Stephen is a terrible procrastinator

Would you believe I wrote this in December? Thinking it would be a great post? And then did nothing at all, neither posting nor budgeting?

A budget plan for next year:

1. Get last year’s spending recorded and itemised as far as possible.
2. Apportion that spending into categories at some sort of sensible level.
3. Think through any changes in habits that might increase or reduce spending in those categories.
4. Based on previous steps, work out monthly expenditure
5. Note the big regular things (like annual insurance premiums, car registration) and tweak provisions for previous months to make sure there’s enough.

Better late than never, I say. The last couple of Sundays I’ve snatched an hour here and there and I’ve nailed everything I spent and everything I’ve earned in the last tax year, whipped up a spreadsheet or two to break it down monthly and set myself some targets for various categories. And the first Sunday of every month from now on, I’m going to track my progress.

I took the opportunity to take my number crunching back a couple of years. I noticed more spending on power, more spending on groceries, and more spending on air travel. I’m not sure there’s much to be done about that. I refuse to be cold over winter, and until we’ve bought a house, we’re stuck where we are. I’m pretty sure the increase in food costs really reflects prices going up. And because of my family circumstances, flying me to my daughter or my daughter to me has to happen regularly.

Unfortunately, there’s still a giant hole in my data. Remember early on in the piece I wrote about  tracking every last cash purchase? I thought of that as an interesting exercise, so once I felt I’d learned from it, I stopped. That was a really bad idea. What I should have learned, but didn’t until too late, is that recording things only works as a discipline against impulse spending if you keep doing it. Now it turns out that I have withdrawn actual thousands of dollars in cash from ATMs and I don’t know where it went. And unfortunately, it looks very much like that biggest blowout from 2009 compared to 2008 was in cash, somehow. I dunno. Maybe I’m buying illicit drugs in my sleep or something. But anyway, it’s shameful.

I am dealing with this in three ways. First, I’m going back to recording everything, every day. If it turns out to be annoying, I’ll let that provide more incentive not to spend. Second, since I don’t pay EFTPOS transaction fees, I’m going to make a real effort to put everything I can through EFTPOS so it will get recorded. And as noted, I’m marking my calendar to do budget updates so I don’t fall off the wagon.

Expect riveting posts in a month or so about how this is turning out.

Budgeting on an annual basis — what an eye opener

Part of buying a house is getting a mortgage; part of getting a mortgage is figuring out what repayments you can afford; figuring out what repayments you can afford requires budgeting; and to make a budget, you need to figure out what you spend already.

I use a program called Gnucash to track our spending. I export statements from internet banking, and Gnucash sucks the data in and categorises it.

Now I often run reports on a monthly basis in Gnucash, but there’s an obvious thing I should have been doing but only just thought about now.

Obviously, there are a lot of expenses that only happen once a year, like paying our insurance premium. And there are other expenses that are irregular, even though they’re certain, like holiday spending, or going to the doctor. So the right way to work them out for a monthly budget — we both get paid monthly, so that’s the best way to work it out for us — is to total expenses over a whole year, and then divide by 12. Or maybe even over two years, and divide by 24.

And what a sickening revelation that was. It turns out that there are things that I think of as “one-off” that really are recurring expenses, just not frequent or regular ones. For example, we spend quite a bit flying around the place visiting friends and relatives. I drink a lot. I buy $40 of books every month, on average. And so on.

The only comfort is that our grocery bill tells me that I am a supermarket ninja. We eat well on only $125 per week, and that includes a fair amount of wine and a teenage girl 12 weeks of the year. But apparently I have a long way to go in other departments.

I do sort of have a system for irregular stuff. I have an account called “bills” and put a fixed amount in it every month, and pay all the bills out of it, so if some months we spend less, there’s a buffer building up for the months when we spend more. But maybe it’s time to actually do a real business-style budget, with a forecast for the coming year, and a monthly update to track actual spending against the forecast.

As always, your suggestions on budgeting for irregular, infrequent things are welcome.

Budgeting for Beginners

It became apparent to me a few days ago that a person I was speaking to had little to no idea how to budget. And I was surprised. Very surprised. And this is because budgeting is actually the easiest thing in the world.

Here’s the theory. If you’re on a salary, or regular waged hours, then you have  a fixed income. And that’s a good thing in budgeting theory, because you always know exactly how much you have to spend. The scheme is that every payday you take this amount and subtract your fixed costs. These will usually include accommodation, utilities and food. Everything left after you subtract the fixed costs from your fixed income is what they call “walking around money”. Simple, aeh?

How I manage my own budget and easily work out my walking around money is to run the old two-bank account scheme. In this scheme you have one bank account into which your income gets put. Then you have a second account that your fixed costs come out of. The trick is to have an autopayment that goes out of your “income account” and into your “costs account” on the same day as your pay. This means that your costs get yanked out of your spending money before you even see it.

Or put another way, everything in your account on payday is spending money!! Or… savings. But that’s another issue. Let’s just get out bills paid on time first of all.

The only problem with this scheme is that not all costs are actually fixed. The mortgage or rent is usually the same every week, but things like power and food bills vary from month to month. What I do then is to guess roughly how much the utilities will be, and get the autopayment to cover that amount, plus a little more. I do the same with food. After all, the costs account is only there as a holding account. If there’s heaps of excess money I can always recover it.

