Archives For budgeting

Cars are expensive, that’s pretty much a given. Whether you buy a brand new $60,000 car or a used $5,000 car, it will most likely put some kind of a dent in your wallet. Getting the best deal is key when searching for a new car for yourself. The best deal doesn’t just apply to the dollar amount, you also want the best value and something that will not break in a couple of weeks.

Now that my fiance is a sales consultant, I feel like I know all about cars and all of the tactics that can be used. Not all salesmen are bad people! I will say that now. This is something that I believed before he became one, but now that I personally know one, I feel like I know how a dealership runs.

And while I will say that most of these will probably work for you, I also want to say that most car dealership are not making a lot of money off of your actual car purchase. Most of the time his dealership takes a loss on cars when selling them to customers, and that’s because customers these days seem to research the car buying process so much (hopefully like you!).

Car dealerships are mainly shooting for repeat business, such as with you coming back to the service department for routine maintenance and repairs.

Below are some tips so that you can get your best deal and value when buying a new car.

Plan your visit

This is a important step in the car buying process. Just going into a dealership with no plan will usually result in you leaving with an expensive car that you most likely could have bought for cheaper.

Usually at the end of the month, dealerships are trying to beat their goals and therefore will try and give you the best deals in order to get there.

Also, most believe that they should wait until the beginning of the year so that they don’t have to pay sales tax twice, however, most dealerships will take that property tax total off your car purchase if you buy in December anyways if you just ask and explain to them that if they can’t give you an equivalent discount, then you’d rather just wait until January.  And since December tends to be one of the slowest months because of the misconception of extra property tax payments, they will also most likely give you a big discount in order to get you to drive off the lot in their car.

Also, in December most car dealerships tend to try to clear their old inventory. Some car dealerships are not allowed to place the new year’s cars (such as when it’s 2013 and there are still 2012 cars on the lot) until ALL of the old cars are gone. Therefore they will most likely give you a good deal so that they can start placing new inventory on the lot.

Just ask

Now, I’m not going to say that car dealerships NEVER make any money from selling new cars, because they obviously do every now and then or they would rather just operate as mechanics and an auto body shop. However, sometimes people go into dealerships and just take the price as is and don’t even try to haggle.

One time a customer came in and was telling my fiance that she wasn’t sure about the car because of the price. He then said “well ask me for a discount and then I can ask my manager.” She said “oh really you can do that?” He then explained that unless she asks, he’s not allowed to ask for anything lower of course. So he then went and asked and she got a discount.

The only thing bad that could happen when asking for a discount is a simple no, but most of the time they will say yes and counter with SOMETHING. Something is better than nothing right?

How did you get the best price on your car?

Starting a Budget

Michelle —  August 20, 2012 — 5 Comments

When someone says budget, there’s always someone out there who lets out a huge groan. But let me tell you, budgets are not always boring! If you have an end goal in mind, maybe it could even be fun to beat your goals.

A budget can help you save for different things in your life: a house, car, college, and so many other things. You can save more now, in order to have what you want later. Or you can track your budget in order to make sure that you are on the right track.

Now, I don’t specifically track each category in my budget (even though I probably should), but I do make sure that I’m spending the amount that I want/need to.

We don’t spend more than we bring in each month, and whenever we make a purchase, we think about how it’s going to affect our cash flow, money situation and so on. As long as we stay within our budgeted amount, I am happy.

When budgeting, there are many things to keep in mind, but after a while, it’ll all come very easily to you. Try not to feel too intimidated at first, as that is how it will probably feel to you if you have not budgeted before.

Steps:

Know your full income. Many people who receive their first check from their first job are shocked by the amount that they pay in taxes. Make sure that the budget you are calculating is after-tax, or you might have a big problem. Taxes eat up a big part of your income. I’ve always heard of stories of people who would buy a house, car, etc. without knowing exactly what their after-tax monthly income would be. They would just take their annual salary amount, divide it by 12 (which is another mistake because paychecks don’t easily divide like that) and buy everything off that salary.

Determine how much you want to spend. What’s your goal? Do you want to save the complete other half of your after-tax income, put 30% towards debt, or something else? Also determine how much you want to spend in each category. I’ve always heard to not spend more than 35% of your income on housing, but of course in some areas where cost of living is more expensive, this is not always possible. Right now, our housing (mortgage, property taxes, insurance, etc.) is around 15% of our after-tax income, it used to be much more though.

Be realistic. If you’re always spending 50% of your income (or some other amount) on restaurants, clothes or something else that can be considered a “want”, then do not allocate an unrealistic number such as 20% to your “fun money” budget. Be realistic about where you are spending, and then use each budget month as a way to improve your budget :)

Include entertainment in your budget. Having no “fun” money in your budget. Making a budget and saying that you will never do anything that will require money is most likely not very realistic. Include at least a little bit if you have room for it.

