5 Little Habits That Are Ruining Your Budget

budget-my-personal-finance-journeyThe following is a guest post by Richard Adams. Richard is a UK personal finance blogger and obsessive money-saver. His blog can be found at http://www.FrugalityMagazine.com. Enjoy!

Budgeting. It’s a critical skill for those of us trying to build a strong financial future. But for all the talk about budgets, controlling your spending can be a lot harder than you might first think.

I speak from personal experience.

Over the years I’ve tried to create one budget after another. I’ll be honest; my initial attempts for a dismal failure. But over time I found my budget getting more and more effective. So while it’s taken some time to reach “budget nirvana”, my own experience suggests it is possible.

The key is identifying those areas that keep on causing problems. Once you know the potential pitfalls you’re all the better prepared to deal with them. As a result you can create a budget that really works, and helps you to control exactly where your money goes.

But if you’re just getting started with a budget, what are those habits that derailed my plans time and again? In other words, what should you look out for if you want your budget to work?

Lack of Visibility

They say that you can’t manage what you can’t measure. Creating a budget is all well and good, but it’s not an end in itself. Instead, in order to control your spending you need constant feedback; both on how you’re doing and on what corrections are necessary.

When I first started budgeting I would create a monthly budget and then run with it. Then just a few weeks later I’d discover that the money had run out (again). The reason was that I wasn’t consistently tracking my progress. As soon as I started to track my money on a daily basis I found it easier to spot any problems, and to modify my spending to achieve my goals.

There are a number of ways to track your budget. Some people subscribe to the “envelope system”, using all cash that has been carefully divided up into categories. Others simply decide on a cash budget for the week, pop it in their wallet and try to make it last. Possibly the greatest threat comes in the form of credit cards and debit cards, because you’re not being faced with actual cash every time you spend.

Under such circumstances try to use one of the many budgeting apps available to track your spending, or install your bank’s app on your phone so you can monitor your balance over time.

The exact system you use isn’t critical, and the best solution will depend on your individual personality. What is critical, especially in the early days of budgeting, is to track your spending on a daily basis.

Someone should be able to stop you randomly in the street, and you’d be able to tell them your bank balance within a couple of dollars. Only when you get to know your money this intimately can you be certain of managing your budget properly.

“Tiny” Spending

We tend to pay a lot of attention to large purchases. That new cell phone or flat screen TV probably gets a lot of research and thought before you finally hand over your cash.

But smaller purchases tend to be treated entirely differently. Whether it’s a takeout sandwich, a newspaper or a packet of cigarettes, these “tiny” purchases are often made without a second thought. After all, how much of a difference is a couple of dollars really going to make in the grand scheme of things?

The honest answer is: quite a lot. The reason is that because many of us are happy to spend small amounts of money without too much consideration, we tend to do it regularly. That daily newspaper and coffee can quickly start to add up.

The key message here is that all spending matters, irrespective of how insignificant the sum really is. Pay attention to where your money is going, and make conscious decisions about how you’re going to spend (or save!) every last dollar.

Lack of Control

It’s no secret that budgeting your money can take a fair amount of self-discipline, at least in the early days. All too often I speak to people who start off with the best will in the world, only to give in to temptation a short while later.

Fortunately there are all sorts of ways to do this. One of my favorite examples is to think of money not in terms of dollars, but in terms of hours worked. Figure out your hourly income (after tax) and look at prices in terms of “4 hours of work”. Applying this principle I’ve found that spending my money looks rather less appealing.

Unexpected Expenses

One of the most frustrating aspects of carefully planning your spending is when an unexpected bill drops through the door, or your car suddenly needs some emergency work. In the space of a few minutes your whole budget gets blown out of the water.

The funny thing is that unexpected expenses don’t necessarily need to be so much of an issue.

There are two solutions I have used which make such expenses almost a non-issue.

The first of these is the creation of an “emergency fund”. This is a pool of money separate to your budget which sits in an instantly-accessible account exactly for situations like this. If a financial emergency arises you can simply draw money from this fund without needing to touch your budget. Then next month you can simply modify your budget to start rebuilding that fund.

