In the last post it looked like things were pretty bad. Living at the standard we would like was going to put us further in debt to the tune of over $9,000 per year. NOT GOOD! Our goal is to pay off debts while still putting money into savings. This may seem like an impossible task, but it really isn’t. Yes, you may have to make sacrifices you don’t really want to make, but if that is what is needed, plan to do it. You may find that it is not as bad as you might think. So, let’s put on our thinking caps and tackle each budget category in turn.
Charity
If need be, the charity budget could be reduced to zero without having to change your lifestyle at all. However, most people we know want to support causes they believe in if at all possible. Therefore, let’s hold off on reducing the money in this category. If we find out later that our budget will only work by reducing charitable giving, then we’ll make an adjustment.
Gifts
While it is nice to be able to buy our friends and family nice gifts at special occasions, I believe those close to us will understand if we cannot do this while we are trying to get our family finances in order. There are a number of things you can do to reduce expenditures for gifts. You might try making gifts yourself rather than buying them. Or you might give part of your charity money to an organization your gift recipient likes and then give them a card saying that you have made a donation in their honor. At Christmas, you might want to see if your family is willing to draw names so each family member only buys for one other family member rather than everybody. We have personally agreed in our family to only buy for children, thus eliminating the cost of buying for adult family members. I’m sure you can think of other creative ways to reduce the cost of gift giving. We should be able to cut the money in this category in half; from $80 to $40 per month.
Mortgage
You really don’t want to decrease payments towards your house. And even if you did, it may not be possible according to the terms of your contract. If at all possible, you want to increase payments towards the mortgage so as to save money on interest. However, as we stated before, don’t increase this payment until you have totally paid off other higher interest loans. Of course, if you are holding an older mortgage, it may be worthwhile refinancing your house if you can get a new loan with a significantly reduced interest rate. We have heard that after rolling in the closing costs for the new mortgage, the new interest rate needs to be about 2% less than your existing rate for the switchover to save you money. However, keep your eyes open. Sometimes you can find loans for refinancing that have very low or nonexistent closing costs. For the purposes of this exercise, however, let’s assume the mortgage payment needs to stay at $500 per month.
House Upkeep
There are some upkeep items, such as essential repairs, that simply cannot be eliminated from this category. However, some things can at least be delayed. For instance, you can live with that scuffed up wall a bit longer, thus saving the cost of painting. Those spots on the carpet can be covered with a rug rather than paying the cost of professional cleaning or replacing the carpet outright. We may not be able to reduce the budgeted amount for this category much, but it can be reduced some. Let’s lower the amount from $100 to $75 per month.
Home Decorations
Since this category is a nicety rather than a necessity, it can be eliminated altogether. Sure, your home may not look as nice as the Jones’ house down the street, but your finances will look a lot nicer. Just so you can feel like some minor improvements can be made, we’ll not totally zero out this category, but we will greatly reduce it. From $50 to $10 per month.
Utilities
Some of these costs are not adjustable, such as garbage collection and sewage. Usually these costs are a set dollar amount per month. However, other things such as water, electricity, and gas, where you pay based on usage, are more under your control. There are several things you can do to reduce usage. You can increase the temperature in your home in the summer and decrease the temperature in the winter. Try using fans in the summer and blankets in the winter to compensate. You can also close off vents in areas of your house that are used infrequently. Perhaps your hot water heater could use an insulating wrap. Perhaps you can reduce the amount of water used on your lawn by targeting problem areas while cutting back in other areas. Maybe you can bathe less frequently and wear your clothes more before washing them. There are a lot of things that can be done to cut the cost of utilities. Surely with all these options we can reduce our utility costs from $250 to $200 per month.
Communications
In reality, we could get rid of our TV service, all our phones, and our Internet service and still be able to survive. It might be difficult, but not impossible unless your work depends on these services. So, not to be too harsh about this, let’s look at ways to reduce these costs rather than eliminate them altogether. Many people who use cell phones have eliminated their land line phone. That’s one way. Also, if your family is using smart phones, you might want to drop back to a regular phone to save the cost of data services. You might want to drop back to a lower tiered plan on your TV service. Yeah, you might have to give up a few stations you like, but why pay for 100 extra channels just to get a few that you watch if it’s going to cause a family financial crisis. Also, you might change to a lower speed Internet service to save a few bucks. Before making any of these changes, be sure to see if your contracts require you to pay a penalty. If so, see if the company providing the services will work with you after explaining your financial situation. If it’s going to end up costing you more to reduce your services, then there is no need to do so. You should be able to get your $400 per month budget down to $200 per month without too much pain, even if your teenagers may disagree.
