquake.

Simply put, share your debts. Regardless of who brings them to the table, you share the consequences, so you should also share the effort of eliminating them. Working together will also help you to pay them off in a more optimal fashion. 

Whether you are bringing the debts to the relationship or just helping pay them off, if you work together to budget, live lean, and focus on your goals you'll find that you can overcome the situation and find yourselves stronger than ever.

Keep Budgeting!

Chris

Yes, I've finally accomplished a goal I set out to achieve long ago.  I finally convinced my wife to cut my hair.

For someone like myself, who is constantly trying to find ways to make their money work harder, this is an excellent way to squeeze extra dollars out of the monthly budget which can be otherwise used to increase savings or pay down debt. By cutting out an $18 biweekly haircut at the local Hair Cuttery, I've managed to save approximately $324 throughout the rest of the year. (which is great right now because I really want to purchase an iPad2)

So what can you find in your budget to save $324 extra bucks to pay down debt, increase savings, or use towards your own iPad?  Here are ten things you can do today to make sure you save $324 or more by the end of the year.

1) Cancel your newspaper or magazine subscription: Perhaps one of the easiest ways to save a few bucks right away is to cancel your newspaper or other subscriptions.  Nowadays you can get much of the same content for free online through various news sources and other websites.  If you live close to a library you can typically find recent newspapers and magazines there in additions to countless copies of books, videos and music.  The library is a great way to save if you are constantly consuming media and book content.

2) Get rid of your premium cable channels: One of my happiest moments within the last year was the moment I said goodbye to HBO and replaced it with Netflix.  Many of the shows and movies I liked to watch on HBO were on Netflix and I even saved $5-6 by switching.  It helped my budget and my patience, since I often had trouble getting my HBO on demand to work.  If you have more than one premium channel, you can potentially save even more.

3) Mow your own lawn: Here you can probably save more than $324 by the end of the year.  If you pay for a lawn service, you're probably paying from $50-$100/month to have your lawn manicured.  Cancel the service, locate and purchase some used lawn equipment in your local neighborhood or perhaps Craigslist and you'll be on your way to saving buku bucks by the end of the year.

4) Bring your lunch instead of eating out: Instead of eating out every day, get out of bed early and make a sandwich.  You could also prepare a lunch the night before and take that lunch with you to work the next day. If you're spending $7 a day, it means you're spending $1750 in a given year just on lunches.  If you skip even three months worth, you'll save $420! 

5) Make things like your own laundry detergent, or soap: There are so many things you can make to save you money throughout the year such as laundry detergent.  A simple formula can wind up saving you quite a bit over a year, just like growing your own tomatoes or baking your own bread can save money as well prove to be healthier options.

6) Save on electricity by turning your lights off or running your AC less: If you leave your lights on and fans running when you leave the room or constantly hear your AC running when it's nice enough outside to open the windows, take a moment to shut them off.  Wasted electricity or water, if you have a leaking toilet for example, represents your hard earned dollars literally being sucked down the drain.  By becoming more efficient at home you may easily save your $324 by the end of the year.

7) Break a bad habit such as smoking, or online gambling: Expensive habits such as smoking or drinking can be a huge drain on your financial situation. Eliminating an expensive habit can quickly improve your financial situation while also improving your health (which can also improve your financial situation by reducing health care costs).  It doesn’t have to be smoking or drinking either—habits such as online-gaming or shopping in general can prove to be expensive habits that prohibit financial health.  Breaking such a habit can prove to be invaluable to getting your finances back on track.

8) Skip your daily visit to Five Bucks (Starbucks!): It's tough to break a habit, especially if it's one that helps you get out of bed and moving in the morning.  Consider that if you stop just twice a week at Starbucks or your other favorite coffee shop, spending roughly $10 a week, you are spending more than $475 a year!  That's quite a bit of moola when you consider the weeks where you stop three, four, or five times.

