Category Archives: Budget

All Work And No Play Makes Budgeting Miserable

It’s arguably the most famous quote from one of America’s most popular horror movies. “All work and no play makes Jack a dull boy,” uttered Jack Nicholson’s character, Jack Torrance, in the 1980 thriller “The Shining.”

Turns out, all work and no play makes me a very dull person, too.

I’m not talking about the writing process – which slowly drove Nicholson’s character insane – but the budgeting process. Years of meticulously tracking, recording and weighing the use of every dime earned, budgeting can start to feel like monotonous, tedious work. “A penny saved is a penny earned,” goes one of Benjamin Franklin’s oft-quoted epigrams, published in Poor Richard’s Almanack. But save too many of those pennies, and you’re liable to follow Jack Torrance’s lead and go crazy.

Saving Money Is Hard Work

If you’re a hard-core money manager, you know that living on a budget is hard work. It means allocating the funds for your day to day needs, weighing the pros and cons of potential budget busters and preparing for potential financial disasters. No matter how you track your spending, you know keeping tabs on your daily, monthly and yearly expenses requires restraint and foresight, with the ability to prioritize your needs over your wants.

The Budgeting “Needs”

The first step in setting up a budget on which you can live – successfully – in the long-term is to separate your “must haves” from your “like to haves.” The items that fall into this category vary from person to person. My friend, Michelle, swears by her iPhone with unlimited monthly data plan; her boyfriend thinks it’s unnecessary, sticking to a base service plan – just talk, no texting or Internet – on his antique of a cell phone. My basic list of “needs” includes:

  • Shelter – Depending on your situation, this could be rent or a mortgage payment. No, a second mortgage on a vacation home in the Maldives does not count.
  • Food – As in your grocery bills, not your Starbucks habit or penchant for a bottle of wine at dinner.
  • Utilities – We’re talking electricity bills, heating bills, water bills. Some of you might consider Internet costs, cable service, and cell phone plans a necessity too.
  • Transportation – This could be gas, loan payments, and maintenance on your car; or, if you’re a city dweller, it may mean a monthly budget for public transportation or parking costs.
  • Insurance – Be it home insurance, car insurance, or medical insurance, these premiums can seem unnecessary, especially if you never find yourself needing the services they cover. Trust me, they need to be a priority.

I’d make one very important addition to this list of basic “needs”: building your emergency fund and investment portfolio. It’s standard protocol to build your emergency fund to cover at least six months of your basic expenses – the items outlined above. It’s also standard to sock away ten percent of your income for retirement – a concept akin to tithing yourself- but that assumes you started saving early and plan to retire after Social Security kicks in. Wait until you’re 35 to start building your retirement fund and you’ll have to save nearly a quarter of your income if you want to retire at 65. Saving for the future shouldn’t be a want – it’s a need.

The Budgeting “Wants”

There’s an old personal finance adage that you shouldn’t spend more than one percent of a windfall on splurges. But what about budgeting for your every day splurges – the things that make life a little more enjoyable? Part of budgeting includes learning how to have fun with money.

This is where the “all work and no play” rule comes in. If your family’s budget only allows for the “needs” – with flexibility for building your investment portfolio – you’re liable to snap. Take a lesson from my friend, Jameson, who vowed to save every bit of discretionary income for a period of three years. Two years in, he’d squirreled away nearly $60,000… which he subsequently blew on a Porsche. Did I mention Jameson lives in upstate New York, where the snow and ice preclude him from driving the Porsche nine months out of the year?

Budgeting In Some Wiggle Room

Liz Weston from MSN Money suggests budgeting for your wants, allowing you to be both fun and frugal. According to her formula, half of your post-tax income should go to pay for your needs– she puts investments, debt repayment and savings into another column, garnering 20 percent of your adjusted income.

That extra 30 percent? Liz suggests having a little fun with it, and I agree: although 30 percent of your adjusted income might be a little high. After all, if you’re earning $51,000 a year – the median household income from 2006-2010 – you’re bringing home nearly $37,000 after taxes; you don’t really need to put a full $12,000 of that toward your “fun money” fund.

Slash that number in half – 15 percent of your adjusted gross income, or, for the average American household, roughly $6,000 a year – and you’ve got a more realistic number. What could you do with $6,000 in discretionary income every year?

Probably more than you think.

Do you include wiggle room in the budgeting process? How much do “fun money” do you allot on a monthly basis?

The Legend of the Job Creators

This is a post written by Avishai Shuter, and up-and-coming zoologist who lives in his parents house while trying to get a job with the Bronx Zoo.

I’m sure by now you’ve all heard about the class-warfare initiated by your friendly neighborhood super billionaire, Warren Buffett. Buffet has called on the government to start taxing him and his mega-rich friends a bit more in an attempt to make some sort of dent in the national deficit, which as you all know has reached see how much we could get for the Statue of Liberty in a yard sale levels.

The Republican Issue and Response

The issue, Republicans (aka FOX News) claim, is that if we start increasing taxes on millionaires of the country, we are in actuality taking money out of the pockets of job creators. Conservatives are apparently of the position that if the rich are taxed by even a fraction more, they will cease to create jobs for all the peasants depending on them for sustenance.