Check your budget once a month. See if anything needs to be adjusted (or maybe even lowered!). This is a big step when it comes to budgeting! You need to see and make sure if your budget is actually working for you. There will most likely always be something that needs to be adjusted, and maybe you can even find areas that you can decrease, or allocate to other areas.

 Why I budget:

  1. To feel financially secure. I make sure that I spend less than I bring in, and this is so that I feel in full control of my financial life and so that I feel less stressed. I want to be able to pay off my debt and retire early.
  2. Not to sound selfish, but I also budget so that I can buy what I want and feel a little less guilty when I buy things that I do want.
  3. To travel. I love to travel and by having a budget, I am able to do more of the fun things that I want to do.

  Why do you budget?

One of the most important financial lessons that I have learned in the past few years is the importance of living below your means. If you are unfamiliar with this term, it simply means to spend less than you earn. In today’s culture and the numerous everyday expenses that come up (like insurance, rent, food, transportation, etc.), it can seem almost impossible to stay within your budget.

I know from personal experience that this can be difficult. My wife and I live in one of the most expensive regions in the United States. We make very modest salaries while both of us also go to graduate school.  Despite the apparent difficulty of living on less money than you earn, it isn’t impossible.

How My Family Lives Below Our Means

As I mentioned, my wife and I live in a region of the U.S. with one of the highest costs of living. If I were to tell you how much we pay for rent (for a 1 bedroom apartment without laundry or a dishwasher), you would probably faint. In fact, when we moved here so that I could pursue my graduate studies at a seminary, I nearly did the same thing. Considering that my wife and I had just graduated from college with little or no professional experience in the workforce, I knew it was going to be difficult to earn enough money to pay all of the bills.

Even though the primary purpose was for me to go to graduate school, I knew that in order to make ends meet, I would have to work part-time to help with the expenses. I ended up getting a part-time job on campus for 30 hours a week. This meant that I would have go to school part-time and extend my degree 1 year. While extending my degree an extra year was not my favorite thing in the world, it meant that I could graduate without any college debt.

We ended up both securing jobs and finding as cheap of an apartment as possible. My wife’s job was horrible (she was a street canvasser who was force to work regardless of whether it was raining, snowing, or over 100 degrees outside), but it ended up having some nice benefits that helped us through this time. Even with both of us working, we were forced to bring lunches to work, eat out only 1x per month, and limit our entertainment options.

What Living Below Your Means Offers You

It takes a lot of work to begin spending less than you earn, but living below your means offers you a lot of benefits. Here are some of the basic things it gives you:

  • Ability to Save: One of the most basic ideas is that if you are spending less than you earn, you will have extra money to save for the future. This is important because we all experience “rainy days” and need to have some sort of emergency fund to protect us from a financial disaster.
  • Financial Freedom: Living below your means allows you some financial freedom. Because you are not strapped for cash and have some cushion, it means you can pursue things that seem really important to you without having to worry about not paying all of your bills. This is especially important because some people feel tied to a corporate job that is doing more harm to the world than good. Spending less money than you earn allows you the personal freedom to resist these oppressive systems without worrying about having food on your table.
  • Ability to Give Freely: One of the most important things, in my opinion, is the ability to give to those in need. If you are living paycheck to paycheck, you aren’t in a great shape to give to those in need. By limiting your spending, this frees you up to contribute towards making this world a better place.

Living below your means is important because it not only takes away the stress of paying your bills, but allows you the freedom to follow your dreams and help others. If you constantly struggle with giving generously, as I have in the past, it might be time to reconsider where you are spending your money.

Budgeting Is Not Complicated

Corey —  January 25, 2012 — 3 Comments

Does the thought of budgeting make you shudder? Do you think you need complex formulas or advanced software to create a good budget? Don’t worry! There’s nothing mysterious about writing down your income and expenses to see where your money is going. Once you understand the three simple parts of a budget, you won’t have any problem creating your own.

Income

The first section of a good budget should be your income. Include all sources of income that you can use for giving, saving, and spending. It helps to have three columns for your information: one to give it a name, another for the average monthly amount, and a third for the yearly amount. You’ll use this same format for your expenses as well. If your income is irregular, figure out what it usually is for a year and then divide by 12 to get an average monthly amount. List all sources of income you can think of. Anything you leave out is likely to be spent without a good purpose.

Expenses

This is where you’ll list everything you spend your money on. The best budgets track giving, savings, and taxes in addition to the typical household expenses. You’ll also want to make sure every dollar is used for some purpose and there is nothing left (positive or negative) when you subtract your expenses from your income.

It’s easiest to start with your fixed expenses – the ones that don’t change (at all or by very much) from month to month. This usually includes rent/mortgage payments, insurance payments, some utilities, and debt payments among other things. You’ll usually be able to figure these out with little effort just by checking your bills or bank account for the past month or so.