9) Cut down on expensive hobbies: Are you engaged in a hobby that requires a lot of financial upkeep, like golf or collecting? Instead of continuing to spend on your hobby, watching it drain all your hard earned cash, try to find another activity you enjoy that doesn't require so much upkeep cost.  Perhaps exercising or reading a good book will do the job.  With a library card you can read all you like for a few bucks a year.

10) Stop trying to keep up with the Johnsons: Perhaps one of the easiest things to do to help you save $324 is to avoid trying to keep up with the Johnsons.  Do you find the need to purchase the latest clothes, shoes, video games, cars, boats, or whatever else that your friends or neighbors buy?  Well take a page out of any financial book and try to live like no others do, so you can live (debt free) like no others do.  Chances are by skipping the latest fad you can increase your savings in no time.

So whether you decide to try one or all of these suggestions, know that there are plenty of ways to save a few bucks here or there to help make your financial goals a reality. For me, the latest was the simple act of asking my wife to cut my hair and her lovingly accepting the challenge.  By eliminating haircuts from our budget we will save $324 by the end of the year which can gladly be use for something else.  Now I'm off to try to locate an iPad2--Does anyone know a store that isn't sold out?

What could you do with $324?  Leave a comment and let me know.

Chris
BuildMyBudget

Ever wonder what the big deal is about being debt free?  A little credit card debt doesn't hurt, right?  Wrong!  Especially now, credit card companies are charging minimum fees which can almost prevent you from every paying off the balance! So during a recent conversation with a close friend about her debts and why it is such a big deal, we pulled together a list of 20 fantastic reasons to be debt free.  Thankfully this list made her realize that now is the time to do something about her debt.

Here are the twenty reasons why you should make the decision too:

1.  You live in the present, not in the past.

2.  You no longer have to worry about late fees, interest rate changes, interest payments, lost payments or finance charges.

3.  Undoubtedly, you have a much greater peace of mind.  If something were to happen to you, your spouse or family wouldn't have to worry nearly as much about your finances.

4.  You earn interest instead of paying interest! (which is awesome)

5.  You become more aware of the value of a dollar.  In the past, if you could make payments, you could afford it.  Now, if you can’t pay for it, you can’t afford it.  This basic shift in thought will radically change your life!

6.  You will no longer dread going to the mailbox.

7.  You can afford to put away money in retirement accounts.

8.  You can afford to fund education savings accounts.

9.  You can be free from the emotional baggage associated with debt.  It’s impossible to adequately describe how good it feels to be debt free.  If I had known how awesome being debt free felt back in college, I would have gotten out of debt a decade ago!

10.  You can begin to inspire and encourage others.

11.  You can set a much better example for your close family and friends.

12.  You may be able to give more time and more money to those who are in need.  There are only three things one can do with money – give, save, and spend.  It feels good to save.  It feels good to spend.  It feels great to give.

13.  You now know that you can establish a goal, push through difficult times, and overcome your fears to successfully change your life.  These truths will help you take on bigger and bolder challenges and will help fuel your motivation.

14.  You can now make bigger plans.  I have learned to dream of a better and brighter future for myself and my family.

15.  You can spend a little extra on nicer things for my family.  In the past, credit card debt crippled me.  Now, with a proper budget and some forward thinking, I can actually plan for nicer things.

16.  You can disregard every credit card application that comes your way.  Simply tear them up when they arrive in the mail.

17.  You can establish a solid financial foundation.  With your debts eliminated and an emergency fund in place, you can rest assured you will feel much more secure than ever before!  None of us knows what the future holds, but I feel much better now than I did before I began focusing on paying off my debts.

18.  You can listen to your favorite financial guru and smile knowingly when callers request help to get out of debt.

19.  You will have a deep respect for those who have paid off much more than you paid off – and for those who are still in the midst of their debt reduction journeys.  I am constantly amazed by some of the debt reduction stories that I have read over the past several years.  Read a few blogs and you'll be amazed as well as motivated!

20.  You will be motivated to share your story with the world.  You can join blogs and forums, share your story, and provide support for those people who are where you used to be.  It's a fantastic feeling to help others and what better way than to share your true story of how you became debt free?

