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New Budgeting Day
Old 11-01-2011, 12:36 PM   #1
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New Budgeting Day

Today is the start of our zero based budgeting approach. Over the years I have spent a lot of time tracking everything in Quicken. About 18 months ago I made a simpler spread sheet and started using it. The main reason is that data entry and tracking waste so much time.

So we are now going to try and simplify even more by having X amount of money transferred to our local bank at the beginning of the month and use the debit card. Bank has an App that CINC house can see on her phone with real time updates and she manages the living account. I will let you know if the last week we are eating peanut butter or steak.

JDARNELL
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Old 11-01-2011, 01:32 PM   #2
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I don't understand zero-based budgeting for a household.
Here's what I found at wikipedia

Are you going to set up a budget each month & then stick to it? Or are you referring to a set budget ($s) per month & you have to live within that budget?
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Old 11-01-2011, 02:24 PM   #3
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When I think of zero base budgeting I think of how the Army did it with our O&M budget. We had x amount to spend. We couldn't go over but if we were under we had to spend it or lose it. Thus in Sept we bought truck loads of dry sweep for the motorpool. Hopefully CINC house will not do that. In this case anything short will roll over. In essence I am trying to remain within a top line number and not have to track anything more.

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Old 11-01-2011, 02:33 PM   #4
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Zero based budgeting in business is..... well, what the link says...

I might as well not type out a lot when it is there...


JD, your thinking is mostly gvmt thinking... use it or lose it... that is why some places have 100 years of tires in a warehouse... and why our gvmt is not efficient...


PS... that example of tires was in a new magazine about a decade or so ago... I am not making it up...
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Old 11-01-2011, 03:25 PM   #5
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JD, your thinking is mostly gvmt thinking... use it or lose it... that is why some places have 100 years of tires in a warehouse... and why our gvmt is not efficient...
.
You would be correct as that is that is the environment I spend 20+ yrs. Needless to say I shook my head at a lot of things. It was playing within the rules to max organizational gain. At least that is how the incentive structure was set up.

In reality I am an efficiency max utilization person. So my goals for doing this are many.

1. Simplification as I can be more productive in other areas where I have a comparative advantage. Detailed budgeting was really helpful getting to this point.

2. Creating a sense of artificial scarcity to try and keep from requirements creep and get family to think about value and what is important to them as I have a couple of preteens even though I know expenses are going up. FYI I am ok with that as long as it is not artificial keeping up with the Jones.

3. Reduce the amount of tax I pay to "the man" while enjoying the type of lifestyle my family likes. For every dollar we spend it takes $1 +X to produce it. And for the first time in 20+ yrs I can say I really don't like the additional X amount is being spent/squandered.

4. For me its not a don't have the money issue as the FI part is here but rather playing the game and running up the score for future outlays. I guess that is the long term planner/strategist in me that is hard to break.

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Old 11-01-2011, 03:46 PM   #6
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To a certain extent the budgeting program YNAB (You Need a Budget) uses a zero based budgeting approach. That is, each month you give every dollar a job (savings though can be one of those jobs). If you have $X to budget during the month and then you budgeted $100 to a category and don't spend it then you can roll the remainder over to the next month in that category. So, let's say you do that and allocate $100 the next month to that category and then you need to spend $150 in that category. You have $200 in that category (because you rolled over $100) so no problem. On the other hand, if you need to spend $300 in that category and only have $200 in it then you need look elsewhere in the budget to reduce another category so you can spend the $300.

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Are you going to set up a budget each month & then stick to it?
I used to fail at budgeting because I had this (false) idea that I needed to stick with it each month. So if I had $300 budgeted for a category and needed to spend $500 I felt like a failure and would give up on budgeting. Using YNAB, I came to a different understanding. A budget should be something that is living and changes all the time. It is perfectly fine to have $400 budgeted for, say, auto repair and then have a $500 repair. Of course, you would like to build up a balance in that category so that you have the $500 budgeted but that doesn't always happen. The key is to play Whack A Mole, though, and find some other category to take from. In the above example, perhaps I look at my $250 a month dining out category and I decided to eat at home more this month and reduce it to $150 and then spend the extra $100 on the car repair. The point is to take the total dollars you have available and reallocate them, even during the month, to reflect that month's actual expenses.
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Old 11-01-2011, 04:36 PM   #7
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To a certain extent the budgeting program YNAB (You Need a Budget) uses a zero based budgeting approach. That is, each month you give every dollar a job (savings though can be one of those jobs). If you have $X to budget during the month and then you budgeted $100 to a category and don't spend it then you can roll the remainder over to the next month in that category. So, let's say you do that and allocate $100 the next month to that category and then you need to spend $150 in that category. You have $200 in that category (because you rolled over $100) so no problem. On the other hand, if you need to spend $300 in that category and only have $200 in it then you need look elsewhere in the budget to reduce another category so you can spend the $300.



