Monday, October 24, 2011

Budgeting after debt elimination

I've spent quite a bit of time thinking about budgeting and how to manage it once I'm out of debt.  The sad fact is that if I'd handled my budgeting better over the last three years (since I moved here) I'd already be out of debt now.  Even if I'd been budgeting properly in the last few months, I'd be far closer to my goal of being debt-free by the end of 2011 (which is not going to happen now).

A few months ago I found this budget spreadsheet on the marriedwithluggage blog.  I've come across lots of different budget spreadsheets over the last few years of reading more personal finance blogs and websites but never found anything I liked better than what I had developed myself.  But this one, I really like.  Others have always seemed far too complicated and awkwardly set up for my use and so I have just stuck with what I came up with myself, which I have refined over time (probably to the extent that to anyone else it wouldn’t seem simple at all but that’s the way these things go).

However, having learned quite a bit about money, budgeting and, most importantly, my relationship with money (which is sometimes none too healthy) I have learned that I do need a different way to budget. At first I told myself that I would need a new way to budget because I would be out of debt and would have more money at my disposal and would need to make sure not to go crazy buying stuff I don't need or want.  I'd even started writing a blog post about it, very little of which is making it into this post becuase after writing it and after messing around with this new spreadsheet for a bit I realised that my thinking has been flawed all along (given how long I've been in debt, some might say that doesn't come as a big surprise).

Actually, I've changed my mind and am going to include here the bulk of what I started writing a few months ago.  Come to think of it, I think this was mostly what I posted in a comment to that blog above.  I was obviously so impressed with myself I decided it was worthy of a blog post of its own.

Begin: At the moment I simply can’t budget in a big way for things like eating out, entertainment, clothes or basically anything that isn’t absolutely necessary.  I make my fixed debt payments, pay whatever other bills are due, make only slightly higher than minimum payments to credit card and by the time I’ve transferred a small amount to savings to cover annual expenses there really isn’t an awful lot left so it gets divided by the number of weeks that month (four or five) and that’s what I have to spend on everything that week.
By July I will have finished paying off some large dental bills that have really been hurting the last few months (I should have paid them over longer than six months, but that would have involved interest so I decided not to do it) and also have made my final payment on the big loan I took out five years ago. After that I will have some overdraft and credit card debt but plan to have that fully cleared by the end of the year.

So I will need to start thinking much differently about the way I budget and actually budget for what I need in various categories.  I must start keeping my daily log again so that in a few months I have a somewhat realistic idea of what I actually need to be spending on the various categories.
End quote.

You see, what I realised after having written that (in April, I just checked) and allowed it to simmer under the surface while I struggled with a massive depression and a bad work situation, is the fundamentally flawed aspect at the beginning of it.  "I simply can't" when really the truth is that I simply don't.  And now I need to just start doing it. 

Since I made my final loan payment at the end of July I haven't done too well on actually keeping to the kind of budget I was.  Partly because I'm just so sick and tired of having to be careful.  And I've always struggled with that line between what is sensible budgeting and what is sackcloth and ashes budgeting anyway.  Sometimes trying to keep myself sane has come before getting myself out of debt more quickly but I made the decision a while ago that as long as I do things consciously then I am okay with that.  But I definitely don't want to be sitting here in October 2012 talking about still being in debt.

Using the spreadsheet above I actually played around with how I would do if I was earning different amounts of money (I needed this badly when I had started looking for a new job so that I could figure out how much of a drop in salary I could sustain if necessary).  And I found that a big help.  I also needed some different categories and, since I have a tendency to need to micro-manage spending at least for a while until new habits establish themself, I broke some categories down even more.  For example, I don't have any pets so that section was gone.  I replace it with a breakdown of not just food and drink but more detailed.  Because I don't just spend my money in one place.

Food became:
  • Farmers' Market
  • Fair trade shop
  • Supermarket
  • Other
  • Preserving supplies
Drink became:
  • Wine
  • Beer
  • Water (I buy fizzy water - sometimes I like someting fizzy to drink but I haven't got the sweet tooth for things like coke or fanta these days.  It's also handy to have for guests - if a German asks for water, nine times out of ten, they'll mean fizzy)
  • Other
This post is long enough for now and doesn't quite say all that I wanted it to say but I'm just going to hit publish anyway.  If I think too much about this stuff part of it goes away before I can finish.  My main point for now is that the type of budgeting I 've been doing just won't cut it if I ever want to get to a healthy financial situation.  But it's not just the budgeting that needs to change, it's the way I think about it.

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