If you are ready to get out of debt and start your own journey towards being debt free with a strong financial foundation, start today by building a budget.  By seeing where you are heading financially you can make better decisions today about how to pay off your debts faster and reach your financial goals.

Have any other reasons to add?  Please share them in the comments and as always, keep budgeting!

Chris

BuildMyBudget

Recently I was discussing programs such as Dave Ramsey’s Financial Peace University and other such personal finance coaching programs with a few friends.

What they give you

These programs, such as Financial Peace University collect together several personal finance resources into one place. Typically, these programs provide a step-by-step plan for getting out of debt or recovering from a poor financial situation, such as bankruptcy, and offers suggestions on how to build a strong financial foundation.

Once you’ve ordered, these packages typically are delivered as a large package, containing books, workbooks, CDs, DVDs, or even instructions on how to access live seminars via the web. These packages try to reach out to all types of learners - those who learn from reading, those who learn from watching, and those who learn from listening to and having the opportunity to ask questions of a speaker.  Unfortunately, I tend to learn best when I can watch somebody do something, so either a video or live speaker work best for me.

Quite often, such coaching packages revolve around a series of seminars which function a lot like college classes: there are “assignments” of reading, writing, or DVD watching outside of class, as well as other personal finance tasks. The seminars themselves usually reiterate the material but focus on getting you excited and thinking positive - encouraging you and reinforcing the idea that you can do this, even if it seems impossible at the moment.

Although I’ve investigated only a few of these coaching “systems,” the mainstream programs (like Dave’s Financial Peace University) tend to package a good deal of valuable information with proven motivational techniques. It can have much the same impact as a physical trainer at the gym, providing the motivation and encouragement one needs to push themselves to the next level.

What they take from you

These personal finance systems aren’t free, however.  Typically they are relatively expensive, and if you’re already in financial trouble, another expense is often prohibitive if not a downright poor decision.  For example, the Financial Peace University package costs $119 and includes worksheets, books, a journal, software, and the opportunity to attend any FPU seminars you want. The version with DVD materials is even more, costing $229.

As I mentioned, for a lot of people that’s prohibitively expensive. If you’re working a minimum wage job, that could be as much as a week’s pay!  Even if you’re earning more, that’s more cash than you probably need or want to spend.

Another important thing to consider is that most of the information you’ll get from such courses is already out there.  Such courses rarely provide any significant new information that can’t be found for free at the library or on the internet by searching for “debt help” or by reading through the “debt” category at a good personal finance blog.   I know I’ve seen Dave Ramsey’s Financial Peace Revisited at the library and it contained much of the material in the course—all for free!

Should I or Shouldn’t I?

If you’re simply seeking out the information from these courses, I recommend looking for other sources, such as the library or the internet. You can find all the information you need for getting out of debt without the expense or annoying email advertising that you will be subjected to following a purchase.  Of course, the first step to building a strong financial foundation is to begin tracking your expenses and create a budget.

I think that the most valuable parts of these systems comes from the motivational support that they provide. Many people need step by step guidance on what to do today to start fixing their financial situation.  Many simply thrive on having a person motivate them to make better choices - dietitians and personal trainers are two examples of this—and can mean the difference between success and failure.

Of course, you also have the option of seeking out your own motivation. Find a friend who is in a similar circumstance who can serve as a watchful eye and motivator—and you do the same for them. Alternately, talk about your situation with the people in your life who do the best job of inspiring you to better things - and you’ll feel driven by their knowledge of your situation to improve things.

Of course, good old fashioned direct coaching is the best option for some people and if you’re in that boat, programs like FPU can be just what you need to turn your situation around.

As always, keep budgeting!

Chris

BuildMyBudget

Recently I was discussing ways to save a buck with some friends – such as using coupons or the library.  I also encouraged members to their share own ideas and received quite a response.

Below is the list of some of the best ideas. These aren’t in any particular order, but if you’re looking for some ideas to save a buck, here is a great list to get you started.