The second solution is that most other unexpected bills can be planned for, if you base your budget on a long-enough period of time. For example I pay my car insurance once a year, and it would be all too easy to be surprised the next time it comes around. Instead I have planned out all these payments in advance, and put aside a small amount of money in my budget to cover them. When that insurance finally becomes due I’ve already put aside all the money over the preceding months.

In other words to avoid unexpected expenses derailing your budget take time to start an emergency fund, and to consider what big purchases you make only occasionally and plan for them well in advance.

Unnecessary Waste

The last factor which can ruin your attempts at budgeting is simply “waste”. One of the most common examples is the amount of food that people throw out each week because it is past it’s best. As a result they’re literally throwing money in the bin, then having to replace that food with yet more. If you budget $100 for groceries then throw $25 worth in the bin you better believe your budget is going to struggle.

So take the time to learn how to control the waste that comes out of your kitchen. In doing so you can be sure to use as much as possible. For example, consider freezing items like bread and milk to keep them fresh, only defrosting them when you really need them. Additionally, consider buying frozen vegetables rather than their fresh equivalent. They’re just as nutritious but won’t go off while your back is turned.

As you can see there are all sorts of ways that your budget can fail – but in almost every situation there are solutions. If you’re going to invest the time to actually create a budget, then these simple principles can make it all the more effective. Produce a budget that truly works and you’re well on your way to better times.

How about you all? What habits do/did you have that did a number on your budget? How did you fix the problem?

Share your experiences by commenting below!

***Photo courtesy https://www.flickr.com/photos/68751915@N05/6869762317/

How to Get an Online Loan for Your Business

The following is a guest post. Enjoy! 

Many small business owners need to borrow money to help their business grow, but they find that getting a traditional bank loan is too difficult. Banks have extensive applications, credit score requirements and often are reluctant to lend to new businesses without several years of an established track record of earnings. Also, many banks have limited the number of loans they make in smaller amounts of $200,000 or less, which is often the amount of money that truly “small” or startup businesses want to borrow.

With these challenges in mind, many small business owners are looking to new options to get small business loans. Fortunately, there are several alternatives now available, known as platform lenders, which offer online loans for small businesses.

If you are considering getting an online loan for your business, here are a few key points to keep in mind:

Do Your Research

Before choosing a lender for your online loan, it’s important to do your homework. Compare a few different lenders and the types of loans they offer; read customer reviews and Google each company that offers online loans to see if they have any complaints or regulatory issues. You should make sure you’re dealing with a legitimate company that has a good track record of solid business ethics. Read news coverage about the various online lenders that you are considering to see how their lending platform works and whether their model of online loans is right for your needs. Different online lenders serve different types of customers and offer different sizes and terms of loans – not every lender is the same and not all of them might be the right fit for your business.

Provide All Necessary Information

Many small business owners get frustrated with the traditional bank loan application process – filling out pages of forms and waiting a long time to get a decision. Many small business owners feel like banks are only interested in their credit score and income history, and are not paying enough attention to the bigger picture of what their business is about and how their business can become more profitable. This is one area where online loans for your business can be a great solution because most platform lenders look at a wider variety of information when deciding whether to issue you a loan. Instead of just looking at your credit score or track record of earnings, platform lenders will often assess your PayPal transactions, your social media following, your current cash flow and other factors that are often more favorable for startups and online businesses. Especially if you run a relatively young business and you do a lot of sales online, online loans might be the right solution for your borrowing needs.

Understand How Your Loan Works

Before you commit to getting an online loan for your business, make sure you understand the fine print of how your loan works – including the terms, repayment deadlines and total fees. Many online loans work like a “line of credit,” also known as a revolving credit account, which gives you a credit limit (similar to a credit card) that you can borrow from as much or as little as you need, and then pay back over time in flexible installments (either all at once or in smaller amounts, as long as you meet your minimum payments). But some online loans might require fixed monthly payments, so be sure that you understand exactly what is expected and can pay off your loan in whatever manner works best for your business.

