My recent plumbing incident has put me in an uncomfortable financial position, which has forced me to revisit the way I budget my money. Specifically, I need to revisit how I’m spending my “discretionary funds,” which for me includes groceries, household, auto fuel, and, well, everything else that is not savings or a monthly recurring bill.
My Savings and Fixed Monthly Expenses:
My savings and my monthly expenses are fixed at a set amount each month. These, I handle pretty well. My recurring fixed monthly expenses (bills) are automatically transferred into a separate checking account than my “spending account,” and my savings are automatically transferred to a savings account.
Once I save my set monthly amount, at the end of the month, I transfer the balance of my savings account into an intermediate bond mutual fund that has averaged a 6.55% rate of return since inception (1999), and an 8.86% rate of return, YTD. All of my savings goes into this fund, therefore, I don’t have a quick-liquid emergency fund. I’m actually okay with this because I’d rather my money earn 8% in a bond fund than .025% in a standard savings account.
My Discretionary Spending:
My problem is with my discretionary spending. It’s all over the place. I don’t have a budget for it, but definitely need one. And one I shall have. I think it’s important to budget my discretionary spending for the simple reasons of easy money management and minimizing stress.
I was comfortable with my discretionary spending “plan” before because for all I knew, as long as my savings and bills were put to the side, whatever was in my “spending account” I could spend. Wrong answer. And now, it seems, that it has caught up with me.
I’ve already made the determination that I’m not taking money from my savings account (the bond fund), so I’ve forced myself to use my “spending account” to buy everything else, and fund my emergencies, and fund my travels (i.e. weddings, vacations, family visits).
Why my Current Discretionary Spending Plan has failed:
My plan was simple yet, complex. It was: Don’t buy a lot of stuff during the month.
The left over money would be for other stuff as it popped up. As long as there was money remaining for other stuff, I was good. It was a complex version of “spend less than you make.”
Unfortunately, my desire to upgrade my home every once in a while, paying for my son’s football activities, buying school clothes, shoes and supplies, going on a Vacation Cruise and then to Punta Cana, and now, my home water accident, has dropped me to my knees such that I may have to extract from my bond fund.
I have to figure this out. I currently have a huge balance on my credit card ($6700). The balance for this credit card was $0.00 on 9/30/12. My new balance, nine days later, includes my home pipe repair costs and plumbing services (~$3,700); a business expense for an app that I’m trying to push into the market (~$1,500); my ceramic tile, grout, and thin set mortar for my floor (~$800); the cost for my upcoming HR Certification exam ($300); my flood insurance premium (~$350); and an upgraded door for my home (~$550).
In other words, all of my spending account expenses (personal and business) are in one lump sum that hasn’t really been budgeted nor exclusively saved for. The killer is, my current total balance in my spending and business account is about $400. This is a prime example of spending more than one makes!
I have about 20 days remaining to pay off this balance before I’m hit with interest charges. I’m trying to pay the balance off without sacrificing my addition to this month’s savings or pulling from my bond fund. Fortunately, the insurance company has already sent me a payment of $4,200, that is really to be used for restoring my home. But, I’ve already applied this amount to the $6700 balance.
I’m hoping that the insurance company also sends me a payment of $3050 to cover the cost of the pipe excavation services. This would be awesome because it’ll pay off my balance in full. So, what’s the catch, right?
Well, I still will have 800 square feet of floor tile that requires installation, and the installation and painting of about 200 linear feet of base molding. Instead of paying the $4000, or so, for a professional to install these items, I’m going to have to purchase some powerful knee pads.
In any case, I have some budgeting to do in order to ensure that I don’t get myself in such a financial mess again. I need to put money aside every month for my travel fund, my business account, my son’s clothing, etc. I don’t need anything else sneaking up on me, catching me off guard.
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DisclaimerThe opinions expressed on this blog are mine and represent my views only. I have very strong opinions, but am also an open-minded individual. If you refute my view with supported, educated and well-argued points, I could very well change my opinion.