1. Make your own lunch. Instead of eating out every day, get your butt out of bed early and make a peanut butter and jelly sandwich!  Or, prepare a lunch the night before and take that lunch with you to work the next day. It can be leftovers, it can be a fresh meal (like a sandwich), but either way, it can cut into your costs tremendously and make a big impact on helping you reach your goals.

2. Break a Bad Habit. Expensive habits such as smoking or drinking can be a huge drain on your financial situation. Eliminating an expensive habit can quickly improve your financial situation while also improving your health (which can also improve your financial situation by reducing health care costs).  It doesn’t have to be smoking or drinking either—habits such as online-gaming or shopping in general can prove to be expensive habits that prohibit financial health.  Breaking such a habit can prove to be invaluable to getting your finances back on track.

3. Visit the library. How many times do you read a book and then place it on a bookshelf to gather dust?  Well, the library can singlehandedly save you money, by just borrowing books instead of buying them, but also save you time cleaning all that dust!  It can also save you on the cost of buying books, provide DVDs for viewing, CDs for listening, and many other interesting cultural experiences if you pay attention to the schedule of events.

4. Stop shopping for fun. If you shop for fun, you are probably in more trouble than you think.  Instead of shopping with your free time, find other fun things to do - almost anything is cheaper!  Leave the shopping trips for the times when you actually need an item, and budget for those items accordingly.

5. Cancel your cable. One of expenses I constantly argue with my wife about is our cable bill.  All it seems to do is provide you with more channels that repeat variations on the same content. Websites such as Hulu provide a good deal of the same content for much less than cable.  Or, you can get a digital converter box instead and watch the channels that come in over the air - ABC, CBS, NBC, PBS, Fox, and often others for free - no monthly bill!

6. Utilize direct deposit at work. Instead of receiving a paper paycheck, have your paycheck directly deposited into your checking account. This spares you the need to have to go to the bank to cash your check, plus relieves you of the temptation to have some cash taken out of the check when you deposit it.

7. Use online bill pay. Billpay saves you the expense of envelopes and stamps (roughly fifty cents per bill paid online), it also provides you the convenience of auto-calculating your bills and comparing them immediately to your checking and savings account balances. No more checkbook math necessary.

8. Start your emergency fund. An emergency fund is a cash reserve that can help you in the event of a crisis such as a job loss or an automobile breakdown. It’s easy to get one started, just sweep a small amount of money on a regular basis into a savings account, watch it build, and utilize that cash whenever you’re down and out.

9. Try the “envelope” budgeting system. Many people swear by this method, in which one actually budgets their money for a month using “envelopes.” Whenever you need money for, say, groceries, you take money out of the groceries envelope - when that envelope is empty, you’re out for the month. This forces you to be careful with your spending in all respects.

Personally, I don’t think this method is terribly realistic because I don’t think that one will put say, $56, into an envelope each month in order to pay a bill for $336 six months later.  One reason is because you would be losing interest that money could earn if you simply left the money in a savings account (although it wouldn’t be much).

10. Date Night In. Instead of going out on the town for entertainment, stay at home and enjoy the activities available in your own home. Most of the activities you can do at home - reading, watching television, exercising, playing games with friends, meditating, listening to music, cooking, etc. - are far cheaper than similar activities you might do out of the home.

11. Drink more tap water. Drinking regular tap water can help make you healthier (most people are dehydrated, even if they don’t realize it), fills you up (keeping you from overeating expensive food at meals), and is incredibly cheap compared to any other beverage out there. Take advantage of the tap - it can save you a ton of money on beverages, especially when you eat out!

12. Plan ahead for meals. At the start of a each week, sit down and create a plan of what meals you’re going to eat during the week, including what leftovers you will have for lunch the next day.  Then make a grocery shopping list based solely on those meals.  When you go grocery shopping, stick to that list. This is a great way to keep your food shopping bill low while keeping the food you want and need on the table.