How to Get Top Dollar When You Sell Your House

home-for-sale-my-personal-finance-journeyThe following post is by MPFJ staff writer, Laurie Blank.  Laurie is a wife, mother to 4 and homesteader who blogs about personal finance, self-sufficiency and life in general over at The Frugal Farmer. Part witty, part introspective and part silly, her goal in blogging is to help others find their way to financial freedom and to a simpler, more peaceful life.

Spring has arrived, which means the real estate market is hot right now. This CNBC video shows that existing home sales in the U.S. for March of 2016 surged much higher than expected.

Where we live, houses are popping up for sale like crazy. My family and I often talk about this surge in home sales in our area (in the Midwest) and why so many people are selling right now.

Are they feeling secure in America’s economic situation and upgrading?

Are they sensing economic doom and downsizing in order to pay off debt?

I can’t answer that question, but as someone who has a history of working in real estate and has sold two homes in the past, I can tell you that there are certain things a homeowner can do in order to get top dollar when they sell their home.

Read on for this list of suggestions on how to make sure that you get as much profit as you can when selling your home.

Do Your Research

Research is vital to a profitable home sale. What are similar houses selling for in your area? Are people eager to move into your area? If so, why? What does your neighborhood have to offer?

Use the Internet and the wisdom of a trusted realtor in order to get a clear picture of how much houses are selling for in your area. A good realtor will find comparable sales for homes like yours that have sold within the last six months so that you can get an idea of what “top dollar” means.

Check out the listings for houses in your neighborhood or area that are currently on the market. Look for houses with similar square footage and a similar number of bedrooms and bathrooms.

Look at the interior and exterior photos for the current listings. How do the houses compare to yours? Are they better? Worse? More upgrades? Less upgrades?

Doing your own research on how much houses are selling for in your area will help you to prepare your house to sell quickly and to get top dollar when it sells.

Neatness Counts

When we sell our houses, we always try to make them look like model homes. Not so much in features and decor, but more from a neatness standpoint. When potential buyers walk into a neat and clean home, they’re much more open to considering buying. Here are my tips for making your home feel warm, welcoming and attractive:

  • Clean out and/or organize closets, drawers, appliances and cupboards in every room
  • Remove personal effects such as family pictures and personalized items
  • Declutter each and every room, packing away or putting in drawers items that don’t add to the feel of the house
  • Deep clean each room. Vacuum well, wash baseboards and give the kitchen and baths a good scrubbing
  • Be sure that beds are made and that counters, desks and tabletops are clear of non-décor items
  • Add small touches such as matching bath towels, small artificial flower arrangements and other items that bring extra shine to your home.

Make Your Home Move-In Ready

Make sure needed repairs are done. Wash your windows. Have carpets cleaned and give your walls a fresh coat of neutral-colored paint if needed.

Be sure the yard is clean, mowed and trimmed and has great curb appeal. Set out a small welcome mat and maybe a pot or two of flowers at the door.

Be sure that your home is in such great shape that the new owners will have to do little or nothing when they move in. Many prospective buyers will walk away from a home if there’s a lot of work to do to before they can move in.

Put Special Focus on Your Home’s Best Features

What is it that you love best about your home and yard? Chances are that interested buyers will love those same things.

Do you have a great family room? If so, focus on giving that room special attention when you sell. Do you love the fire pit in your yard? Add some ready-to-be-burned logs to the fire pit and put a few chairs around it.

By putting a special focus on your home’s best features, you help potential buyers to adore the same things about your home that you love.

Following the tips above will help ensure that you can sell your house for every penny that it’s worth. Don’t miss out on valuable profit by not making your house shine before you put it on the market.

How about you all? Have you sold or bought a home in the past? What is it that attracts you to a home when you walk in the door?

Share your experiences by commenting below!

