Wednesday, March 27, 2013

Learning to be a Pessimist - Budgeting

It sounds odd to be encouraging people to be a pessimist but when it comes to your money I feel it is the best way to be. The future is unforeseeable but I assure you having money is going to be needed. Is money the most important thing? The simple answer is no but this isn’t a simple issue rather is having a healthy, happy family the most important thing? Most people would answer yes to this.  Part of helping your family is reducing stress and that means a stable roof over your head and food on the table. It sounds pretty easy but there are a lot of families that during 3 months out of a calendar year they can find either if not both of these things in jeopardy. The misconception is that it is only the poor or those that don’t work but the truth of the matter is these same issues often affect the working poor and even members of the middle class.

There are many catch 22’s people run into from clothing, childcare to transportation and other things we may not really think about until they become an issue in our own lives. If you don’t understand ‘catch 22’ here is an example: You need a car to get to work to make money but you need to go to work to make money to get a car. It’s like asking the classic question which, which came first the chicken or the egg?

Now I’m not trying to step on anyone’s faith so excuse me if I skirt a bit close on this one. I’ve often heard it said that things will be fine or provided and that one only needs to have faith. While faith can help strengthen ourselves it doesn’t always mean that if your bills can’t be paid that magically you’ll come up with the winning lottery numbers. It is hard work and perseverance that primarily play a role in if you can break the cycle of poverty and juggling bills hoping that the next check does not bounce. A little bit of faith and prayer can’t hurt but it shouldn’t be your only course of action. You have to evaluate where you are at and budget accordingly though I won’t lie it does take many years and sometimes a helping hand.

So let’s say that is where you are at in life and you are receiving benefits (such as food stamps and/or housing assistance, etc.) there is nothing to be ashamed of but you have to want to remove yourself from that situation and know that it won’t be easy. Case in point, my husband and I had just had our second child and we were living only by Section 8 and food stamps while he was in college and so was I. We could have very easily fallen into the forever student status so that we could dodge our student loans. And, just scrapped by with little part-time or the random minimum wage job. There was a clear possibility of that but some of the steps we took help avoid this. One, we went back to get educations in fields that were more often hired for. While there are many people good at art or enjoy history the truth is it is hard to get work in those fields that will allow you to get a livable wage. Two, we saved. While we didn’t receive the large tax checks that have been happening these past few years we did get money back and instead of new furniture, a bigger TV, etc. we elected to put the money back after we got caught up on bills. We lived as though that money wasn’t there sitting in the bank account for the most part other than a family outing we may not have otherwise been able to take.

It can be hard to climb out and when my husband was finally offered a job at the hospital we had to sit down and really talk about it because suddenly we were going to lose WIC, Section 8 and Food Stamps all at once and that was a scary thought because even though we had been trying to save taking a hit like that was going to take away our small little, “Oh **** Fund.” We had to make the hard choices and decide what was going to be better for our family in the long run.  

To get to the heart of the matter you need to ask yourself, “What if?” What if you lost your job tomorrow? What if the car breaks down? What if someone gets ill? We don’t like to think about these very negative things but the truth is they are a reality of possibilities and if you are prepared then perhaps you can weather through and bounce back more easily than if not.

The ideal is to have enough money put aside that you can pay your bills (including food and fuel) for 6 months. That’s a pretty daunting thought isn’t it! For my family that would be $18,000 if you were to look at our current household budget but that is not getting rid of anything and living as we are right now. As much as I’d like to be to that point someday the truth is my husband and I talk about these things on an unplanned annual meeting (more like idle conversation) and we talk about what can be turned off, what payments can we lower because we are currently paying more than the minimum and what action would we take if something big happened. It may sound like we are all doom and gloom but having that plan is no different than talking to your children about what should they do if there is a fire in the house. It doesn’t mean there will be a fire in the house but rather it is a plan to try and help you come through safely.

My course of action of trying to build our “Oh **** Fund” is a pretty simple one. Each year I try to raise the amount in our savings. If we had $100 in the bank account and we got some sort of state for federal return I’d say, “I want to keep the bank account at $500”. By saying this I am saying that unless there is an emergency (a car breaking down, someone is sick, etc.) that we do not touch this amount. We do not go out to eat saying to ourselves that we will pay ourselves back later. For some people it may be better to put this money into an actual savings account so that you can’t write checks or use a credit card to access it. Each individual has to decide truthfully how much willpower they have and how good they are at keeping their records up to date. The goal is that even if something happens and you have to tap into it that you bring it up to that amount again as soon as possible. So let’s say you have $700 in the bank but your car repair is going to cost you $250. If the $700 was money saved (not for bills) and you had told yourself that $500 was your emergency fund then count it as $450 left in your emergency fund the goal is to tap as little into this fund as possible and then build it back up as soon as you can even if it is just emptying the change in your pockets into a jar saving something is better than nothing!

The other problem many people run into is they look at things like, “Oh that’s a cute pair of shoes and they are normally $50 and I can get them for $10!” Big mistake if you don’t need them and if you don’t have money put aside into a clothing budget (which I suggest you make, especially if you have children). While that might be a really great deal if you haven’t saved money in your clothing budget or you aren’t willing to use your entertainment money (I also suggest budgeting for entertainment so you don’t become burnt out working constantly without some downtime) then put the shoes down and walk away.

For some people using an envelope system works the best. They can put cash in each category to make sure there is enough. I don’t quite trust having that much cash around me so work electronically. You can use a program like Microsoft Money or you can easily write it down or use Excel to help track your budget, actual expenses, and potential and actual savings.  There are two clear ways to go about using these systems either 1. You can do a roll over system that means if money was not used in one category that it can be saved in that category (works best with the envelope system) for the next month so maybe if you didn’t buy any clothes last month and put money aside then this month you would have more money. Or my personal method is money not used goes into savings to rebuild or increase my “Oh **** Fund”.

The goal here is financial stability but that does not mean you will be off of all government resources but hopefully what it will mean is you won’t find yourself at family and friends doors asking for help or at the pawn shop. My dearest hope is that people will find a way to put a little bit of money to the side so if their car breaks down or someone needs to go to the dentist or doctor that it will not be beyond your reach because your health and a stable household help with lowering the overall stress inside the home and therefore help increase a happy family lifestyle. Many relationship problems spring from financial problems and it’s a very sad reality but one that can be worked on.

Be willing to ask yourself the hard questions and learn to be honest with yourself and practice self-control. The truth is there is no easy fix for everyone’s situation and luck does play a small part but it is only a small part. Ultimately hard work and determination will be the key factors.

Remember: What if…..

Eventually you might be asking yourself ‘what if’ in a more positive way.
What if you saved for a family vacation…

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