Food
If you are frugal, you can get by with a lot less money for food than you believe you can. It should be possible for you to reduce the money in this category from $600 to $450 per month, which is what we discussed before. This amount allows for $5 per meal for the entire family and three meals per day. If you eat cereal for breakfast and sandwiches for lunch, these meals can come in under the $5 amount. This would allow for more expensive evening meals. Of course, you can mix and match any way that best suits your family’s lifestyle. If you are really frugal, you might even find that you can eat out occasionally. Some things you can do to reduce food expenses is to look for sales and stock up when really good prices are available. Although the initial cost is a bit high, you might want to invest in a vacuum sealer. This allows you to purchase large quantities of meat when on sale and then seal it so it lasts longer in the refrigerator or freezer. Also, you might want to take lessons from extreme couponing people. We have seen people on TV who are able to buy hundreds of dollars of food for just a few bucks. It’s still a bit of a mystery to us, but it’s apparently possible. Of course, you have to be willing to eat what you can get cheaply via the coupons, but it should be well worth the effort.
Medical
Since this is such an unpredictable category, you should be hesitant to reduce the amount budgeted for it. So, just leave it at $200 per month.
Transportation
Transportation expenses may be hard to reduce depending on your primary mode of transportation. If you use public transportation frequently, it may be difficult to reduce these costs. However, if you drive your own vehicle, you might see if you can carpool several days a week to reduce expenses. If this is not feasible, perhaps you and your spouse can team up, given that it’s not too far out the way to do so. If your family takes weekend trips frequently, you might try taking shorter trips or eliminating some of them. With some of these changes, you should be able to reduce transportation costs from $600 to $500 per month.
In the next post, we'll make adjustments to the remaining categories and take a look at the new numbers to see how we have done.
Monday, November 28, 2011
Sunday, November 13, 2011
Allocating Income Part 2
This is a continuation of our Allocating Income post from about a week ago. Here we budget money for the remaining categories.
Medical
Medical budgeting is difficult simply because one major problem can set you back a lot of money. As with other categories, this one can only be predicted based on past expenditures. However, if you know that a large unusual medical expense is in your immediate future, then be sure to account for it in your budget for the year. Let’s allot $200 per month for now and modify as needed later.
Transportation
Transportation expenses can vary greatly depending on how many cars your family owns and whether or not you still owe money on them. Also affecting these costs are how high your taxes are in your state and how much gas mileage your vehicles get. If you live in the big city and use public transportation, the frequency of use and the distances you must travel will determine much of the amount needed for this category. As we said before, be sure to include money for plane, train, and rental car expenses if you travel away from home frequently. Based on our past experiences, $600 per month is probably a good average number to use. If you like to buy all drivers in your family new cars every few years, then this number won’t even scratch the surface.
Insurance
This category covers every type of insurance you have except for homeowners, which is included in the mortgage category. These are things like homeowners, car, health, life, long-term care, and pet insurance. There are so many types of insurance to help protect you from loss that the cost can quickly get out of hand. Many of the premiums will be paid annually, semi-annually, or quarterly. For each, a calculation must be made to determine what the cost is on a monthly basis. For instance, if you pay $1000 per year for homeowners insurance, that would be $1000/12 or $83.33 per month. One of the most expensive insurance costs is auto insurance for a teenage driver. So, we’re going to estimate that total monthly insurance expenses are about $400 per month. If you are fortunate enough to have medical, dental, and perhaps even life insurance through your place of employment, then some of your insurance costs may be taken out on your paycheck. In this case, do not include these costs in your budget as you will only be adding your net income to the budget. Net income is your total income minus taxes and any deductions for insurance, union dues, etc.
Debts
Hopefully you do not have any debts apart from your home, cars, and maybe credit cards (which are all covered in other categories). If you do not, this category can be ignored. But since we frequently hear about young people having a lot of student loans debt, let’s include it for this exercise. Suppose you have $10,000 in debt that needs to be paid back with 4% interest. Further suppose you would like to pay this off over the next five years. To do so will require you to pay $184 per month. Let’s round this to $200 per month.
Personal
If you are married or have a partner, we think it best to divide this category into at least two, one for each partner. Let’s say your names are Jack and Jill. Also, if you have children, we recommend another category named—you guessed it—Children. Again, the money allotted to these categories is for the discretionary spending of the designated person. In the case of children, the parents will want to control the spending in the Children’s category. As these children get older, some of their designated money may be turned over to them, allowing them to make their own spending decisions. Assuming a family of four and allowing for $200 per person per month, that comes to $800 per month total.