***Photo courtesy https://www.flickr.com/photos/39136843@N05/3709571684

What’s It Like Attending the Berkshire-Hathaway Annual Meeting?

The following post is by MPFJ staff writer, Marie. You can read more of Marie’s articles over at her own blog, Family Money Values. Enjoy! 

Annual company shareholder meetings are typically pretty boring and infrequently attended.  The Berkshire annual meeting has, to date, been an exception.  Nicknamed the Woodstock of Capitalism, this meeting has historically been a sell out event in Omaha, NE.  Specifically, hotel rooms have usually booked up months before the spring meeting.

I’ve owned some B shares (the cheap shares) of Berkshire for 3 years now and have attended the meeting each year.  My family lives just a 2.5 hour drive from Omaha, so for us, the meeting is close enough for a day trip.  B shares have only been sold since 1996.  Baby B’s, as they are called, currently sell for around $140 per share while the original A shares market price hovers around $220,600 per share.

Attendance History

The first year we attended the meeting, we invited our two grown sons to go with us and since one lives out of town, we all drove up Friday evening and spent the night in a hotel so we could attend the morning activities.  We arrived at the meeting well after the doors open (we didn’t relish the thought of standing in line for hours to get in) but prior to the opening ‘show’.  The show is just a movie that is played on the multiple large screens in the Centurylink Center in downtown Omaha, NE.  That first year it seemed to us to be primarily a promotional movie – entertaining yes, but not what we came for.

In subsequent years, my spouse and I left our home early Saturday and drove up, missing the overpriced hotel rooms and the long lines trying to get into the stadium.  But we did arrive in time to listen in on several hours of Buffet/Munger Question/Answer time as well as to peruse the exhibit hall were many of the Berkshire owned companies offer discounts or information about their products.

Over the years, the number of attendees at this annual meeting has risen, from about a dozen in the late seventies to the probably max at last years meeting.  Attendance at the event last year was around 40,000 – so not everyone fits in the stadium at the same time (it holds around 20,000).  Although the stadium looked pretty full when we headed in after the lunch break, there were empty seats this year (unlike last).

The meeting was live streamed for the first time this year, probably reducing the number of live attendees.  You can listen to it until the end of May on Yahoo Finance.  I’m betting that 2015 will be regarded as the height of attendance for this event.  Some journalists are theorizing that Buffett and Munger are starting a transition phase wherein their predominance at the meetings will begin receding, but most anticipate that for next year, at least, barring unforeseen circumstances, both will still be strongly involved in the meeting.

It’s a Marathon

I’ve been hoping to take my grandchildren to the meeting, but knowing they are too young to take much interest, have avoided it to date.  Next year may be their year – I want them to go while Buffett and Munger are still highly involved with it.  The kids will be 12 and 9 and may be able to sit still for an hour or so of the meeting itself, and will no doubt enjoy eating Dilly Bars with us in the exhibition hall.  I need to take them soon, after all Buffett is 85 in 2016 and Munger is 92, and they appear to be phasing out of the meeting.  Not that I blame them!

It’s got to be an endurance test for both – 3 days of being ‘on’.  At least 6 hours of impromptu (to them) question answering in front of crowds in the tens of thousands; plus one on one interviews; walking the expo hall; dropping in on Omaha BRK company events throughout the weekend; and more.  You can see the full weekend schedule here.  I wonder if they are sorry they ever started making such a big deal out of the annual meeting.  By the end of the Q &A, Buffetts voice is typically cracking.  I couldn’t do it and I’m 20+ years younger than they.

At least they don’t attempt the 5K race on Sunday!


Shopping the Exhibition Hall

Always before, we have waited until the meeting broke for lunch (an hour starting at noon) to hit the expo.  This year, my spouse and I went straight there after arriving in Omaha and hiking in from the parking lot ($8 to park plus gasoline was our only cost to attend).  It is a huge hall with 43 Berkshire companies exhibiting.  While still crowded before lunch (and was also on Friday – according to an employee – an insurance adjuster – of one Berkshire company we met standing in line to walk through the $300,000 Forest River RV), we could at least walk around without having to stop and wait for a break in the flow of people.

