This is more of an opinion-piece and a collection if ideas that supplement things said in the first part. Topics it touches on include debt, stretching money, as well as my ideas on what to do with unexpected costs. Towards the end I note some maxims, presented in bold. Some of them are pretty far out, and were described by the word ridiculous by those who proofread. That aside the are still applicable to financial decisions you made especially using the process lined out in the first part.
PART II – Money Woes – What a budget can/can’t do
Budgets are exceptionally helpful, but at times your financial goals and your financial resources don’t line up in terms of amount and scheduling. Along with using budgeting as a tool, there are also two other methods to prevent over-spending. These methods stretch your money to make it seem as if you have more money than you make and in certain situations actually make your money more efficient because more of it stays in your pocket. The main idea behind both of the methods is that a budget is cyclic; in most cases monthly, so once the month is over you start from a clean slate. This is akin to living check to check, but in a much better way.
Staggering applies mostly to people who are paid every two weeks. Getting paid bi-monthly makes people usually do one of two things: load your bills on the first check, or the last check. The not so obvious third option is to stagger your expenses so you only spend half a check on bills/rent and the rest on something else. In this case you’re really just shifting around money, but it helps you psychologically because you’re never in a position to blow an entire check. The real magic happens when you can stagger bills on every other month, or at opposite ends. This is completely circumstantial, and OK if you really don’t mind being past due (and they won’t turn off your service). For example I have a cell phone bill that’s due on the 15th and the new bill gets calculated on the 21st. Also I can go two months past due and still have the service active. This way I can pay on the first of January and the beginning of March and just be one month past due.
Stretching money across multiple budget cycles allows you to increase the amount of overflow and keep more of your income in your pocket. Borrowing is another option, the number of sources are innumerable, but we’ll focus on credit cards. The use of credit cards is a slippery slope, but under careful supervision and moderate usage it can stretch your money 10-20%. This is the situation: you pay $100 a month on your credit card as a part of your bills, always. You’ve budgeted $75 for your cell phone but this month it was $100. Instead of going over your budget (because you shouldn’t be overspending), you charge the cell phone bill ($100) and you pay $175 to the credit card bill leaving $25 (+ monthly accrued interest) on the credit card to pay next month. The beauty of this is that if you zero out your active credit card debt, you’ve got an extra $100 in the budget that goes into overflow.
On the topic of budgets, one of the things that I didn’t mention was how to handle unexpected costs and debts. In short the answer is that you don’t. You do not budget for unexpected costs because you’ll never have enough; you do one of two things (or both). Borrow from a credit card, someone else, or yourself (overflow OR savings). These costs should never figure into your budget and debts as well in general. Never pay debts unless you have got money to throw away. Your money is most useful in your pocket, so don’t give it away unnecessarily. Debts do affect your credit score so pay them off at your leisure and IF you have a goal to pay off a loan, then budget it into bills. Always knock out bigger loans first.
The following are my individual points of view on financial topics:
Using Multiple Bank Accounts
Multiple bank accounts may help you organize your money better, I have three accounts I use for various purposes, and two of the accounts gain interest at an infinitesimally small rate.
- Checking – I spend out of this and it is attached to my bank/checking card.
- Proxy Checking – I deposit all of my money into this account and it holds any overflow
- Savings – I put all of my savings in this account and I don’t spend any money out of this except for special planned cases and overdraft protection.
Conventional Saving
By conventional I mean throwing money into an account and letting it sit. This method of “saving” does absolutely nothing for your money because it doesn’t grow. If you save, invest in something whether it be low interest bonds, high risk stocks and loans, or retirement funds like 401k’s or IRAs. Real estate is also an option, but setting money aside is only the first step and doesn’t MAKE you more money. Also, letting your money sit makes other people money since banks invest money you put into savings so they can meet and exceed their bottom line.
Under-spending is more important than saving.
Debt
Debt is a good thing. Debt is a staple of the American capitalist financial system. As our currency isn’t backed by anything worth selling, the concept of debt is synonymous with the concept of an IOU. Look at it this way, most of the wealthiest people in the world have the greatest shares of debt, while some of the freest people with no debt are homeless. Don’t get me wrong not managing your debt is bad, but having it isn’t the end of the world either.
Borrowing from yourself
You will always pay someone else back before you pay yourself. Thus never borrow from yourself; there are enough sources out there to find one that suits your needs. Always make your money work for you; so keep as much as you can in your pocket. Investing money is the same as keeping it in your pocket because eventually you get a return on your investment.
Living Expenses
A general rule of thumb is that you don’t use more than 50% of your monthly income on living expenses. With apartments this usually equates to rent and insurance, but with houses this equates to mortgage, insurance and property taxes.
In conclusion, ALWAYS ALWAYS ALWAYS make you money work for you. Never let your money get away from you without your permission and planning beforehand. There are very few situations where you absolutely have to pay now, so always delay for today what you can spend tomorrow. The goal is to always under-spend and never to spend what you don’t have.
