You Need A Budget...Here's How {and a giveaway}

Each time we ask our readers what they're interested in, we invariably get an inquiry about budgeting. With a new year just getting started, we thought it was time to revisit the topic. A year ago we ran a YNAB giveaway and offered an additional entry to any of you who left a budget-related question in your comments; I read through them as I thought about what to post today...

There were a lot of questions about how to cut back. The best way to cut back is to make and live on a budget, but let's be clear about one thing - budgeting does not mean living like church mice. Budgeting simply means deciding beforehand how you will spend your money instead of wondering where it all went after the fact. But if you do want to cut back, budgeting increases awareness of spending, and careful record keeping allows you to see that you are, in fact, nickel and dime-ing your money away at Target. The best way to cut back and become wiser about your spending habits is to tie yourself very closely to the outflows - that is, record each one. YNAB (the budgeting software we use) recently introduced a budgeting app for the iPhone. I downloaded the app a few days ago and am already impressed at what a difference this new "closeness" with my purchases is making. I am spending more mindfully - allowing me to spend on the things I really value and cut back on everything else.

A few of you seemed overwhelmed at the very proposition of creating a budget.
I thought it might be helpful to tell you a bit about how we budget at our house - this will hopefully answer several of the questions left in comments a year ago. I'm not pretending to be an expert, but this system works for us.
Because my husband is self-employed, our income is variable. We start with a sum that we know will cover our monthly expenses. We then allocate those funds to the categories we have chosen, starting with the most important categories first. For us, these categories are:

*Tithing (10%)

*Charitable Giving

*Savings (this is long-term/retirement savings that we "don't touch." We save at least 10% to long term every month.)

*We have a reserve of 6 months of living expenses on hand. If we didn't have this, we would be putting a little away each month to build it in case of job loss, disability or other emergency.

*We also put aside money every month for car repairs/to save for a new vehicle, which we know we will eventually need. I recommend that you try to anticipate one-time expenses that are likely to arise and make sure that you start building savings for these kinds of things - car repairs, medical bills (at least enough to cover the deductible on your plan), Christmas, etc.

Here's a screenshot of the YNAB budget interface, in case you're curious. (p.s. this is not our financial information)

We then allocate the remaining funds between the rest of our categories, also arranged in order of importance. When we first started budgeting and money was really tight, we had our categories broken down very specifically. Now we care more about the cash flow in and out than the little details, and our categories have become more broad. If you're just starting out, I think it's good to be specific; you want acute awareness.

We budget for gas, insurance (health, car, and life), utilities, kids (clothes, incidentals, etc.), miscellaneous, date night, fun funds (my husband and I each get a certain amount of money every month that we don't have to be accountable for in the budget - fun money. This has saved our budget. And maybe our marriage. However, in months when money is really tight, we don't fund these (and sometimes others of the discretionary categories as well). It's sad.)

If we have money leftover after our necessary categories are funded, we talk about what we want to do with it. Often we'll think of a mid-term goal we want to achieve (take a vacation, buy a new appliance or piece of furniture) and we'll stick the excess in a "save to spend" category and let the excess accrue until we're ready to make a purchase.

At the end of each month we reconcile our actual spending with our projected budget. YNAB makes the process slick and swift.

I know this is a lot. I'm sorry if it was overwhelming or confusing. Please feel free to ask questions in the comment thread. I want to say two things before I wrap it all up: some things get easier as you make more money, but a lot of things don't. Don't wait to reach some arbitrary income horizon before you start saving, or giving. Do it now. Even if it's just a tiny bit. If you can't be generous with a little, you (probably) won't be generous with a lot. If you can't live beneath your means with a little, you (probably) won't live beneath your means when they are more substantial. And finally, don't be discouraged by the distance between where you're at and where you'd like to be. Just start. Make small changes. Do what you can. Progress will come. And so will peace.

xo,
Em

*** !Giveaway! ***

We do all of our budgeting with YNAB. We love it. (You already know as much - and if not, you can read about it here). Today we're giving you the opportunity to win a copy of the latest version of the software.

Leave a comment to enter. Additional entries given for tweeting/facebooking/blogging about this giveaway. Please leave an additional comment for each additional entry. And please make sure we can contact you through your comments - we don't like hunting down winners!

