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Tuesday, September 23, 2014

Minimalism in your finances - the importance of a budget

OK...  now that you have looked at you home, diet, social live and work....  let's take a closer look at your budget... and then you'll be able to make the right choices for you.

OK maybe you didn't follow all my advices and suggestions from the last few posts and are panicking...  no worries...  You can still read this post and do the work... and go back on the previous ones later on.  The only part you'll need the work done from the previous post is the very last part of  this blog... but even then, you may be able to answer nonetheless...

Now those who know me, may find it funny that I write about money.... after all, 7 years ago I went bankrupt...  and up until fairly recently, despite the bankruptcy, I made flaky money decisions...  which caused me even more trouble! However, having learn from all of that, I wish to share with you what I have learned and and few "mistakes" you can avoid... although, I do not believe in "mistakes" but prefer to call them lessons or experiences.

In today's world, it is SO easy to spend money!  More easy to spend then to make! And even easier to have no clue where the money goes... because we are no longer spending money but rather using all kinds of plastic cards to buy stuff... Now, here's my opinion on all that plastic:

Fidelity card:  they are a trap...  to be loyal and to get more points, you'll buy stuff you do not need to meet your number of points required for such a date to get such a discount over the next month!  What do you do with the discount?  Buy stuff you may not need to use the discount!  Therefore, you may spend hundreds of dollars to get a 30% discount... which you will use on more items you buy...   how many items did you have to buy?  Are you really using those? Another down side of fidelity card it that you end up no looking what is available elsewhere and at what price... because you need to get the points! Ditch them all!!!!  I have no fidelity card at all in my wallet... no points card either...I shop where and when I want for what I really need...  No one can force me to go to a given store to get a future discount! Not anymore anyway...  I use to have lots of fidelity cards!!! I do not even want to begin to think at how much moeny went down the drain because of my "addiction" to get points to get discounts!

Auto-reload cards for a specific store (especially restaurants and coffee shop):  Those can be useful if you always get your coffee on your way to work at the same place...  but only set them on auto-reload directly from your bank account - NOT A CREDIT CARD!  This way you will know exactly how much is spend weekly or monthly on you daily coffee and snacks.  If you use them that way, almost become cash anyway...

Credit Card: Ditch, Ditch, Ditch I currently have one credit card and it was used for emergency in the mean time that we build savings for emergency.  However, the convenience of having a credit card in your wallet is that if you really love something, and can't quite afford it just yet, you will pay with credit assuming you'll have the money when the bill comes in.  Guess what?  Most likely you will not have all of it and end up paying interest on the rest... My credit card has not been in my wallet for 2 months... I am only using it for my Netflix membership which is 8$.  I pay it monthly... and working on the balance...  it should be down to 0$ by Christmas.  And it is never going back in my wallet.  Credit cards can also be a trap to shop on-line... If you have to get some stuff on-line, banks now offer a debit cards that can be used for such a purpose... if you are afraid that someone will use your number to empty your bank account, use a specific bank account only for that and transfer funds when need be.
A note on on-line shopping:  Be careful... it is so easy... and convenient... and everything looks so attractive and cheap....  but still use the same rules as when shopping in a real store:  wait for 24-48 hours before buying... most of the time, the desire will fade away!

Debit card:  Although they are convenient if you do not want to walk around with money, they can also be a trap...  if you are not sure how much is left in your bank account...  and comes the end of the month, you may be short on a few bills to pay... You should try to pay as much as possible with CASH!  This really makes you think twice when you pull out money from your wallet.  And when there is no more, you need to wait until the next pay check! Lesson learn for the nexr week!

Paying as much as possible stuff directly from your bank account at fixed dates and everything else with cash was a suggestion I got when I went bankrupt - because part of going bankrupt involved my husband and I sitting down for an hour to get budgeting 101 course.

Don't get me wrong, I had a budget prior to going bankrupt... I was not THAT stupid! lol... I only did not respect it because of credit card and line of credit flexibility... Not having any of that for a few years actually makes you think twice if you want to eat...