Miscellaneous
This budget category is for those expenditures that simply don’t fall neatly into any of the other categories. For instance, a newspaper subscription. Hopefully there will not be too many of these type of costs, but you might be surprised how many of these can crop up in a month’s time. Let’s initially allot $50 per month.
Credit Cards
If you have been frugal and paid off your credit cards each month in full, then you do not need to allot any money to this category. As we mentioned before, whenever a new purchase is made with a credit card, you will simply transfer the money from the appropriate category to the credit card category. Then, at the end of the month, you will have enough money set aside to pay your credit card in full. However, if you are starting out with credit card debt, then you really need to begin allocating money to this column to pay off those debts. Let’s suppose that you owe the credit card companies $20,000 and the average interest rate you are paying is 14%. If you want to pay off these credit cards over the next five years, you will need to make payments totaling $465 per month. Let’s make the decision to allocate $500 per month and pay off the debt in 4.5 years.
Savings
The amount of money going into this category is simply your total monthly income minus the total amount allotted to all the other budget categories. Your goal, however, is to maximize this number as much as possible. If after allotting money to the other categories you find that you are putting a negative amount of money in this category, then something has to change. You will need to modify your lifestyle to live with less so as to reduce the amount being spent. As you pay off your debts, you will find that you can resume some of your suspended lifestyle.
Alright, we now have our initial money allocations for our sample budget. Let’s look at a summary.
Uh-oh. This is not good. Using the initial budget allocations results in us going into the hole almost $800 per month, which is over $9,000 per year. Clearly, some major adjustments need to be made. We’ll do just that in the next post.
Medical
Medical budgeting is difficult simply because one major problem can set you back a lot of money. As with other categories, this one can only be predicted based on past expenditures. However, if you know that a large unusual medical expense is in your immediate future, then be sure to account for it in your budget for the year. Let’s allot $200 per month for now and modify as needed later.
Transportation
Transportation expenses can vary greatly depending on how many cars your family owns and whether or not you still owe money on them. Also affecting these costs are how high your taxes are in your state and how much gas mileage your vehicles get. If you live in the big city and use public transportation, the frequency of use and the distances you must travel will determine much of the amount needed for this category. As we said before, be sure to include money for plane, train, and rental car expenses if you travel away from home frequently. Based on our past experiences, $600 per month is probably a good average number to use. If you like to buy all drivers in your family new cars every few years, then this number won’t even scratch the surface.
Insurance
This category covers every type of insurance you have except for homeowners, which is included in the mortgage category. These are things like homeowners, car, health, life, long-term care, and pet insurance. There are so many types of insurance to help protect you from loss that the cost can quickly get out of hand. Many of the premiums will be paid annually, semi-annually, or quarterly. For each, a calculation must be made to determine what the cost is on a monthly basis. For instance, if you pay $1000 per year for homeowners insurance, that would be $1000/12 or $83.33 per month. One of the most expensive insurance costs is auto insurance for a teenage driver. So, we’re going to estimate that total monthly insurance expenses are about $400 per month. If you are fortunate enough to have medical, dental, and perhaps even life insurance through your place of employment, then some of your insurance costs may be taken out on your paycheck. In this case, do not include these costs in your budget as you will only be adding your net income to the budget. Net income is your total income minus taxes and any deductions for insurance, union dues, etc.
Debts
Hopefully you do not have any debts apart from your home, cars, and maybe credit cards (which are all covered in other categories). If you do not, this category can be ignored. But since we frequently hear about young people having a lot of student loans debt, let’s include it for this exercise. Suppose you have $10,000 in debt that needs to be paid back with 4% interest. Further suppose you would like to pay this off over the next five years. To do so will require you to pay $184 per month. Let’s round this to $200 per month.
Personal
If you are married or have a partner, we think it best to divide this category into at least two, one for each partner. Let’s say your names are Jack and Jill. Also, if you have children, we recommend another category named—you guessed it—Children. Again, the money allotted to these categories is for the discretionary spending of the designated person. In the case of children, the parents will want to control the spending in the Children’s category. As these children get older, some of their designated money may be turned over to them, allowing them to make their own spending decisions. Assuming a family of four and allowing for $200 per person per month, that comes to $800 per month total.