F. Y(nab). I

Just wanted to let you know that the folks over at YNAB (You Need a Budget) are sponsoring a fantastic contest/giveaway. If you're a YNAB user and feel like the program has helped change your financial life, submit your success story for a chance to win a Macbook Air.

3 Runners up will receive iPads.

And just for entering you'll be entered into a drawing for a $100 Amazon gift card (there are 2 up for grabs).

We've been using YNAB for nearly 5 years now and it has been such a boon in helping us get/keep our financial house in order, even in a very non-traditional income-flow season of life. Love the program. Love the people behind it. It really is good stuff. Just wanted to let any other YNAB users out there know about the chance to share their YNAB story and win a sweet prize!

Stay tuned for more budgeting talk at Bloom in the new year and there may or may not be some software up for grabs for a few lucky Bloomers (wink! wink!)

Enter the contest here. Deadline: December 31, 2010 (midnight).
Learn more about YNAB here.

Interview with Jesse Mecham of YNAB

It's no secret that we think budgeting is cool, and good, and important. Bloom's budget of choice is YNAB; it's a very helpful tool for our families (Anne's and mine) as we try to keep our financial houses in order.
Today we bring you a few words of wisdom from YNAB's creator, Jesse Mecham. Probably aren't many people on this planet who know more about effective money management than Jesse. So, listen up. And enjoy...

Hi Jesse - welcome to Bloom, and thanks for being here. Tell us a little about yourself and your family and give us the Reader's Digest version of the YNAB story.

Julie and I have four kids, from 4 months old to almost six. We began our married life broke, I recognized the need for a budget, and developed the YNAB methodology basically out of tweaking our own situation. Once we were expecting our first, I thought we could try and market the budget to bridge the income gap we would have with me trying to finish school and Julie staying home to be a full-time mom. YNAB's just grown slowly from there over the past 5 1/2 years.

In one way or another, you're exposed to peoples' financial lives quite often. From these interactions, what do you perceive as the biggest (or a few of the biggest) financial problem(s) facing individuals/families today?

Communication in families. People don't communicate their goals, desires, wants, needs, etc. I guess couples just assume that the other will be able to divine those things? You're starting from behind the 8-ball in that regard.

For individuals (and families), it's awareness. Being aware of your goals, being aware of what your money's doing. Just getting it to jump in line with what you really want instead of having your money do its own thing as you attempt to earn more money during the majority of your life.

What is your advice for people who say "we just don't have enough to save?" What advice do you have about breaking saving down into more manageable steps?

You always have enough to save -- even if it's literally just a few dollars. When people tell me they don't have enough, I usually give them a challenge to write down in a notebook everything they spend for one month. People find leaks in virtually every financial situation.

Marital harmony around finances is something you emphasize a lot. It seems that you have achieved this in your own marriage and believe that YNAB helps others achieve it as well. What are some of your thoughts/suggestions about resolving money-related conflict in marriage?

Sit down once a month and budget your money. Everything's out in the open and you and your spouse can stand across from each other financially naked. Uncomfortable at first, but you get used to it quickly and soon it becomes downright enjoyable ;)

When it comes right down to it, controlling spending, much like controlling a physical appetite, is a matter of changing behavior. From your observations, what kinds of things are really effective in helping people change behavior?

Mentioned above is just being aware of every outflow. Dieters keep a food journal (though I hate the word dieter because it sounds so fleeting) and anyone who wants to become a bit more connected with their money needs to record every outflow. It's not rocket science, but it takes a wee bit of discipline. We have a YNAB iPhone app in beta at the moment and I'm excited by how it's helped me get psychologically more connected to my purchases at the point of sale -- very effective. Everyone needs to be doing this (even if you hold up the check-out line for a few more seconds).

Budgeting has kind of a poor-man's connotation. Tell us why you believe budgeting is for people at every income level.

Thomas Stanley makes the greatest case for budgeting being an activity of the Rich (perhaps not Rich & Famous). Millionaires are aware of their finances. They have financial goals, and they have plans to reach those goals. At the end of the day, a budget is just a plan (a flexible, living plan).

Tell us why and how YNAB is different from other products/programs. How does it help people gain control of their finances?