I used to fail at budgeting because I had this (false) idea that I needed to stick with it each month. So if I had $300 budgeted for a category and needed to spend $500 I felt like a failure and would give up on budgeting. Using YNAB, I came to a different understanding. A budget should be something that is living and changes all the time. It is perfectly fine to have $400 budgeted for, say, auto repair and then have a $500 repair. Of course, you would like to build up a balance in that category so that you have the $500 budgeted but that doesn't always happen. The key is to play Whack A Mole, though, and find some other category to take from. In the above example, perhaps I look at my $250 a month dining out category and I decided to eat at home more this month and reduce it to $150 and then spend the extra $100 on the car repair. The point is to take the total dollars you have available and reallocate them, even during the month, to reflect that month's actual expenses.

I have a budget like you say.... but can not get my wife aboard... we are negative in a number of categories, but most are being 'paid off' over time as we are not spending in them anymore...

Now, if I could just get her to spend a LOT less on vacations I would be much happier... and of course 'other' is way out of whack...

I can not argue that much as her solution is getting her teacher's certificate and hopefully getting a job next year.... as she said, there are two sides to the equation... still, I have a long way to go to get her on board the LBYM bandwagon...
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Old 11-01-2011, 05:21 PM   #8
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So we are now going to try and simplify even more by having X amount of money transferred to our local bank at the beginning of the month and use the debit card. Bank has an App that CINC house can see on her phone with real time updates and she manages the living account. I will let you know if the last week we are eating peanut butter or steak.
It seems to me that there might be a problem with flexibility in case of an emergency expense (such as a new roof, a root canal, the car blows up, and so on).

I am doing pretty much the same thing, but I am hoping that with the following plan I can still cope with emergencies. What I do is this - - I transfer the year's withdrawal (at my SWR) from Vanguard to my savings account during the first week of January, and every month I transfer 1/12th of it from savings to my checking account. I only spend from checking.

The main difference is that I would allow myself to borrow ahead from my savings account if there was an emergency. If I did that, then for the rest of the year I would have to lower my monthly "allowance" to make up for it. Also I save up early in the year in case there is a big emergency expense of some kind in December.

What I like about my method is that it is impossible to spend more than planned, without making another transfer from Vanguard to my savings account and then to checking.

I am projecting that for 2011 I will have spent less than half my annual withdrawal, and will be able to return the rest to Vanguard. On the other hand, I haven't had any emergencies yet! That could change any time.
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Old 11-01-2011, 05:45 PM   #9
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It seems to me that there might be a problem with flexibility in case of an emergency expense (such as a new roof, a root canal, the car blows up, and so on).

This will force me to make a conscious decision to transfer for these expenses. I have set up a sinking fund for these situations.

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Old 11-01-2011, 05:47 PM   #10
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This will force me to make a conscious decision to transfer for these expenses. I have set up a sinking fund for these situations.

JDARNELL
Perfect! I think your plan should work beautifully.
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Old 11-01-2011, 07:18 PM   #11
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I have a budget like you say.... but can not get my wife aboard... we are negative in a number of categories, but most are being 'paid off' over time as we are not spending in them anymore...

Now, if I could just get her to spend a LOT less on vacations I would be much happier... and of course 'other' is way out of whack...
The best thing that my husband and I did in budgeting was create a Spending category for each of us. We funded it to start out with quite a bit (basically part of bonuses we received when both were working full time) and then we budget a set amount to that category each month. This is the category where we spend things like computer, books, electronics, ....really anything that doesn't fit in the other categories and that are personal to each of us. When we were working eating out at work was in here. So we could take a lunch from home for "free" (i.e. part of the regular grocery budget) or could go out to lunch and have it come out of spending money. Doing this, I don't have to be crazed if DH spends money on something I think is not worth it and he doesn't have to be crazed when I buy more Kindle books.