Miscellaneous
This budget category is for those expenditures that simply don’t fall neatly into any of the other categories. For instance, a newspaper subscription. Hopefully there will not be too many of these type of costs, but you might be surprised how many of these can crop up in a month’s time. Let’s initially allot $50 per month.
Credit Cards
If you have been frugal and paid off your credit cards each month in full, then you do not need to allot any money to this category. As we mentioned before, whenever a new purchase is made with a credit card, you will simply transfer the money from the appropriate category to the credit card category. Then, at the end of the month, you will have enough money set aside to pay your credit card in full. However, if you are starting out with credit card debt, then you really need to begin allocating money to this column to pay off those debts. Let’s suppose that you owe the credit card companies $20,000 and the average interest rate you are paying is 14%. If you want to pay off these credit cards over the next five years, you will need to make payments totaling $465 per month. Let’s make the decision to allocate $500 per month and pay off the debt in 4.5 years.
Savings
The amount of money going into this category is simply your total monthly income minus the total amount allotted to all the other budget categories. Your goal, however, is to maximize this number as much as possible. If after allotting money to the other categories you find that you are putting a negative amount of money in this category, then something has to change. You will need to modify your lifestyle to live with less so as to reduce the amount being spent. As you pay off your debts, you will find that you can resume some of your suspended lifestyle.
Alright, we now have our initial money allocations for our sample budget. Let’s look at a summary.
Uh-oh. This is not good. Using the initial budget allocations results in us going into the hole almost $800 per month, which is over $9,000 per year. Clearly, some major adjustments need to be made. We’ll do just that in the next post.
Saturday, November 5, 2011
Allocating Income
We are now going to discuss what is probably the most difficult part of setting up a budget: allocating your income to the budget categories you have determined are right for your family. As you may recall, we suggested the following categories (with credit cards added):
Charity, Gifts, Mortgage, House Upkeep, Home Decorations, Utilities, Communications, Food, Medical, Transportation, Insurance, Debts, Personal, Miscellaneous, Credit Cards, and Savings
What needs to be done now is to decide how much money you plan to spend each month in each of these categories. However, as we have said before, we do not recommend entering expenditures on your budget spreadsheet every month. That is too infrequent. We believe that twice a month works well. It keeps each spreadsheet at a reasonable size, and it is frequent enough to make course corrections should you find yourself overspending in some categories. So, once the monthly allocations are made, these numbers can be divided in half to determine the semi-monthly budget numbers.
For the remainder of this chapter we will allocate money to the above categories based on a made-up household income. Statistics show that the median household income in the US is currently about $50,000 after taxes. So, that is the number we will use for our sample budget. Since it is rare that both spouses have equal incomes, we will assume one spouse clears $30,000 and the other $20,000 just to make things interesting.
What we will do first is make a monthly allocation to each of the budget categories. This is best done by going through past expenses and estimating how much was being spent in these categories, then making initial allocations based on those numbers. If we find that our income is sufficient to support those level of expenditures while still saving a significant amount, then we are golden. If not, then choices will have to be made about where to cut.
If you work a job where the hours are inconsistent, thus causing your income to go up and down over the course of a year, then budgeting will be more difficult. In this case, you must estimate what your total annual income, after taxes, will be and go with that amount. You should estimate on the low side. Then, if your income is actually higher, you will have more money to put in savings. At any rate, let’s still assume that your total estimated household income is $50,000 and get started.
Charity
If you prefer to actually base your charitable contributions on a percentage of your income and you have a job where your income fluctuates a lot, then you may not want to budget a monthly amount for this category. Rather, when you receive a paycheck, you can simply allot money to this item based on how large the paycheck is. This can make it more difficult estimating how to spread your money across the other categories, so we recommend against this if at all possible. Let’s suppose your past giving was about 5% of your income. At a $50,000 income level, that calculates to $2,500 per year or about $210 per month. Let’s start with that amount.
Gifts
Most people like to give gifts to friends and family at special occasions such as birthdays, Christmas, graduations, weddings, or anniversaries. Many people don’t like to be bound by a budget when giving gifts because they want to be able to purchase whatever is meaningful at the time even if it’s a bit expensive. However, if you’re going to manage your money, spending in this category needs to be controlled just as much as in the others. Let’s set an initial budget of $80 a month. If you have large families and lots of friends, you may want to up this if you find out you can afford it.