13. Set up an automatic savings plan. The best way you can save is to pay yourself first, but If you’re getting your paycheck automatically deposited, consider setting up an automatic savings plan to have some of that money routed into retirement or into a savings account for an emergency fund. It’s much easier to start saving if the actual transfer of money happens automatically without your intervention.

14. Avoid Window Shopping. Shopping and looking at advertisements of all kinds - from television commercials to flyers from the Sunday paper simply serve to coerce you into spending money on things you don’t actually need. Minimizing your exposure to window shopping and advertisement minimizes the temptation to spend that money, keeping it at home in your wallet where it belongs.

15. Cook at home. Every time you purchase prepared food outside the home, you’re spending more than you would making a similar meal at home. Cooking at home also ensures the quality of the ingredients that you are consuming, as well as the opportunity to portion your meals appropriately.  Cooking can also be fun!  Learn how to cook at home, make your own meals, and save a lot of money.

16. Stop trying to keep up with the Johnsons. Don’t let the opinion of others influence the choices you make in your personal life. It’s not their life to live - it’s your life. Instead, make choices that will help you reach your financial goals - and don’t worry about what the Johnsons have to say about it.

17. Try the “ten second rule.” Whenever you are tempted to spend your money on something frivolous, stop and consider for ten seconds whether you really need this item and what you could otherwise do with the money you are about to spend. Ten seconds is usually enough - many people also recommend putting the item down and leaving the store, only returning if you’ve decided you actually want it after some serious consideration.

18. Eliminate expensive hobbies. Are you engaged in a hobby that requires a lot of financial upkeep, like golf or collecting? Instead of continuing to spend on your hobby, watching it drain all your money, choose a different path entirely - find a new hobby to focus your energy on that doesn’t require so much upkeep cost such as simply exercising or reading.  With a library card you can read all you like for a few bucks a year.

19. Be prepared to accept help from others. We all need help sometimes in life.  It’s easy to let pride get in the way of accepting help from others. Don’t let that happen. Be willing to accept help if others offer it, and be thankful for it. Later on, when your situation improves, you can pay it forward and help someone who needs it.

20. Create a budget that shows you where you’re headed. If you can’t seem to get a grip on your spending, try creating a budget that shows you exactly where you are headed financially. Spend a month or two keeping careful track of what you actually do spend on certain items, then set a spending goal for that type of item. This can help serve as a wake-up call and as a start to establishing good financial habits.

21. Try going on a diet. Many people recommended healthy dieting as a tactic for saving money, especially if you eat out a lot. If you make a conscious choice to eat less, not only will you save money on your food bill, you’ll also reduce your health care bill and perhaps your clothing bill as well (since it’ll be easier to find consignment clothes).

22. Stop reading women’s magazines. I think watching Oprah should be included with this, but several readers swear that women’s magazines are extremely effective at convincing you to shop for things you don’t necessarily need, convincing you that you need some item in order to keep up with the crowd. Spare yourself the guilt - skip those magazines, and any tv shows like Oprah that push products in the same fashion.

23. Sell your car. A car is perhaps the worst investment you can make. It can depreciate rapidly, break down at the worst possible time, and requires constant upkeep. Most people have almost an emotional attachment to their car, but instead of dealing with this, sell the car and make do with the other transportation options available to you - a bicycle, buses, trains, and so forth.

24. Set financial goals, and stick to them. Don’t think about how you wish things were.  Instead, sketch out exactly how you want your life to be in, say, three years, then focus all of your actions toward that goal.  Chances are you will run into roadblocks along the way so make sure you stick to your plan.  Not only can this cut out frivolous spending, it can also help you to make strong choices to improve every aspect of your life.

25. Take responsibility for your spending. Finally, try having a weekly or monthly review of all of your spending. Make yourself face the mistakes you’ve made - don’t let a bad spending move lie in the dust and be forgotten. Use it as a tool to make sure it never happens again and better yet, determine what you are going to do in your next pay period to compensate for any over-spending.

I’m confident that at least one of these tactics will help you achieve your goals, so get started!  If you have any you’d like to add to the list, please leave a comment.  Cheers!

Chris

BuildMyBudget.com