Where doing the above helped me is that I really like powerful computers. Now I have to "save up" for one every few years by watching what I spend on other things. Also, if I spend less for that computer (I just bought one and saved a great deal of money by buying parts for it myself and having it built by a local computer store versus buying an equivalent one already built) then I know that I have more money left to buy books, etc.
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Old 11-02-2011, 04:32 AM   #12
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I am not sure I understand this "2. Creating a sense of artificial scarcity to try and keep from requirements creep ". Please could you explain how you achieve this ?
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Old 11-02-2011, 09:48 AM   #13
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I am not sure I understand this "2. Creating a sense of artificial scarcity to try and keep from requirements creep ". Please could you explain how you achieve this ?
Sure. By trying to live within a certain budget and sticking to it I hope that it keeps me from creeping up spending on "less than necessary" stuff. Kind of like the more you have the more you want. It is easy to keep up with the Jones. I just want to keep up with the Nords

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Old 11-02-2011, 10:54 AM   #14
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2. Creating a sense of artificial scarcity to try and keep from requirements creep and get family to think about value and what is important to them as I have a couple of preteens even though I know expenses are going up. FYI I am ok with that as long as it is not artificial keeping up with the Jones.

JDARNELL
This has a tremendous benefit to us, FWIW. One way we do this is to deposit one entire paycheck in a bank that is not the same as the day-to-day bank. My dad calls some of my methods regarding your #2 our "self imposed poverty routine". But hey, it works!
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Old 11-02-2011, 10:59 AM   #15
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"Requirements creep" is a good term. When the occasional splurge item stealthy becomes a basic need. That is a real battle but very important.
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Old 11-02-2011, 11:06 AM   #16
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I also use the great term "hedonic treadmill" or hedonic adaptation" for the requirement creep element in our lives. These are among my favorite behavioral finance terms, the best being confirmation bias. My life is basically one long continuing search for confirmation of what I already believe.
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Old 11-03-2011, 10:40 AM   #17
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I wonder where the phrase "requirements creep" started. We used it regularly 20 years ago at a submarine staff to describe a typical Western Pacific deployment.

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I just want to keep up with the Nords
JDarnell saw our familyroom renovation in progress last month on a "good" day, and before spouse & I started slinging our paintbrushes... I wish we could replicate this same combination of quiet and access without the responsibility of caring for a "trophy house". Or at least get our insurer to acknowledge the value of all our hurricane-proofing upgrades.

I think in your climate you'd want at least one snowboard or quality set of cross-country skis!
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Old 11-03-2011, 10:50 AM   #18
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I wonder where the phrase "requirements creep" started. We used it regularly 20 years ago at a submarine staff to describe a typical Western Pacific deployment.


JDarnell saw our familyroom renovation in progress last month on a "good" day, and before spouse & I started slinging our paintbrushes... I wish we could replicate this same combination of quiet and access without the responsibility of caring for a "trophy house". Or at least get our insurer to acknowledge the value of all our hurricane-proofing upgrades.

I think in your climate you'd want at least one snowboard or quality set of cross-country skis!
We saw a lot of requirements creep in the weapon system development area. Engineers wanted things gold plated and we just didn't have the resources. I did notice in one or your post Nords that you are now doing baseboards. I thought requirements creep. As for taking care of a "trophy house" I just replaced a window that a golfer took out to the tune of $450. Its just the cost of living here I guess.

I want to get our insurer to come and review our home also as if I had to rebuild it they would not be happy.

I was thinking about going skiing this week actually. It looks like we are going to be in for a long winter.

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Old 11-03-2011, 05:06 PM   #19
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We're facing that "creep" now. DW wants cell phones...and we've never had them before. Today she has a trac-fone ($40/year), and I have a work-issued Blackberry (I'm allowed to use the phone for personal use, as we have "unlimited" plans).

However, when we leave the w*rkforce, my BB will be gone, and she wants something nicer. I told her that I'd love to each get a smart phone, but only if we either remove something else from our current budget or work a bit longer to add this into our budget.

The first year is quite expensive, with 2 phones @ $200 each, cases, chargers, scratch-resistant covers, apps, etc., and then of course the calling plans...we're anticipating $2,200 for the first year and about $1,200 for each year after that.

This will be partly offset by getting rid of our land line, but the difference is still significant.

We got along fine without smart phones for all of eternity, and now it feels like we "need" them.
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Old 11-04-2011, 09:08 AM   #20
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We're facing that "creep" now.
That happens a lot. Both DW and I grew up without air conditioning, dishwashers, or clothes dryers. Now those are "necessities". We had one telephone, black, with a rotary dial in the living room, one bathroom for five people (three of them teenagers) and one B&W television. Two homes on the block had garages, several had either no driveway or a gravel driveway.

But we had it good. I know several people who grew up without central heat or indoor plumbing, which we did have, and a TV was something they saw only in stores. They don't seem all that much worse off for the experience and it makes them appreciative of how far they've come.

Now we're living in a nicer home than either one of thought we'd ever have, modern kitchen (if not lavish) and a garage. I had a filling done in a tooth yesterday and was thinking that I'm grateful that I didn't live in an era when dentistry consisted of a pint of Jack Daniels and a pair of pliers.

It's all about perspective.
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