Mortgage
Since you are probably making a monthly payment on your home loan, this one is easy to determine. It’s whatever that monthly payment happens to be. We are assuming that the mortgage payment includes enough money to cover homeowners’ insurance and property taxes. Let’s suppose the minimum amount you can pay on your house is $500 per month. This is the initial amount to allocate for the mortgage category. If you later discover that you are putting more than enough money into savings, you will probably want to increase the amount you pay on your mortgage. This will allow you to pay it off early and save money on interest. Make sure your mortgage contract allows increased payments with no penalties. Also, keep in mind that you will want to pay off higher interest loans and credit cards before increasing your mortgage payment. It makes no sense to make higher payments on a low interest loan when that money could be used to pay down higher rate loans.
House Upkeep
This category is difficult to determine since it is impossible to predict what repairs might be needed in the course of any given month. But an educated guess can be made based on past expenses. Let’s allocate $100 to begin with. Adjustments can be made as needed in the future. If any unexpected repairs costing lots of money are needed, you may have to use money from savings to cover them. This is why it is good to have a healthy amount of money in savings. It will allow you to handle contingencies without putting you deep in the red.
Home Decorations
This category is a nicety rather than a necessity. Money from it goes towards things to beautify your home. Of course, if your income is too low to cover necessities and niceties, then the niceties need to be eliminated first. So, let’s start with $50 per month, then decrease it later if we find that we simply can’t afford this amount.
Utilities
Although this is a necessary item, it is also one that can be decreased by making adjustments to your lifestyle. The money allocated to this category needs to cover the total cost of electricity, gas, propane, water, garbage collection, sewage, recycling, and anything else of this nature. Basically, any type of service provided to your home by the city and county where you reside. Of course, monthly bills vary by seasons of the year. It’s much more expensive to heat or cool a home in summer and winter than in spring and fall. So, what is needed is an estimate of the yearly cost of these goods and services, then divide that number by 12 to get a monthly amount. Let’s say this number is about $250 per month.
Communications
It seems that just about everybody has a cell phone these days regardless of income. But cell phones make up just a portion of your communications budget. This category also includes land line phones, TV satellite or cable, Internet service, pagers, and anything else that serves a communications need. With all the different services available, this category can require substantial amounts of money. For a family of four, communications costs can easily reach $400 per month. So, let’s use that number.
Food
As we said before, this is the budget category that our family has the toughest time balancing. We all stay pretty busy, so we tend to want to eat out more often than we should. We use restaurant coupons as often as possible as this saves us a lot of money, assuming, of course, the alternative was eating out without a coupon. Even though dining out can be quite expensive, it seems that grocery prices are themselves quite high. We sometimes go into the grocery to get just a few items and suddenly realize that we needed more than we originally thought, and end up spending twice what we expected. Even so, buying and preparing your own meals will, in general, be significantly cheaper than eating out. Randy just recently saw a lady on TV showing meals that can feed a family of four for $5.00. For three meals a day, that is $15 per day or about $450 per month. Most people will want to eat out at least once per week. So, let’s initially allot $600 per month. If you find out you can’t even afford the $5.00 meals three times a day, you may have to plan a lot of PB&J sandwiches and Ramen noodles.
Okay, we are about halfway through the budget categories. In our next post we will cover the remaining categories and see where we stand in relation to monthly income.
Charity, Gifts, Mortgage, House Upkeep, Home Decorations, Utilities, Communications, Food, Medical, Transportation, Insurance, Debts, Personal, Miscellaneous, Credit Cards, and Savings
What needs to be done now is to decide how much money you plan to spend each month in each of these categories. However, as we have said before, we do not recommend entering expenditures on your budget spreadsheet every month. That is too infrequent. We believe that twice a month works well. It keeps each spreadsheet at a reasonable size, and it is frequent enough to make course corrections should you find yourself overspending in some categories. So, once the monthly allocations are made, these numbers can be divided in half to determine the semi-monthly budget numbers.
For the remainder of this chapter we will allocate money to the above categories based on a made-up household income. Statistics show that the median household income in the US is currently about $50,000 after taxes. So, that is the number we will use for our sample budget. Since it is rare that both spouses have equal incomes, we will assume one spouse clears $30,000 and the other $20,000 just to make things interesting.
What we will do first is make a monthly allocation to each of the budget categories. This is best done by going through past expenses and estimating how much was being spent in these categories, then making initial allocations based on those numbers. If we find that our income is sufficient to support those level of expenditures while still saving a significant amount, then we are golden. If not, then choices will have to be made about where to cut.