We provide phenomenal support, live classes (free) and hours of video tutorials covering every nook and cranny of the program. We really want you to succeed in this! That's the best business strategy we can have is to convert people to budgeting and then have them convert their friends on our behalf ;)

YNAB, as a software program, is designed phenomenally well, primarily by Taylor Brown, the lead programmer. He's a genius when it comes to usability, workflow, etc. Not that most people really think about that stuff when purchasing a program, but in the long haul, it makes a big difference because you'll find it's literally a joy to use.

There's a bit of a learning curve on how the methodology works with the software. Take a free class, see what we're about, give us a trial run, and watch your bank balances slowly climb! :)

Thanks for sharing your thoughts with us, Jesse.
You can read more of Jesse's thoughts about life, money and budgeting at his blog.

You can read more from about budgeting from Bloom here.

You can ask us your budget-related questions (to be addressed in future Bloom posts)
by either leaving a comment or e.mailing us at aplacetobloom at gmail dot com.

Eating Healthy on a Budget

When we talked about budgeting back in January, several of you inquired about eating well on a budget. Some of the things we mention below almost seem too obvious to merit their own asterisk...but hopefully you'll find a few helpful tips.

*If you're concerned about eating organically, learn where it really matters. Check out this article published by Martha Stewart about 'The Clean 15 vs. The Dirty Dozen.'



*Eat less meat. Way less. I was reading an article the other day that said Americans today eat 50 lbs. more meat per year than their grandparents did. If you need a little push in this direction, check out one of Michael Pollan's books next time you're at the library - fantastic.


*Stretch the time between visits to the grocery store. I know this is tricky when you're trying to eat a fresh, plant-based diet, but truly - it's difficult to get out of the grocery store without spending $25. If you pop in every 3 days - that's $250 a month on the little "just need to grab some milk" trips. I've even heard a few people say that having milk delivered ends up saving them money over the course of the month because they don't have to make those quick trips for milk, which turn into quick trips for milkeggs,blueberries,saladgreens, chocolate chips...$30. I would imagine joining a CSA or some kind of produce-delivery service would have a similar effect as it would reduce the number of trips you'd need to take to the market.

*Speaking of...look into joining a local CSA. (Find a local CSA or farmer's market in your area HERE.) I loved Liz's post about her family's experience with this.

*Buy in bulk. We mean from the bins - oats, nuts, grains, rice, legumes, etc. It is so much cheaper.


*Legumes, legumes, legumes! Doesn't get healthier than lentils/rice and veggies, rice and beans, etc.!


*Grow a garden/buy local produce in season. Even in tiny spaces, you can produce a lot of food.
You'll be amazed by what this family is doing with 1/10 of an acre; watch this video (pardon the movie trailer that precedes it).

*Read back through Rachael Bailey's tips on preserving food to get motivated and to learn what to do with the 25 lbs of peaches you buy when they're thirty cents/lb.


*Know what should be in your pantry (post on this coming soon from Taylor...) and keep it stocked to avoid intermittent trips to the grocery store.


*Plan your meals!! And plan them around what's on sale at your local grocery store. (More on this coming up tomorrow from Amanda; she'll also have a few tips about coupon-ing).


*Avoid the overpriced, packagey stuff that's void of nutrition. Eat whole foods!


*Food storage: store what you EAT! Replace things when you use them (rotate)!


* If you're passionate about eating everything organic, you'll just spend more. Almost without exception. It all comes down to what you value. In the case of meat, for example, if you want free range chickens from the farmers' market, but you don't want to increase your meat budget, then you just need to plan on eating less meat. You'll also need to realize that a generous grocery budget might necessitate a slim entertainment or clothing budget. On a limited budget, it comes back to priorities and values again and again.

* And finally - to really get yourself in tune with how much you're spending each month on food -- keep track. I mean save every single receipt. Or track every single transaction with your debit card register, or whatever you do. And add it all up at the end of the month. Every little trip for every little ingredient. You might be astonished to reconcile what you think you're spending with what you're actually spending. Sometimes just the awareness of reality will help you cinch up your financial belt.

