My Zero-Based Budget

This month I’m trying something new. I’ve read about zero-based budgets (in which every single dime is accounted for---there’s no escape for those rogue dollars) but had never even considered trying one---for some reason it seemed too restrictive. Since I’m doing very well at tracking every expense (I’ve been doing this since November), I decided to take the next step, and attempt to tell my money where to go, before it even leaves my fingers!

As I’ve mentioned before, my budget is tight, tight, tight. Over 50% of my net income goes toward my two mortgages, and there’s not much to work with once those payments go out. Basically, I’m making it work these days because I have a second job (soon, I’ll write a post about this life-saver). Part of my zero-based budget includes putting money into savings for costs that I can anticipate over the next three to six months, like tuition bills and auto insurance.

Here’s my February budget; keep in mind that this is highly speculative at this point. I don’t really know exactly how much my utilities will cost, and I can give a ballpark figure on how much my second job will bring in, so these numbers could change. As the month progresses and I have more information, I’ll fill in the ‘actual’ column. . . .

The Early Years. . . . .

So, now that the introductions are finished, down to the nitty gritty. Just how far in debt am I, and how did I get here? In the next few posts, I’ll explain the topsy turvy financial world I created for myself over the past twenty years.

The Early Years

It all started many years ago when I was in high school. Upon sullenly (I was sullen a lot in those days) informing my father that I was NOT going to college, because we “couldn’t afford it anyway”, he said, and I quote “You get into college, and we will find a way to pay for it”. With that in mind, I applied to and was accepted into the local state university. What I didn't realize at the time was that when my dad said "WE will find a way", what he meant was, "YOU will find a way" to pay for college. Which led to my student loan habit.

Ahhhh, student loans. Easy money, right? You just sign on the dotted line (don’t bother to read all that confusing text above it) and lo and behold, you receive a check for thousands of dollars, deposited directly to your checking account if you like! What could be easier? Years later, after studying abroad (read: partying abroad), squandering untold thousands on “cute” outfits and pints of beer, and finishing a private-school graduate degree, I found myself in debt to the U.S. government to the tune of $50,000 (in addition to the thousands owed to several credit card companies). Uh oh.

“But wait”, you say! “You have a graduate degree! You can pay that back in no time when you’re raking in the dough”! Um, yeah, I have a degree in Education, without even a teaching certificate to add some practicality.

So that’s where things stood when, at the age of 28, I grabbed my master’s degree and drove straight back across the country (from D.C.) to California (paying for hotels, food, and gas with credit, of course). Tune in tomorrow for the next installment. . . . .

Emergency Fund Dilemma. . . .

So, yesterday I received a statement in the mail from my mortgage holder (well, one of ‘em, anyway) indicating that my escrow account is predicted to fall short by $363. I can either pay the amount now (which would actually decrease my monthly payment amount by about $20), or I can pay it over the course of the next year, increasing my monthly payment by about $10.

I’m already stretched pretty thin from month to month, but the only way I can pay $363 right now is to take it out of my Emergency Fund (currently at $1,000). That would mean that next month I would pay less on my credit card debt --- basically just the minimums --- in order to work on getting my EF up to $1,000 again. What to do, what to do?

The idea of lowering my monthly mortgage payment, even if by $20, is very, very attractive. I would love to pay down my credit debt, too, and worry about losing my steam in paying extra every month. Is it important that I’m currently paying 4.99% on one credit card (balance just over $3,400) and 0% on another (to be paid off completely with tax refund!) versus 6.54% on my mortgage?

Now, I’m no math whiz (hence, the astounding amount of debt compared to my measly salary) but it seems like a better deal to pay the $363 now rather than over the course of the next year.

Finding frugality. . .

My first post! Since this is numero uno, a little background and explanation may be necessary.

First, I started this blog as a means of exploring, developing and further inspiring my journey toward a reasonable level of frugality. I don't want to live in the woods, eating tree bark and wild mushrooms (I don't even like mushrooms). Not that there's anything wrong with living a 'Thoreau-esque' existence. To each his own, whatever floats your boat, you get the drift. I like my life in general, there are simply some financial habits I'd like to---actually, NEED to---change, as painful as that may be in the short term.

No, what I'm attempting to achieve is a better balance between how much I spend, what I spend it on, and how much I am able to save and invest for a more financially secure future. This journey started last summer, when I read (finally!) Your Money or Your Life (otherwise known as YMOYL), by Joe Dominguez and Vicki Robin. One of my New Year's resolutions for 2007 was to borrow more books from the library, rather than buying them new and then either letting them gather dust in my house, or passing them along to friends and family. When I sought YMOYL at my local library, there were about 40 holds on the ten or so copies available!! I waited, and waited, and waited and then waited some more for 'my' hold to come up in the queue, and when the library notified me some three months later that it was 'my turn' with the book, I had almost forgotten what the book was about and why I even wanted to read it in the first place!

I consider myself lucky that I did check the book out and read it in its entirety. I was so moved and inspired by the ideas presented by Joe and Vicki that I actually used a birthday gift card to purchase the book at our local Powell's Books (the best bookstore ever, by the way----please visit if you're ever in Portland). Although it was November, 2007 before I began tracking my spending in earnest (one of the first steps in the YMOYL 'plan'), I vowed to spend 2008 working on my new goals---to pay off debt (including, eventually, my mortgage), to be more conscious of the 'stuff' that I bring into my life, and to plan now for a comfortable, financially secure future.

So, in short, this blog will share my own personal story with you. Within these pages, I hope to find kindred spirits, to learn more about my own issues with money, and to connect with others who are trying to find a better balance between being a consumer and being financially independent.