The only worry with this system is that I might draw more money out for say, a christmas food bill, than I have in the account. But really the question there is checking on how much is in the account just before the accommodation costs are drawn out, and making sure the rent is covered. For power bills, just check how much you spend in a particular calendar month and set aside a little more than that amount for the same month this year.

If you’re just plain bad with over-spending on food bills, or the power bill fluctuated wildly, then run three accounts. One for spending, one for accomodation, one for non-fixed costs. That way if the food and bills account is in trouble, you’ve still got a roof over your head.

The good news is that if you’re reading this site then you’re probably interested in making sure that you don’t wildly overspend…

As I say, this system has worked for me for years. Having the rent and bills removed early means I know exactly how much walking around money (read: pub money) I had. As long as I didn’t blow the whole lot on wine and loose women I could always chip a little more money into the costs account if it was running a little low. And likewise, if the costs account was consistently in credit at the end of the month I’d draw a little out as a reward!

Ok! Questions!

Followup: sugar, and making things from scratch.

I see we had a very informative comment from Mellopuffy, who has solved two mysteries. In comments on this earlier post, Able Commenter Weka linked to the Food Cost Survey published by the Department of Human Nutrition at the University of Otago. That prompted a long but inconclusive discussion. What did that 400g of sugar per week mean? And second, why are some of us consistently spending far less than the survey suggests is normal?

Mellopuffy writes:

I just went and had more of a squizz at the info pack – the sugar is the amount included in all products that would be consumed over the week (including processed foods, any biscuits, baking, ice cream etc.). They have used the food groups discussed in the Food & Nutrition Guidelines (e.g. breads & cereals, fruits & vege, protein sources, dairy products) to determine a balanced diet for the average person per week, then done a breakdown of the foods themselves to determine how much of the basic purchasable constituents would be required to make these up (I think the milo is included as a commonly consumed caffeine free hot beverage). So the 400g for an adult man would be spread amongst all foods containing added sugar (as well as discretionary intake such as in cuppas). It might seem like a large amount, but processed foods do contain a lot more sugar than many people realise and many NZers think nothing of including cheap ready made items in their grocery baskets (as is evidenced by the food item suggestions included in the report). If you’re baking cakes muffins, biscuits or muesli bars at home, many recipes include around a cup of sugar or equivalents (approx 250g) per recipe.

I do think that where many of the commenter’s savings are being made is via the ‘making from scratch’ ethos. The Otago study will be coming from the standpoint that this behaviour is not the norm in contemporary NZ society. Indeed, they refer to the Basic category as one in which people prepare all food at home, yet the shopping suggestions for meeting the budget in this category still includes bought crackers & biscuits, ice cream, basic pasta sauce etc. I don’t see anything particularly ‘disturbing’ in this, just that the study aims to reflect patterns of food consumption as they currently exist across NZ society. Also, for Nutritionists & Dietitians to make effective recommendations and suggestions about food related spending, recognition and accommodation of these habits is more effective than issuing instructions that someone who’s never baked in their life (and doesn’t have the time to either) should start making all their own bread and bikkies in order to be able to eat affordably.

If any other commenters want to write gargantuan, fact-packed comments that save us the trouble of composing a post, please do.

[Editorial from Che: In fact, if you want to write a fact-packed post like this for our site, we welcome them, we’d like this to be a community blog.]

Impulse then and now

I should have realised there was something wrong when I noticed that I had memorised my VISA card number. Evidently I had typed those 16 digits often enough that my fingers just knew what to do.

When I were a lad, in the 1970s, frugal people had certain guidelines or rules to prevent themselves from coming unstuck. These included:

• leave your wallet at home;
• don’t carry extra cash;
• wait a day before making any unplanned purchase.

(I know this, because my parents subscribed to Consumer magazine and I read something to that effect while perusing their vast stock of back issues at the age of 9 or 10. Like Jesuit training, my dormant but recently-awakened frugal instincts probably owe their hardiness to early indoctrination.)

Apparently there is research out there showing that credit cards and debit cards make it easier to spend, because we are blissfully unaware of the effect on our balance. Hence why we get caught short of funds at the checkout. How did that happen? Because we lost track of where we were.  It is much harder to accidentally run out of money in a cash-only world. (Unless you have so much cash, burning a hole in your wallet, that it seems as though it would be hard to get through it all).

That’s bad enough, but unfortunately, online retailing has greatly reduced the psychological barriers to unwanted spending even more. It is only recently that I have learned to stop and wait and introduce a cooling-off period before typing in the fateful 16 digits.

I now make it a habit to do a few things before I buy stuff online.

• I ask myself whether I really need it;
• Where comparison sites like Pricespy or Ferrit exist*, I get a benchmark price;
• I check the second-hand price on Trademe;
• I check my balances and see whether this will put me over my self-imposed limit for the month;
• I bookmark the page so I can come back to it later (which I often don’t).

What are your strategies for avoiding temptation, when it’s just so easy?

*(Yeah, I know, Ferrit is an e-commerce disaster, but it is quite handy for finding out what you should pay for a blender).