Any questions, tips, things you've found helpful - please tell ask/tell us about it in the comment thread. We're anxious to learn from you.

xo,
Em & Anne

Feeling Rich

image via flikr

We kicked January off with a series of posts on budgeting. So, we thought it would be appropriate to end the month in like fashion.
Only slightly different.
Sometimes the best way to want less, spend less, save more and stick to your budget is to love what you already have. To find wealth in the small pleasures of daily life. Like fresh berries - I feel a tiny bit royal when we have a few cartons in the fridge. And buying new toiletries - there's just something exhilarating about stocking the bathroom cupboard with new toothbrushes, floss, lotion, soap or shampoo.

And then, of course, there are the priceless things: healthy children, good love, peace; when my focus is there, I always feel wealthy.


What about you? Are there any relatively insignificant things you buy that make you feel a little bit...fancy? And what's making you feel rich today?


PS - The Bloom discount for YNAB expires at the end of the month (which is just a couple of days away (!) Scoot on over and make your purchase; enter "bloom" at check-out for 15% off.

YNAB Winner, etc.

First of all: Your budget-related discussion topics? Noted! And loved! Watch for those posts sprinkled in over the next few months. I certainly do not feel expert on all those topics, but we will recruit guests to assist us! We already have some greaties in mind. If some of you more seasoned budgeters would like to help with this (ie write a guest post on a budgeting topic you feel particularly savvy at -- please drop us an e.mail. We would love to collaborate.)

The winner of the YNAB 3 Software is:
Mark, Jenny & Sweet G

Please e.mail us at aplacetobloom at gmail dot com so we can get your software to you as soon as possible! You're going to love it!

For those of you scratching your heads about spending money to save money, I wanted to share Trina's comment about the software paying for itself in savings:

"I'm not entering, because I already own the software, but just wanted to say that I wish I had bought it YEARS ago! I've only had it for a little over a month, and it has already saved me at least what I paid for it, if not double. I love, love, love it!"

Don't forget about the 15% off coupon for Bloom readers.
Good News: The discount has been extended and will be available through the month of January! Enter "bloom" at check-out for 15% off your purchase.

YNAB (YouNeedABudget) Giveaway

When it comes down to it, budgeting, like dieting or working out, takes discipline and a measure of personal determination; there are no secrets. But a good system helps tremendously.

That's what YNAB has been for our family -- an excellent system. We're fairly disciplined and organized people and it has made a significant difference in our financial management.

I like it because:

* It's intuitive, efficient and easy to use.
* It has helped us accelerate the achievement of our financial goals.
* It has helped us significantly improve our communication about money
* It syncs with our bank & credit card statements for easy spending reconciliation and tracking.
* The methodology behind it is sound, no nonsense. (Four rules - you can check them out on the website.)
* The technical support/customer service is fantastic.

Soooo, we're excited to be giving away one copy of YNAB 3 - the latest (MAC compatible!) version of the software. To enter, leave a comment. Double entries given if you include in your comment budget-related issues you'd like to see discussed at Bloom in the future. Winner will be announced Friday morning.

And if it's not your lucky day, but you'd really like to give YNAB a try, you're still lucky because YNAB is offering Bloom readers a 15% discount on all purchases made through Saturday. Just enter "bloom" at checkout. Very cool.

Budget Myth Busters

Budgeting is restrictive. Au contraire, my friends! A budget gives you control. You make allocations and allowances for expenses. You decide how and where to spend. There will always be restrictions when it comes to financial matters (i.e. you can only spend what you have, excess spending=debt=interest=bondage=not fun and very restricted.) Those restrictions are imposed by your reality, not your budget.

Budgeting is for poor people. Budgeting does seem to have a broke connotation these days: "how to throw a party on a budget," "remodel your bathroom on a budget;" these phrases imply that you'll be doing things on the cheap. But really, everything we do is on a budget. There's always a cost attached. The implication that budgeting is for scrimpers is warped perception. Budgeting is for people who want control and awareness, for some people that means control and awareness of big numbers.

I'm not a numbers person. We live in a society where almost everything, even our time, is valued in currency which is denoted with numbers. You have to be a numbers person. And with a good budgeting interface, the numbers side of budgeting is simple - the software should do all the calculations for you.

I can't budget - we have a variable income. If we refer back to the original definition of budgeting, it's planning in advance how/where you will spend. So, theoretically, you should already have earned the money when you sit down to allocate it. The budget software we use recommends that you live a month behind your money (that is, you spend this month what you earned last month). This requires a month's worth of saved living expenses before you can begin operating on this principle; it is an ideal way to live if you're on a variable income. Or a fixed income.