Figuring out your taxes can take a little more effort, but it’s easy if you use a tax software program and good calculator. I like to use Dinkytown.net’s U.S. 1040 Tax Calculator for federal taxes. State and local taxes are usually straightforward and based off your federal AGI (adjusted gross income). Social Security and Medicare taxes are generally 7.65% of your income (or 15.3% if you’re self-employed) until you get over $110,100 (in 2012). After that you’ll pay only the 1.45% for Medicare taxes (or 2.9% if you’re self-employed). Recent legislation has reduced the employee’s portion of these taxes by 2.0% to 5.65% (or 13.3% if you’re self-employed), but this is currently a temporary cut through February 2012.

When you’ve determined your savings goals, it’s a good idea to place those in your budget as well. You’ll want to do the same with your giving – whatever you have decided in your heart to give, put it in your budget.

I left the variable expenses for last because they typically require the most work. These are the things like groceries, gasoline, some utilities, personal expenses, entertainment expenses, gifts, and other items that can vary from month to month. You might have to track your spending on these things for a couple months to get a good feel for how much you typically spend. Whenever you spend money on something in these categories, write it down or keep the receipt. Then figure out how much you spend on average each month for each item. These are also the items you’ll really need to watch when you’re trying to stick to your budget.

Finally, don’t forget to include irregular items like car repairs, some insurance premiums, taxes and fees, and medical expenses. Plan on setting aside a certain amount every month for these items even if you don’t need the money that month. This will help you make sure you have money available for those expenses and get you away from living paycheck to paycheck. Also, don’t forget those pre-tax deductions your employer is taking out of your paychecks. It’s good to know where every dollar of your money is going so you can be sure you’re managing it well.

What’s Left Over (…or Still Needed)

If you’ve given every dollar a purpose and are spending less than you earn, you shouldn’t have anything left over when you subtract your expenses from your income. If you find you have a lot left over, give it away or save it for a specific goal. If you need more to make ends meet, look at how you can increase your income or decrease your expenses. Don’t use credit cards or loans as a fix for your budget problems!

Get Started Today!

If you don’t have a budget already, right now is a great time to start putting one together. You’re not going to create a perfect budget today, but it’ll get better over time. You don’t need fancy software or websites to make your budget. Use pencil and paper or a simple Excel spreadsheet. I use a Google Docs spreadsheet myself.

You’ll find some detractors of budgets in the personal finance world. They say this because so many people find it difficult to stick to a budget. Now that’s a different issue from creating a budget, and I’ll address it in a future post. I’ll be the first to admit that sticking to a budget is not easy.

But just going through the process of writing down all of your income and all of your expenses can be a major eye-opener. Don’t worry so much about sticking to the budget at this point. I’ll give you some tips on that later. What you do need to realize is that this process is valuable – even if you fail to stick to the budget!

Whatever methods you decide to use, make your budget your own. Don’t worry about whether you’re doing it the “right way” – just do it! Once you have control over your spending and a thorough knowledge of where your money is going, you’ll be able to manage all aspects of your personal finances much better. Feel free to share your budgeting tips in the comments!

       Poverty has been on my mind for some time now. What is poverty? How do we measure it? How do you overcome it? How do you live in it? Each of these questions (and more) warrants a post or several posts of its own. But that last one is what I want to talk about today.

       I’ve been wondering what it would look like if my wife, Michelle, and I had to live in poverty. What would we have to give up? What would we spend our money on? What would life look like living in poverty?

Poor Family from the 1940s
 

Defining Poverty

       In this case, I’m going to define poverty according to the 2009 U.S. federal poverty level guidelines. For two people, the poverty level is $14,570/year. This level applies regardless of where you live in the U.S., which doesn’t make much sense to me since the cost of living varies so much by location. But perhaps the areas with a higher-than-average cost of living adjusts the poverty level guidelines for their assistance programs. That’s something I’ll have to look at in another post!

       I could use a different measure for poverty – a global measure, for instance. But the disparity between the global poverty level guidelines and the U.S. poverty level guidelines is extreme. Based on a $2/day/person poverty guideline (World Bank threshold), we’d be looking at $1,460 or 1/10 of the income for the U.S. poverty level. I can tell you right now that would mean giving up everything except food. No shelter, no transportation, no clothing purchases – absolutely nothing but food…and not much of that.

       So for this article, I’m going to use the federal guideline of $14,570/year which is pre-tax. I’m not going to include food stamps, federal/state health coverage, or tax refunds (namely, the Earned Income Credit). Some studies have shown that the poverty level income would be 30-40% higher if such benefits were included, but I’m going to stick to the $14,570 number for the sake of simplicity.

What Would Our Spending Look Like?