Some of the more popular exhibits included Justin Brands, which had a store sized exhibit with lots of different styles of boots available to purchase.  Fruit of the Loom was also well attended, with nice discounts on underwear and fun special products like t-shirts saying ‘Future Warren Buffett’ or “BRK Meeting’ or paper hand held fans with Munger’s face on one side and Buffett’s on the other.  If you want to wait in line you can walk through the inside of one of the Netjets plane models or (as we did), look inside luxury RVs; campers or mobile homes.  See’s candy, Nebraska Furniture Mart and DQ also had discounted wares for sale.  Not only were the Dilly Bars 50 cents cheaper, but it was also quick to get – and you could easily walk around with it while strolling through the exhibits.  We each had two!

While the BNSF model train exhibit was exciting (yes even for adults), knowing that you own a tiny share of a railroad is also exhilarating, even if maintenance costs still exceed depreciation costs as we learned during the Q & A.

Once the meeting let out for lunch, the floor gets so crowded that if you want to stay together, you’d better be holding hands!  We left to make our way to the meeting when the crowds got overwhelming.


The Q & A

Looking around the crowd, I saw mostly white folks, with a sprinkling of other races, evenly distributed between men and women, young and old.  Attire ranged from very casual to high heels, with dresses or suits and ties.  All of us had the ubiquitous lanyard with our blue plastic meeting credentials hanging around our necks.

Walking into the meeting arena you see at one end, a stage with 3 tables, the center one being where Bufett and Munger sit, the one one the left and right hold analysts and/or journalist who read or ask the questions.  Non participating press members sit high in the stands.  At the other end of the room this year, was the equipment to live stream the Q & A sessions.  On the floor in the middle there are folding chairs holding board members and other privileged attendees nearest the stage and other shareholders further back.  Bill Gates is a board member, so it is kind of a thrill to see him in person.

Across the other 20,000 or so seats you could see papers, bags, or signs taped to the backs of chairs or folks sitting in them – all reserving space for when the meeting started back up.  Multiple big screens are in place around the front of the arena, no need to bring your binoculars.  Taking pictures is prohibited, and you could lose your camera or cell phone by doing so.

Around the room there are 9 different microphone stations from which selected attendees ask questions.  The selection happens at 8:30 AM with a drawing.

Attendees get chummy – conversations spring up between folks in line, and folks sitting close by (as in most stadiums, the seats were cramped) and etc.  I sat next to a young man who looked like he might be Chinese. He was holding some equipment that I imagined to be a translation device. Some journalists estimate that there were at least 3000 people from China attending. On the other side of us was a young man from Omaha.  The folks in front were from New York.  It is fun and interesting to see where people are from and why they come to the meeting.

Security officers could be seen pacing the the floor, and yes, you do get your bag checked, and walk through a metal detector upon entry to the Center.  Attendees seemed quite comfortable leaving their possessions at their seat while they went elsewhere however.

After Buffett and Munger took their seats following lunch, the lights were dimmed and Warren casually said ” OK lets get started” and named the first person who was to ask a question.  He alternated letting questions come from journalist (reading ones pre-submitted by email from shareholders); analysts; or live selected shareholders (which he identified by the microphone station from which they were to ask the question).  One young shareholder from Arizona wanted to know what they thought of the cattle business – as his family had a cattle ranch in Arizona.  Although Buffett typically talks at length on each question before deferring to Munger, this time he passed it right along.  Charles Munger is nothing if not direct (he is also so very funny).  His response was something like “It’s among the worst businesses I can think of”.  Then there was this dead silence until Warren stepped in to attempt to soften the response just a bit.

For a nice summary of the questions, if you don’t want to sit through the saved feed on Yahoo, check out Market Watch.  Many with press credentials post live comments (like this Market Watch post) while they are attending the meeting.