We don't need a budget; we have plenty. Can you imagine a multi-million dollar company doing away with their budget because they "have plenty?" It would never happen. There is always a need for planning and awareness. As you become increasingly financially stable and free, you may not need to be budgeting to the dollar for your toiletries, but you'll still want to be planning (budgeting) for things like retirement saving, charitable giving, your childrens' education, etc.

I keep a mental register of my spending; I know we spend less than we earn.
You'll be surprised, when you put pen to paper, what a discrepancy there is between what you think you spend, and what you actually spend. It is frighteningly easy to nickel and dime away a large chunk of cash and feel like you've hardly spent anything at all. With regards to spending less than you earn - that's great. But hopefully your financial goals extend beyond just staying in the black.

I don't have time.
True. Budgeting takes time. But it's not about time, it's about priorities. We are what I would consider marginally efficient budgeters and we spend about two hours a month on our budget. That includes accounting for last month's spending, planning for the coming month, revisiting and reevaluating our goals and then getting carelessly sidetracked into other veins of household/family planning.
Given the importance of household finances, yes, you do have time.

**************************************************************

Several of you mentioned the need for a more efficient system in the comments on Monday; come back tomorrow to learn more about YNAB (YouNeedABudget), my budget software of choice. If you get lucky, it might become your budget of choice, too!

The "B" Word

I've spent my fair share of time perusing mom-blogs, lifestyle blogs, home-management blogs and the like. One of many things I've observed is that there aren't very many of us talking about budgeting. It gives me pause as it's such a bread-n-butter part of everyday life.

So. It may not be chic or trendy, but this week at Bloom...we're going there.

It's January - the season of goal-setting and improvement-seeking. I'm willing to bet that the subject of money management cropped up in your resolution-meditation at least once. 'Tis the season to regain control, to make changes.

I love budgeting (scout's honor!) We budget every dollar that comes into our hands -- every month. And (for the most part) we live by it. We need it. So do you.

Here's why:

5 Reasons Why You Need a Budget
******************

1. Control. It's not fun to get to the end of your money before the end of the month. You need a plan from the outset. Budgeting is deciding in advance how/where you will spend your money (giving each dollar a job) instead of wondering after the fact where it all went.

2. Marital Harmony. If you are married or otherwise involved, you don't want money-related contention in your relationship. The budget is an objective way to eliminate it. In a quick-ish "pow-wow" at the beginning of the month, you can come together with your spouse and communicate your financial needs (ie "I need $50 of fun money to entertain the kids...) and plan your expenditures accordingly. With a clear picture of available funds, each person can understand why certain restraints need to be in place during a tight month or give input on how disposable funds should be spent when there is surplus.

3. Goals. You have goals - the budget will help you align your spending with your values. Raise your hand if you recently watched Julie & Julia and are now desperately wanting a trip to France. Okay, maybe it's not that. But there's something - new furniture, a day at the spa, a hot pair of boots...) and you tell yourself you're going to save for it (the trip, the spa, the boots), but then you see a cute scarf at Target (dunn-dunn-dunnn!) And in an enamored-consumer moment -- you forget about your longer term, more fulfilling savings goal and sacrifice it on the altar of instant gratification. A budget brings you back to your goals - frequently. It allows you to set aside the money for them. It aligns your spending with your ultimate goals.

4. Peace of mind. Do I need to say more on this? Not much.
Just this: It's comforting to know that you've got a sum tucked away for your next insurance premium, your health insurance deductible, unexpected car trouble, a rainy day. A budget will allow you to plan for/accumulate funds for these types of things. Imagine this: your little boy breaks his arm and the associated medical expenses total $479. You don't even think about your credit card. You've got $500 in your "medical deductible" pile. Sounds like peace to me. You want that.

5. Love. You're going to love it. Really. More on this tomorrow, but budgeting isn't a kill-joy. It's like any other thing that gives you more control (ie freedom) in your life -- conscious eating, regular exercise, disciplined time-management -- it's rewarding and invigorating.


Still to come...
Tuesday: Budget Myth Busters
Wednesday: My budget of choice (and a surprise for you - dont' miss it!)

Questions/thoughts about this?

Leave a comment - I'll pop in
on the thread periodically and we'll chat.


xo,
Em