Budget FAIL! Not accounting for Non-Monthly Expenses

Today our credit card debt alone totals over $11,000, but for the first time in a long time I fall asleep at night with hope rather than despair.   I’ve tried for over 2 years to get out debt but truth is we never made a dent in it.  It seems so obvious to me now why I’ve failed at getting our family debt.

One of the big reasons – I was unprepared and underfunded for the yearly bill/irregular bills when they came.   The fact that I never properly budgeted for the sewer bill or the car registration/inspection meant using credit cards or spending any “emergency savings” we had built up.   Basically back to square one.

Then I had an awesome idea that would revolutionize the personal finance world!    I would take all the irregular yearly bills, add them up, divide by 24 (my husband is paid bi-monthly) and make that part of my monthly budget.  I would call it our “Personal Escrow Account.”  GENIUS!

Of course this idea is old news.   In fact Charlotte, the subject of  an article at “Get Rich Slowly”, even calls her method a “Personal Escrow Account.”

While I won’t win any points for originality, this method has saved my budget and my sanity.  Breaking down big irregular bills into smaller semi-monthly payments not only makes me feel prepared but provides breathing room in the budget.

EXPENSES         YEARLY BILL         NEED TO SAVE per PAYCHECK

Sewer bill                        $204                                       $8.50

PreSchool                        $2430                                    $101.25

Cars(approx)                  $400                                      $16.70

Propane                            $1400                                    $58.35

These “mini-escrows”(I’m patenting that) have helped alleviate the pressure that would come any time a non-recurring bill would come due.  I round up the numbers to the nearest $5 and put them in designated ING accounts.  To build up the proper amounts I needed to borrow from the “Emergency Fund”.   I know, I know, YOU NEVER TOUCH the emergency fund but I would have had to either used the emergency fund to pay these bills or a credit card so what’s the difference?

I also add bi-monthly in sub ING accounts to the “Emergency Fund”, a “Christmas Fund” and a “Whatever Fund”.

When you NEED credit cards to pay bills you know you are in trouble.  That is where we were.  Hopefully, no more!  Over $11,000 in credit card debt is no joke, and while the amount we owe is still there I feel the crutch they provided may be gone.

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Living Paycheck to Paycheck? – Start saving NOW for Christmas.

It’s snowing AGAIN right now and I have major winter fatigue!  Over 75 inches of snow this winter ALREADY in the Philly suburbs and it is only mid-February.  Visions of daffodils are dancing in my head.  I can’t wait to leave this winter behind and never see a another snowflake.  But when money is tight you really need to plan ahead.  Way ahead.

When living paycheck to paycheck any deviation in your bills can send you scrambling back to using credit cards.  For us, Christmas is one of those cases.  We don’t go crazy at Christmas buying gifts for our three kids and family members, but the cost is definitely greater than our monthly discretionary income at this point.   It would be the perfect set-up for a another failed attempt to get out of debt.

To avoid the squeeze I know is coming this December I decided to start a “Christmas Fund”.   My husband gets paid bi-monthly and we are putting $20 a paycheck away now -  so come Christmas we will not have to resort to credit cards to pay for it.

I’m putting this money in a sub-account at ING Direct .  I have enough faith in my budget for the first time ever that I know I will not need to raid this account.  But if you don’t trust yourself yet, many Credit Unions offer “Holiday Accounts” or “Christmas Club” accounts where they offer “bonus rates” with no penalties on withdrawals IF you don’t touch the money until November.   Even Kmart and Sears got in on the act last year with 3% BONUS rates on gift cards.

I’m hoping this plan will mean a less stressful holiday season.  The alternative is to pretend Christmas isn’t coming this year and AGAIN be faced credit card bills in January.

NOT "brought to you by Chase" this year!

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TV/Internet/Phone Bundle Negotiations

Our average bill for our Verizon bundle services over the last year had been $180.00 a month.    The “bundle ” which includes FIOS TV, Internet and phone was advertised at $99 but after adding HBO, DVR and taxes we were paying almost double that.

My husband and I had to go through our own negotiations before we called Verizon to try and lower our bill.