Wait, what? Warren Buffett even addressed this in his open letter. I’ve heard TV personalities argue this point by saying that the job creators, in actuality, often downsize in an attempt to increase profits. But this line of thought skips over a fairly obvious problem with the Legend of the Job Creators (movie rights still for sale).

The Rich Don’t Create Jobs

If you work for Apple, it doesn’t matter how much money Steve Jobs has. Your salary isn’t coming out of his pocket. The mega-rich often make their money by being in charge of companies (as well as personal investing of the money they’ve made), while the opposite is much more unusual. They’re on the company payroll as much as anyone else.

Now, I’m not denying that the mega-rich create some jobs (I’m sure Bill Gates has a small army of cleaning ladies sweeping his massive house. Hell, he could probably pay the US Army to do it), but I would be very interested to see what percentage of Americans are directly employed by these millionaires and multi-millionaires. My guess is not really enough to qualify them as Job Creators. For that matter, how many jobs does one have to create in order earn that title? How many families employ full-time housekeepers or gardeners?

Are they job creators? Do they qualify for massive tax breaks?

Additionally, as many have pointed out recently, the wealth of the top 1% of the country roughly equals the wealth of the bottom 50%. Now, while the net worth of the two groups may be the same, their effects on the economy are staggeringly different.

This is another obvious, though overlooked, fact. The larger group of people is going to have a larger affect on the economy as a whole (and subsequently on jobs) than the small, very wealthy, group. McDonald’s doesn’t make money because rich people buy their food, they make money because a lot of people buy their food.

The point I’m trying to make is that we don’t live and work within an economic system based on serving the rich. It’s OK for people to become very wealthy, and they shouldn’t suffer for it (although compared to the disappearing middle class, I can hardly call increased taxes on billionaires suffering).

But our economic system doesn’t, and shouldn’t, revolve around millionaires and billionaires. I’m not quite sure why conservatives are so adamant about turning less wealthy Americans into serfs, and I don’t see the reason for it. The top 2% aren’t separate from the economy, they’re part of it as much as anyone else.

Budgeting Isn’t For Everyone: Is It For You?

Since I started this site, I’ve been a fan of budgets. They’re useful to make sure you know where your money goes and to keep track of expenses. However, I’m having a change of heart. After 2 years, I’m realizing that they’re simply not for me.

Why?

It’s not because I want to spend and don’t want anyone telling me what to do. It’s not that I always know where each penny goes and can keep in mind where I spent my money and know exactly when to cut back. And it’s definitely not that I have enough money that where I spend it is of no consequence to me.

The reason I want to quit budgeting is that each month, things are roughly the same. I have monthly bills that are steady, I don’t go overboard in any category, and to be honest, I don’t need anyone to keep me accountable because I do a pretty good job as it is.

For the most part, when I am over budget, it is because I am going on vacation or have a large purchase that I’ve been saving for. I don’t really ever spend an extra $200 on food when I wasn’t expecting it. I experience only slight lifestyle inflation, and I’m not at risk of running into money and spending on new clothes each month.

Budgets are not for me. Budgets are for people who can’t keep their expenses in check, for those who are trying to keep themselves on a plan and who can’t do a good job without one, and that simply doesn’t describe me.

I don’t need a budget. I like seeing a snapshot every few days of my accounts, but keeping track of every transaction is time-consuming, exhausting, and stressful.

Readers, how do you feel about budgets? I’m so over them personally, but that doesn’t mean you have to be!

Government Could Lower Social Security Benefits Without Anyone Noticing

I’ve believed all along that Social Security benefits as we know them aren’t going anywhere, but it turns out that there are some sneaky ways that the government can reduce the payouts it will have to make.

One step that would definitely save the government a good amount of money would be changed the way it measures inflation. Currently, Social Security calculates inflation based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).

Both White House officials and Congressional leaders (Republican and Democrat) are proposing calculating inflation for social security benefits using the Chained Consumer Price Index. The result would likely be that social security inflation would be slower than under the current rules.

It would be pretty hard to get away with saying that people don’t deserve the benefits they were promised and to reduce someone’s paycheck by a hundred dollars a month. There would be an uproar because it would be seen as stealing from needy seniors.

But by changing the calculation that determines just how much of an increase people get each year, this change would be much less noticed and the impact would be felt by only a small very amount each year.

The proposed change would put the rate of inflation at an average annual rate of about 0.3% less than the current calulation. So after 10 years, people would receive a check that’s about 3% smaller than what they would if no change is made.

Still, the proposed change would cost the average retiree about $18,000 over 25 years. I’m sure the government would love to save that much per retiree. It comes out to an estimated $112 billion over 10 years, and since it compounds, the savings for the government would continue to grow.

About 60% of seniors rely on Social Security benefits for at least half their income. And by 2020, Social Security benefit payments are projected to total $1 trillion, so clearly we’re dealing with a large issue. Saving $100 million over 10 years is not going to fix the problem, but it would certainly be a start.

Readers, what do you think of this proposed fix? Would it be helpful or is it just a sneaky way of reducing the benefits of seniors?