If you work a job where the hours are inconsistent, thus causing your income to go up and down over the course of a year, then budgeting will be more difficult. In this case, you must estimate what your total annual income, after taxes, will be and go with that amount. You should estimate on the low side. Then, if your income is actually higher, you will have more money to put in savings. At any rate, let’s still assume that your total estimated household income is $50,000 and get started.
Charity
If you prefer to actually base your charitable contributions on a percentage of your income and you have a job where your income fluctuates a lot, then you may not want to budget a monthly amount for this category. Rather, when you receive a paycheck, you can simply allot money to this item based on how large the paycheck is. This can make it more difficult estimating how to spread your money across the other categories, so we recommend against this if at all possible. Let’s suppose your past giving was about 5% of your income. At a $50,000 income level, that calculates to $2,500 per year or about $210 per month. Let’s start with that amount.
Gifts
Most people like to give gifts to friends and family at special occasions such as birthdays, Christmas, graduations, weddings, or anniversaries. Many people don’t like to be bound by a budget when giving gifts because they want to be able to purchase whatever is meaningful at the time even if it’s a bit expensive. However, if you’re going to manage your money, spending in this category needs to be controlled just as much as in the others. Let’s set an initial budget of $80 a month. If you have large families and lots of friends, you may want to up this if you find out you can afford it.
Mortgage
Since you are probably making a monthly payment on your home loan, this one is easy to determine. It’s whatever that monthly payment happens to be. We are assuming that the mortgage payment includes enough money to cover homeowners’ insurance and property taxes. Let’s suppose the minimum amount you can pay on your house is $500 per month. This is the initial amount to allocate for the mortgage category. If you later discover that you are putting more than enough money into savings, you will probably want to increase the amount you pay on your mortgage. This will allow you to pay it off early and save money on interest. Make sure your mortgage contract allows increased payments with no penalties. Also, keep in mind that you will want to pay off higher interest loans and credit cards before increasing your mortgage payment. It makes no sense to make higher payments on a low interest loan when that money could be used to pay down higher rate loans.
House Upkeep
This category is difficult to determine since it is impossible to predict what repairs might be needed in the course of any given month. But an educated guess can be made based on past expenses. Let’s allocate $100 to begin with. Adjustments can be made as needed in the future. If any unexpected repairs costing lots of money are needed, you may have to use money from savings to cover them. This is why it is good to have a healthy amount of money in savings. It will allow you to handle contingencies without putting you deep in the red.
Home Decorations
This category is a nicety rather than a necessity. Money from it goes towards things to beautify your home. Of course, if your income is too low to cover necessities and niceties, then the niceties need to be eliminated first. So, let’s start with $50 per month, then decrease it later if we find that we simply can’t afford this amount.
Utilities
Although this is a necessary item, it is also one that can be decreased by making adjustments to your lifestyle. The money allocated to this category needs to cover the total cost of electricity, gas, propane, water, garbage collection, sewage, recycling, and anything else of this nature. Basically, any type of service provided to your home by the city and county where you reside. Of course, monthly bills vary by seasons of the year. It’s much more expensive to heat or cool a home in summer and winter than in spring and fall. So, what is needed is an estimate of the yearly cost of these goods and services, then divide that number by 12 to get a monthly amount. Let’s say this number is about $250 per month.
Communications
It seems that just about everybody has a cell phone these days regardless of income. But cell phones make up just a portion of your communications budget. This category also includes land line phones, TV satellite or cable, Internet service, pagers, and anything else that serves a communications need. With all the different services available, this category can require substantial amounts of money. For a family of four, communications costs can easily reach $400 per month. So, let’s use that number.
Food
As we said before, this is the budget category that our family has the toughest time balancing. We all stay pretty busy, so we tend to want to eat out more often than we should. We use restaurant coupons as often as possible as this saves us a lot of money, assuming, of course, the alternative was eating out without a coupon. Even though dining out can be quite expensive, it seems that grocery prices are themselves quite high. We sometimes go into the grocery to get just a few items and suddenly realize that we needed more than we originally thought, and end up spending twice what we expected. Even so, buying and preparing your own meals will, in general, be significantly cheaper than eating out. Randy just recently saw a lady on TV showing meals that can feed a family of four for $5.00. For three meals a day, that is $15 per day or about $450 per month. Most people will want to eat out at least once per week. So, let’s initially allot $600 per month. If you find out you can’t even afford the $5.00 meals three times a day, you may have to plan a lot of PB&J sandwiches and Ramen noodles.
Okay, we are about halfway through the budget categories. In our next post we will cover the remaining categories and see where we stand in relation to monthly income.
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