Following the Q & A, the actual shareholder meeting part of the event takes place, again led by Buffett.  It has the typical format, do we have a quorum, election of board members, ratification of accounting and etc.  At this years meeting, however, a shareholder issue was presented.  I’ve seen these being voted on in other company’s proxy votes, but had never witnessed one in person.  This one was in favor of reporting by BRK on how climate change would affect the insurance part of the business.

In fact, it was an opportunity for activist to present a case to powerful board members in a highly public venue on why something should be done about climate change (specifically, they wanted carbon fees).  It was (as with many of these types of shareholder proposals) an attempt to draw attention to their cause.  The written proposal was projected on the screens and the proposers verbally made their case.

Speaking for the cause was a doctorate holder predicting that the seacoast cities would soon be destroyed by melting glaciers making the sea level rise, with multiple speakers following him who made a case for Buffett and Berkshire to get involved with the cause. After each speaker, Warren would comment – typically that yes, he knows that climate change is an issue and needs to be dealt with, but that it won’t be affecting the risk level of the BRK insurance arms in the next few years.  Although he probably personally would support the cause, he kept his eye on the mission of BRK and kept coming back to it.  The shareholders had already rejected requiring the report.

We enjoy attending this event in person.  It is interesting to see some of the other shareholders, knowing that they are probably among the world’s success stories (since we all own the stock) and to be in the presence of two of the countries financial ‘elders’ dispensing their wit and wisdom.  Attendees all appear to have a somewhat similar goal – learn from the best investors of our time – almost generating a cult like experience.  The shopping’s not bad either!

How about you all? Have you ever been to a stockholder meeting? What was it like? 

Share your experiences by commenting below!

***Photo courtesy of https://www.flickr.com/photos/e27sg/6725868673/in/

How to Handle Irregular Expenses in Your Monthly Budget

cell-laptop-my-personal-finance-journeyThe following post is by MPFJ staff writer, Melissa Batai.  Melissa is a freelance writer who covers topics ranging from personal finance to business to organics to food.  She blogs at Mom’s Plans where she shares her family’s journey to healthier living and paying down debt.

Every month, my husband and I were coming up short financially.  Each month I carefully laid out a budget, and I followed it as well as I could.  I say as well as I could because each and every month, I went over budget.  One month it was because I had to pay our annual Costco membership fee.  Another month it was because I had to buy stamps, new checks, and pay for our license renewal.

See, I was good at budgeting for monthly, regular expenses.  I was even fairly good at budgeting for expenses that came every three months like our garbage bill or every six months like our car insurance.  But there were a lot of expenses that came only once a year or erratically that I didn’t account for.

When you’re living on a tight budget, those unaccounted for expenses can ruin your budget and send you into credit card debt or make you raid your emergency fund.

However, there are two ways you can handle these expenses and keep your budget and your finances on track.

How to Calculate Your Irregular Expenses

The first step toward making your budget work is to consider ALL of the irregular expenses you paid in the last year.  I’m not going to lie—this is going to take some time, and it won’t necessarily be a good time, but once it’s done, you won’t have to do it again.

Simply get out your credit card bills for the last 12 months as well as your checkbook.  Keep track of anything you paid for that wasn’t part of your regular budget.

Just to get you started, here are some expenses you’ll want to look for:

  • Yard and garden supplies/maintenance
  • Pest/termite control
  • Home repairs/maintenance (remember, experts recommend you put aside 2 to 4% of your home’s value per year for this)
  • Maintenance agreements
  • Water softener
  • Emission inspection
  • License renewal/registration
  • Car repairs
  • Medical bills
  • Prescriptions
  • Dental bills
  • Optical exams and glasses
  • Vitamins/supplements/protein powders
  • Umbrella insurance
  • Donations (such as when the neighborhood kids needs to raise money for his school)
  • Professional dues/licenses
  • Warehouse club membership fees
  • Printer ink/paper
  • Online filtering
  • Magazines
  • Dry cleaning
  • Parties
  • Recital fees/outfits for kids’ activities
  • Yearbooks/class rings/letter jackets
  • College application fees
  • SAT/ACT testing
  • Pet food/toys/grooming
  • Vet expenses
  • Animal licenses
  • Tax preparation fees

The Slush Fund

The first method is the slush fund, and like its name implies, it’s simply one big pot of money for unplanned or irregular expenses.

