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Friday, October 31, 2008

Budgeting - don't be a carbon copy

Rhonda Jean
Down to Earth

Graphic from the Carl Larsen gallery

Whether you like it or not, to live a simply or green life, you must reduce your spending. It's part of the territory. You will get away with not growing your own food, you don't have to keep chickens, goats, make soap, bake bread, sew or knit, you can live in the city or the country, you can work or not, you can be young or older, but the one thing everyone has to do is to reduce their spending. Every time you buy something, you also own the carbon released into the atmosphere in the making of your product, you own the petrochemicals used in it's manufacture and in the transport that gets it from where it was made, or grown, to your home. Living simply will reduce the amount of of money you need to live because you'll be satisfied with less and you'll be making a lot of what you use. Maybe you'll also do some of those things I listed above, like bread baking, growing food and sewing. You'll also make do with less, recycle and mend, and in the process of that you'll give old items new lives and reduce the amount of things you buy.

A simple life costs less than the life lived by most western people now.

So if you believe me when I tell you that you must reduce your spending, also believe me when I tell you the best way to reduce your spending is to have a budget. This is not a scary thing, it's liberating. A good budget will be one of the best tools you'll have to help you live the life you want for yourself and your family. I've said before that a simple life is not about deprivation and being miserable, so with that in mind, when you first start living this way, make your budget a document that will give you the life you want but allow yourself small things that you need to be happy. My only luxury is $10 a week that I can use to buy what I want. Many of you would wonder why I bother with such a small amount, but that is what this lifestyle is about, it's being satisfied with the small things and being happy with the life I live. If you do it well, your life will make you happy and if you do budget for small luxuries like an occasional cup of coffee, I bet you eventually give it up because you'll find other things you want to spend that money on - things that will be more important to you. But if you can't imagine a life now without being able to buy a cup of coffee, a magazine, a bottle of water or whatever, budget for it.

The only things you'll buy from now on will be what you've budgeted for.

This is how we wrote our budget. We got all the bills we paid in the previous year and added them up to make a yearly figure. That was four electricity bills, three gas bills, in the first year we guessed how much petrol we used. We added up our grocery bills, what we spent on medical, optical, dental, the garden, postage, house rates (or rents), water, insurance, phone, Internet, gifts, clothes, shoes etc - everything we spent money on was calculated out at a yearly sum. So we had a yearly figure for each thing - our electricity, our water, groceries, petrol etc. Then, because we shop monthly, we divided our yearly amounts by 12 to give us 12 monthly amounts. That is what we budget for - 12 amounts for our 12 months. If you shop weekly, fortnightly or bi-monthly, divide your amounts up by 52 (for weekly), 26 (fortnightly) or 6 (bi-monthly). Whatever the amount is that is what you have to spend for the period you have chosen.

We keep the money for our fixed bills - the things we don't have to pay in cash, like the electricity bill, phone, internet etc - in the bank. Those amounts are paid by direct debit directly from the bank when the bill comes in. For everything else, our grocery shopping, petrol, garden supplies, dog food etc, we withdraw that amount - for us it's $690 a month - in cash. That cash is then divided up and placed into a ziplock bag that is named for its purpose. For instance, I have one bag for grocery money, one bag for bulk food money, one bag for medical, dental and chemist. The good things about these bags is that you deal with real money, you see what you've spent and what you have left.

Hopefully, you've started tracking your spending because that will play a big part in your budget. When you've tracked your spending for a few weeks, you'll see the pattern of your spending. You'll find places where your money is leaking and you'll be able to stop those leaks. If, when you do your budget, you find you do not have the amount of money you need, go to your tracking, find those leaks or items that are not needed, stop the spending on those things and so you have it to cover what is in your budget. And remember, now you only spend what you budget for. If you've budgeted for your cups of coffee and you can afford them, that's fine, if you cant afford them, you will have to do without. My feeling is that if you've read this far you will be keen to get your money in order. My guess is that paying off debt and living a good life will replace your coffees - or whatever your luxury is - and you won't even notice the absence.

We try to be thrifty with all our purchases so we have money left over at the end of the month. Usually it's around $100. That money is then put into our emergency fund. If we have enough money in the EF, that leftover money goes straight into our savings. But if you're paying off debt, I would encourage you to build up an emergency fund, then put every spare cent towards paying off your debt. Put your left over money as an extra payment on the debt with the highest interest rate.

