Budget, How to Make One?

There are so many ways to make a budget and no one way is wrong. Making a budget is, like anything in personal finance, personal. Some people just put away a percentage of their income and spend the rest. Others make maximum percentages per category, for example 25% of net income towards housing.

But when you are starting off the best way to start is to figure out where the money is currently going. Start by taking a month and writing down everything you spend and by the end, you have the beginnings of a budget. But you won't be done there. There are many annual or semi-annual expenses people forget about, like Christmas or car insurance or even car repairs. Start with the monthly expenses and divide what annual or semi-annual expense by 12 or 6 months and put that in your budget as well.

Now, the big question is after all your expense do you have any money left over? And if so, how much? If it is 10-20% of your income, great! If not, you are normal and it is ok. But you do need to work in retirement and emergency savings into your budget. That means looking at your other expenses in your budget and finding ways to cut them down.

It took me about two years to get my budget and my spending the way I wanted them and I still have some improvements to make. Making a budget is not something you do once and forget about, it is a tool for most of financial life.

Do you have a budget? Do you think it is helpful or not? How did you make yours?

Credit Cards

Some people would tell you that credit cards are evil (example Dave Ramsey) and if you have no self-control that very well may be true but it does not have to be. The problem is people see the amount of credit on a credit card as money. It is not. Your credit limit has no relation to the amount you can spend. Between my husband and I, we have more in credit than we make in a year, that does not mean we can spend that amount.

You should, however, never spend more than ten percent of your credit limit, even if you do have the money to pay it back. The credit bureaus will ding your credit score if you charge more than ten percent and ding it even more if you spend more than thirty percent.

The best way to get used to using a credit card, is as a debit card. When you purchase something, either put the money aside or pay the credit card online THAT day. Do not wait till the end of the month or you will end up screwing yourself up.
If you do screw up and max out your card, stop. Shred it and start paying it down. Do not get another card until you have gotten used to using, and paying in full every month, one card.

Once you get used to using one card, you likely will have a credit score that will allow you to get a rewards card. Look at your spending and pick one to apply to. Put your first card aside and start using the reward card. Do not pick one with an annual fee, they are not worth it. It is likely that your first card won't be useful after the first year or so, but you can leave it open (use it once a year), if you would like. Closing it will have a negative affect on your credit score, until you have had the reward card for a while, unless you have had a student loan or were an authorized user on another person's card for longer then the length of time you had your first card.

I prefer to have multiple cards because they give different benefits, for example I and my hisband have a Fidelity AMEX which gives me two percent back into my 529 account, a discover card that we use when the five percent back categories work for us (groceries, gas etc.) and for our school expenses (they only take discover and visa) and a couple visas that really are not that good. We are still looking for a good visa and are currently considering the Fidelity Visa that gives one and half percent back into our IRAs.

Anyone else have an opinion on credit cards or information I missed?

Potential Deal from Sharebuilder

I don't know what is up with ING Direct, they are selling to Capital One yet there have been all sorts of deals from them lately. I just received an offer from Sharebuilder (owned by ING Direct) and I am unsure if I should take it, though I am leaning towards it.

The deal is deposit $100 per month from September through December and get $50 in January. Sounds like a great deal, right? Problem is that I would have to pay $4/month to deposit the money into the S&P fund I have plus an additional $4 to remove the money. This would amount to $20 that would be coming out of the $50 bonus. The $50 is not tax free, however and I would have to pay an additional $5 in tax on the $20 fees so really for depositing $400 I would get $25 before taxes. That is a 6.25% return which is great however it is not without risk. I would depositing the money in a S&P fund which is risking and I could lose that 6.25% bonus in day.

Then again, if I did not use this deal, the $400 would be going in my Roth IRA and would be in the stock market anyway. The only differences are what fund the money is in and taxable vs tax free accounts. Are those differences worth not getting the $25? What does everyone think? What should I do?

Is student loan debt good or bad?

Yes, or it depends. How is that for an answer? Student loans can be helpful in getting through school yet they can mess up your life for ten to thirty years if you borrow too much. There is a rule of thumb that students should not borrow more than they expect to earn their first year of work but the recession many graduates cannot find work, what then?

You can extend your student loans from 10 years to 30, if you have more than $30,000 worth of debt but that will increase your interest, or you could do graduated repayment but then in the future you will have to pay more per month. If you can't pay the minimum when you graduate, why do you think you can pay more in three to four years?

So how do you decide how much debt, in the form of student loans, you can afford? Of course, you do want the total amount to be less that your first year's wages but what else? Personally, I would try to keep the debt less than $15,080 which is full time at minimum wage or if you are working though school your current annual wage, whichever is more. That would allow you to have some wiggle room when you have graduated, yet is large enough to make a major difference in your finances during school.

What does everyone else think? How much student loans is too much? When does student loan debt change from good debt to bad debt?

Update on the millionaire goal-August

We have dropped down below our $10,000 goal again. We only have $9955 now. Our tenants did end up staying another month so we will be putting $300 a way this month and hopefully we will get back above $10000. However, if the stock market drops another 2% this month, we will be back to where we started, under $10,000 again.

Right now investing in the stock market is depressing and it is tempting to stop and just start paying down debt, like my student loans but I have to believe that the start market will get better. I have to believe that I am buying low and in thirty years it will be worth it.

Second Guest Post!

Head over to Baking the Budget to read more about my real estate adventures in my second ever guest post.
http://bakingbudget.blogspot.com/
Baking the Budget is a wonderful blog that I have learned a lot from. It is not geared towards students but still is a valuable resource.

Update on grocery savings plan September

We did very badly this month. We spent $296.91 this month of groceries, however we did get a eight dollar rebate so I am only counting $288.91 for this month. This comes out to $72.23/week. Part of the reason for this, is we have just switched to doing our main shopping every other week and did two weeks worth of shopping on the twenty-eighth. Hopefully, that means September will be a low spend month. Also, we stocked up on soda, which we only do every twelve weeks, at rock bottom prices ($2.75/ twelve pack) but we bought 12 packs.

We are now at $2076.01 for 29 weeks, averaging out to $53.24/week. We are almost one hundred dollars over budget for the year and only have thirteen weeks to make it up. This means, to still make my goal I need to spend $42.50 or less every month. Given I am having trouble with keeping to $50/week I don't think that will happen especially since soon we will not have on garden produce to use as supplement. On the other hand, we are very well stocked for meat and we won't need sodas for another three months, maybe I can do it!
Anyone have ideas on how to do Thanksgiving and Christmas dinners without increasing my spending? If I want to get down to $50/week I sure can't overspend for those meals.