Who Should Use the Slush Fund Method

The slush fund is perfect for those who feel bogged down by keeping track of every single expenditure all month long.  These people don’t want to have to keep track of every penny like an accountant.  They just want to make sure that when the time comes to pay irregular or unplanned expenses, the money is there.

How the Slush Fund Works

After you’ve calculated all of your irregular or unplanned expenses for last year, divide that number by 12.  For instance, let’s say your irregular/unplanned expenses for last year came up to $14,500.  You’d divide that number by 12 to give you approximately $1,208 a month that you would need to set aside in your slush fund.  Then, you just dip into the slush fund when one of the expenses comes up.

Does your child need $80 for a college application fee?  It’s right there waiting in your slush fund.  Do you need to pay $95 for your annual vehicle registration?  Just dip into your slush fund.

If you are disciplined with your money, you may want to leave this money sitting in your checking account.   However, if you’re someone who will spend the money if it’s there, you may want to open up a separate account and have the money automatically deposited straight from your paycheck to your slush fund account.  Then, as you pay the expenses the slush fund is to cover, simply transfer the money to your checking account.

The Separate Accounts Method

There is another, more detailed method that you can use besides the slush fund that I call the separate accounts method.  Using this method, you create a separate category for each irregular/unplanned expense or group of expenses

Who Should Use the Separate Accounts Method

This method works best for those who would like a more detailed record of their expenses and spending.  It also works well for people who are on a very tight budget and have to curb their irregular/unplanned expenses as much as possible.  It’s also very good for those who like the envelope system as recommended by Dave Ramsey.

How the Separate Accounts Method Works

Rather than lumping all of the irregular/unplanned expenses in one category as you do with the Slush Fund Method, you instead separate them out and put a certain amount in each account.  For instance, let’s say this year you know you’ll likely need to pay $800 total for your daughter’s SAT and ACT testing as well as college applications.  You’ll divide $800 by 12, and then each month, you’ll put aside approximately $66 for this expense.  You’ll write this in as a regular line item on your budget.

Similarly, if you pay $300 a year for pest control, you’ll put $25 a month in your budget and ear mark it for pest control.

When one of these expenses comes up, you simply pay out of the money you’ve accumulated in that category.

Drawbacks to Each Method

There are drawbacks to each method.  With the slush fund method, you may overspend in one area because you see a large chunk of money sitting in the slush fund.  For instance, if you budgeted just $400 a year for clothes, but you see $3,800 sitting in the slush fund, it’s easy to rationalize that the money is there to buy more clothes.

That can’t be done as easily with the Separate Accounts Method because you can see that you only have $165 in the clothing account after putting the required $33 away per month for clothes for five months.

On the other hand, the Separate Accounts Method also has its drawbacks.  Let’s go back to the daughter who is applying to colleges.  She may spend $100 in March to take the SAT and ACT, and then she may need $700 in October when she’s filling out college applications.  Because you’ve budgeted $800 total, if you’re starting your budget in January, by October, when she’ll need all of the money, you’ll only have $660 saved, so you’ll be short in this category.  You’ll then have to take the remainder of the money you need out of your regular budget or out of another category, neither of which is a necessarily good option.

The Slush Fund Method doesn’t have the same problem because you can use whatever money is in the account for any one of the expenses that you’ve accounted for whenever you need it as long as you don’t spend more than is currently in the account.

Irregular and unplanned expenses have the potential to wreak havoc with your budget.  However, if you use one of these two methods, you can gain the upper hand and have better control over your finances.

How about you all? Do you use either of these methods to handle unplanned or irregular expenses?  Which do you prefer?

Share your experiences by commenting below!

***Photo courtesy https://pixabay.com/en/office-tax-business-finance-620822/