       If our annual income were $14,570, our monthly income would be just over $1,214. Here’s what I think our monthly budget would look like. Some of these numbers are based on actual expenses now and some are based on what I estimated after making changes to our lifestyle. I’m assuming we keep our current jobs.

Category Amount
Income $1,214.17
   
Giving $130.00
Saving $106.70
State & Local Taxes $39.46
Health Insurance $76.93
Rent $400.00
Renter’s Insurance $11.08
Groceries $150.00
Utilities $120.00
Auto (Gas, Maint., & Ins.) $130.00
Other (Household & Personal) $50.00
   
Total Expenses $1,214.17

What We’d Have to Give Up

       So the next question is how would this differ from our current lifestyle? Well, first we’d have to move. We’d have to find a place for 2/3 of the rent we’re paying now, and it would need to be closer to Michelle’s job to cut down on gasoline costs. A different place would also likely cut down on our utilities. This would be a major change since we’d have to move away from our family, friends, and church but not very far – just far enough to make it inconvenient but doable. We’d also likely be living in someone’s basement or sharing a place with another family for rent that cheap.

       We’d have to give up the excellent health insurance we have through Michelle’s work and buy a no-frills $10,000 deductible plan that doesn’t cover office visits or prescriptions. It would only cover serious catastrophes like cancer. In contrast, our current insurance has a very low deductible ($150/$300, I think?) and covers office visits and prescriptions for a low co-pay. We’d also be giving up our dental insurance, though I’m not sure that’s much of a deal anyway.

       Speaking of insurance, we’d have to decrease the coverage on our auto insurance to the state minimum levels and increase the deductible on Michelle’s car to $2,500. We’d also have to think about selling my car but that wouldn’t be completely necessary. Decreasing the coverage limits could expose us to some serious risks if we were to have an accident – likely resulting in bankruptcy if it’s a major accident.

       I don’t mind that we’d be paying less in taxes. But our giving would have to go down and that wouldn’t be so great. We’d have to make some tough choices there. All of our saving would most likely be short-term savings to cover the deductibles for our insurance policies.

       We’d have to spend less on groceries but not much less than we currently spend. I don’t imagine there would be any problems there. We’d just have to limit our meat intake and replace it with beans instead and shop a little more carefully. Eating out would be out of the question. We’d also need to cut our household and personal spending in half.

       Beyond that, we’d have no cell phones, no Internet connection, and no TV (that last one’s not any different from now, but I’m just saying). We wouldn’t be able to pay my student loans unless we gave up saving or giving (or some of both), but forbearance or an income dependent plan would be an option at that point. We’d have no money for entertainment or travel of any kind, and every dollar would need to be meticulously tracked and spent with care. As it is now, I don’t track what we spend our ATM withdrawals on completely so that would have to change.

       So while it wouldn’t be easy or “fun” to live on this budget, it would be possible. But we’d have no chance of saving anything for retirement, buying a house if we wanted to do that, or doing anything that required money outside of this budget. (That means no more sewing or jewelry making for Michelle. My hobbies don’t really require any money right now I think.)

Living Off Uncle Sam (or You, Rather)

       I didn’t include government benefits in that budget, but if I had things would have worked out quite a bit better. Between Section 8 housing, tax refunds, food stamps, health coverage from Pennsylvania, and utility assistance programs I think we could live at pretty much the same standard we currently enjoy. (Except for the housing part…that would likely be a major decline.)

       These benefits would probably comprise at least 25-40% of our budget in this scenario. At that rate, we could probably afford cell phones, an Internet connection, auto insurance at our current coverage, our normal household and personal spending, my student loans, and even some entertainment. Or we could choose to save that money, invest in ourselves (to increase our income), or give to people in more need than ourselves.

Possible But Not Enjoyable

       I’m not making light of this scenario. I’m certain it would still be stressful and emotionally draining, but it wouldn’t be impossible to live this way. (Though I’m having difficulty convincing Michelle of this. :))

       I think the reason I can say this is because Michelle and I are pretty content. We don’t have to have the latest gadgets or fashions. We are naturally frugal people who don’t enjoy spending tons of money. We have low-key hobbies, can entertain ourselves, and know how to cook. We’re also disciplined enough to say no to ourselves on the non-essentials. All these factors combine to make it easier for us to live on less than most people in America. (I don’t say this to boast but to simply point out facts. Many people get sucked into the culture and go with the flow without question. Neither Michelle nor I have ever been ones to follow the crowd.)

       I’m thankful we’re in a situation where we don’t have to make these choices. God has blessed us with all that we need and then some. But I struggled with creating a sample budget for this scenario, and I now have a slight understanding some of the choices people are forced to make when they’re living on so little. I say slight understanding because I don’t think you can truly comprehend what it’s like to live on that kind of income until you’ve done it.

Your Thoughts

       Do you think you could live at the federal poverty level? What would have to change for you? What would you have to give up? Share your thoughts in the comments below!