So that's it. That is my guide to budgeting or creating your own spending plan. I'm not going to say it's easy, I know it won't be, but if you can do this, it will be the thing that makes the biggest difference to the way you live. And as I said before, don't be fooled into thinking you can keep spending and also live simply - it's impossible. You do one or the other. I hope you can reduce your spending, I hope you see the worth of it, because if you do, you will be able to live well on less, you'll pay your debt off much faster and you live a life that is unique and not a carbon copy of all the others in your street.


Thimbleina said...

Great post. We do the budgeting and it really helps to focus the mind on what is important

silversewer said...

As usual a very good post and in present times more essential than ever.

I must admit though we have fallen off the wagon with a bang this month. We both needed new wardrobes and I have bough two very nice pine ones, both made out of reclaimed wood, not cheap but I say you get what you pay for.

My old wardrobe was bought 8 years ago from a do it yourself store, it was cheap, and is now falling to bits, we have had to dsmantle it twice to move house and the doors no longer fit, the back is falling off and it creaks......OH was bought a temporary one at the same time, which we have just recycled through freecycle to a student at uni.

I am afraid these were not budgetted for, so a slight strain on the purse strings, but looking at the bill will keep my mind firmly centred on getting back on track over the next few months.

Yabusame said...

I've been tracking my spending with a 'spending diary' for well over 10 years now but I've only had a 'budget' for the past 10 months.

When I put the budget together, I used the same categories as I used in my spending diary and guessed at an appropriate amount for monthly spending. I then mulitplied that by 12 and that was my yearly budget (this meant that if I had a cheap month followed by an expensive month in a particular category, it would still be within my budget range).

One of these days, I'll put an article together on my blog that shows how I do it. Its quite hard to write about it here without pictures.

Desiree said...

I'm going to sound crazy, but I love budgeting- I can't imagine how anyone could live without it!

My first year in my new place, my husband and I would spend frivolously all the time, never really keeping track, mostly because at that time, his job was giving him overtime hours every week- the money just kept rolling in. But as soon as my student loan bills began, and the economy began to falter, overtime went away and the bills kept coming. That's when I forced myself to sit down and do out all the math that you described.

After I realized how little we actually had to spend after all the "do-or-die" bills, it really forced us to cut back on our spending and pay a lot more attention to what we were buying. Although we still falter sometimes- mostly when things happen which are unavoidable, and all at once mind you (need new tires to get the truck inspected, emergency medical bills, unexpected company, and replacing an appliance that decided to die). It makes us happier though, being able to know beyond a doubt what we have, how much we can spend, and know that we don't have to stress about paying our bills and now how little it takes to make sure you can make it today and actually be happy. I think a lot more people should learn to budget, it would reduce the amount of stress, debt, and headaches in our world.

Anonymous said...

Very timely as I recently treated myself to a ledger for our new budget and records.

I was wondering if you have or this lovely group have shared the ways you have invested money for retirement.

I remember my Fil who grew up in the great depression had cds, and lots of cash in the bank and on hand.
He lived a frugal life and was able to have a paid for home and security I don't see us having.

He did not invest in the stock market etc. Just old fashioned savings and living below his means.

Any thoughts on this subject would be greatly appreciated. As I feel paralized by all the choices today.

Sorry if this went off topic, but I need to make a plan in our budget for our future after an emergency fund.

Gratefully, Janet in MA

Sadge said...

Now maybe I'm way off base here (and I've long known that my brain works a bit differently than most), but it seems to me you've left out a very key component. You have to know how much you have coming in before alloting your spending amounts. Adding up your annual payments is very good, but what if, using your example, you only had $520 discretionary income for a month or two, after fixed bills are paid (say, if those utility payments jumped)? Withdrawing $690 monthly would soon put you into trouble. Leaving income out of a budget is what has put a lot of homes here into foreclosure, and others saddled with massive credit card debts. People are just plain spending more than they're making. I agree that dealing with "cash only" can help see where your money is going, but you need to know you can cover those auto-withdrawal amounts for mortgages and utilities with what's coming in.

EJ said...

It's so true when you say: Every time you buy something, you also own the carbon released into the atmosphere in the making of your product... almost no one has the guts to come out and say this in so bluntly.

I am not this organized but quite thrifty. However, treating all months equally leads to problems if you life somewhere where heating costs vary widely seasonally, or if putting lots of food away in the fall for use later.

Slice of life said...

I have recently used the above to help us plan. We now know where we are and have alloted money to all areas.

Sus & co said...

this is an absolutely brilliant post. sus