He wanted to get rid of the “land-line” entirely.  I lobbied to keep it.  I’m home with three kids all day and while I’m not a talker I do make calls to the doctor, school, my mom….  I also feel safer having the phone in case of emergencies.  (I do own a prepaid cell phone that I refilled for $20 once in November.)   For now, we are keeping the phone.

We both agreed to get rid of HBO.  That alone was $25 a month!

We also decided to get rid of the $15.99/a month DVR service in our bedroom and go with “Media Manager” system for the house.  The “Media Manager” is $19.99 a month and it is a DVR for one TV but allows you to watch recorded programs on all TV’s.  While we still have to rent a Standard Receiver for the bedroom this change resulted in a  net of $6.00 a month.

My husband called Verizon and asked to speak with the retention department. He asked them to go over EVERY fee they are adding to bill and explain it.  The conversation took about 30 minutes but in the end they agreed to credit our bill for $30 a month for a year!

In the end we will save $61 a month off our bill. 

That is $732 a year.

I can’t believe how little changes and a little effort really add up.

 

Debt Reduction: Slow and Steady wins the Race

When you finally make a plan to get out of debt it is easy to succumb to irrational exuberance and put yourself right back where you started. 

This is my third attempt in two years to pay off our debt and this time I think I have it right.

Failure #1 -  A Sloppy Budget:

I never fully took control of expenses.  I basically just added up the bills and thought “OK – I’m done – There is my budget”.  But I underestimated costs of necessary reoccurring expenses.  For example – I’d budget $200 grocery shopping and spend $200 on groceries.  That’s all well and good but we’d run out of milk, bread or whatever and my budget never accounted for those in-between trips.   I also did not get rid of obvious money-suckers (IE premium cable).  Nor did I take the time to call my creditors/insurance companies/cable co. and request interest rate/premium reductions.

FIX – Why I hope the budget will not fail now:

I took a lot of time and many weeks carefully combing through the bank statements to find the true amount we really spend so we have an accurate picture for the budget.   I feel confident I’m not just blindly coming up with budget categories and sticking some number, any number in there. We cut a lot of unnecessary expenses.  We called every place we get a bill from and tried to get the payments or interest rates lowered.  And in MOST cases it worked, lower expenses = more money.

Failure #2 – Tried to do Too much too fast.

When the credit card bills rolled in I’d throw an $100-$200 at the payment.  I was so excited to be making a dent in amount we owe!  But days before payday when we ran out money (because of my sloppy budget) we would have to put diapers or a doctor visit or birthday gift (or all of the above) on the credit card.  We would be back to square one and sometimes in a even worse situation.

FIX  – Slow and Steady.

I am resigned to fact that it did not take a couple weeks to get in debt and it will be a marathon not a sprint to get out.  With careful and realistic planning being debt-free will happen.  Just not overnight.  If there is extra left over in the checking when payday comes THEN we can put that towards the cards.

Failure #3  – Not Expecting the Unexpected.

With no buffer in the budget or small emergency fund, unplanned expenses would HAVE to be put on a credit card.  These small setbacks were so deflating that this when I would often give up on the get-out-of-debt plan.

FIX – “Broken Window Fund”

Now that the budget is realistic and I am committed (but not irrationally over-eager to pay off the credit cards) we set up a small fund for all the little setbacks that happen in real life.

Plan Weaknesses – The “Emergency Fund”

It’s going to take a long time for us to save up the recommended 3-6 month living expenses most people say it smart.   I just have to cross my fingers here and hope for the best.   I put away what we can put away.  It’s the best we can do right now.  I think saving 1 month is worthy goal for now and if the “new plan” pans out I can revisit this later.

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Filing State Taxes – FREE!

I’ve used Turbo Tax since 2002 to file my taxes, both federal and state.  We are above the threshold for free federal filings so I’ve always paid Turbo Tax to file our Federal AND State taxes.

I was prepared to file them together this year, the way I’ve always done.  But we are pinching pennies, becoming frugal and the $21 ($27.95 without discount) for filing the one page state form seemed steep.  A little research found that my state income tax filings are free.  If you are willing to take 5 minutes you can e-file your state form separate from your federal and save yourself some money.  Every penny helps!

Each State with a link to your State e-file website is here.

Or just Google “your state” and “Department of Revenue”.

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