Your budget should include, at a minimum, fixed expenses that cannot be avoided (even though avoided can be discussed for a long time, take what is unavoidable to you now at this moment):

Housing and utilities (heating, phone, cell phone, Internet, cable, insurance...)
Car payment, gas and maintenance as well as registration and insurance
Other form or transportation
Medical care
Savings (emergency and retirement)
Paying of debt - if you wish to go debt free one day

And YES you should have savings in there EVEN if you still have debt... 

You budget could also, if desired other stuff like:

Coffee shop/Restaurants
Activities (gym, gold, yoga, movie, theatre, shopping...)
Clothes replacement
Household stuff replacement

Without going specifically into details and numbers, I can tell you what my budget is like:

Housing and utilities : 32% (we only have one cell phone, Internet, Netflix, small insurance, rent and electricity are combined.)

Transportation: 4% (we walk or bike everywhere, in the winter we use some public transit)
Walking is cheap and cuts down other exercises fees as well

Food: 31% (we do not eat much but fruits and veggies are expensive where I live)

Savings:  17%

Which leaves us with about 16% for paying of debt and another expense my husband has (I won't share this has it is his...)

We currently do not have room for other stuff as our income just covers our needs...  and some savings and paying of debt.  Whatever comes up that is not cover in this budget comes from the savings account...  however, in the short term, we are expecting an increase in the incoming money and this increase will be divided between weekly allowance to all 3 of us and more "savings" to account for clothes/furniture replacement... However, being a minimalist does make those 2 very scarce...

Now saving is personal, what you do with that money is up to you... I know I like to have about a month of living always aside... I am not quite there yet (since moving to Moncton cost a lot and made a whole in my savings account) but I am working on it. Then I would save for small get aways...  3-4 days long....  this is what we love to do.

Now, you may think, "well who does she think she is telling me how to budget?" - Well, here's the catch...

If you are anything like I was not even a year ago...  or anything like almost anyone on the face of this planet living in an industrialized country, you are living pay check to pay check, have a number of debts divided into mortgage, car payments, credit cards and line of credits...  Loosing your job or slowing down is nearly impossible without facing a money crisis...

Let me ask you this:  "Do you really know where each or your hard earn dollar go?"
And this:  "If you budget has a left over everymonth, like it should, why do you constantly need to use credit?"

And here comes in the importance of the other subjects I covered in the previous weeks... If you've cleaned up your home, perhaps you can sale some of the stuff to pay back debts... or create savings...  If you've chosen what social activities you like, maybe you can save money there too... by letting go what is not so important.

I keep saying that the point to minimalism is not deprivation but choice... the budget my husband and I created reflect our priorities for now... creating an emergency funds, paying off debts AND eating plenty  of fruits and veggies...  this is where our priorities are therefore we've downsized everything else! In the mean time... a budget is not fixed for life... it can change however often you need...  As long as you know what are your essentials, the rest can move up/down as often as you need to.

For my husband and I, going to Starbucks is important... it is a place where we have nice discussions and we were not ready to let it go, therfore we maed it part of our food budget... if for you, an expensive car is essential or COACH purses are...  it is not a problem...  you only need to make a place for it in your budget...  and putting them on credit is NOT a solution in the long run!

The thing with credit is that somehow, we are unconsciously aware that we have money issue... and it sneaks up on us... in our sleep... and it stresses us...  even if you try and convince me otherwise, I won't believe you!

This is why doing all the previous exercises in my post regarding your home, wardrobe, social life...  can help you figure out what is important... TO YOU!   And that allows you to choose WHERE you want to spend your money...

And the post about work was also important in the sense that if you want to switch job... to do something you love... you need to know HOW MUCH money you can make from that job... and see how you can adjust your budget and lifestyle to get to the point where you can actually do that job!

It took me years to get there... and I had to make choices and change my lifestyle...

This is why I live in a small apartment, bike or walk everywhere, own used furniture that were almost all given to me... and dress with less... much much less... because I wanted to live on LESS money so I can earn less doing what I love!

See where it all ties in???

CHOICES!!!!  over and over again we need to make choices... the right one for us!

Adjust your lifestyle, change your budget, do work you love, be happy and less stress...  It is all related!!!

Now, do you have any questions for me?
Anything you'd like me to develop more on?
Do you need help?  If so tell me how I can help you?

thanks for reading!
and please share if you like this blog!!!


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