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simple tips to create an effective budget plan

Hi.  In keeping with the last post’s ending about the importance of keeping a budget, no matter how simplified the budget, the following guest post was submitted outlining a few steps to get going in the right direction.  In the next post,  we’ll get back to housing solutions.

Author’s Bio: Sophie Kinsella is a contributory guest columnist for various websites and communities including Oak View Law Group and CMFA . She has completed her Graduation in Finance and is currently working with an Investment company located in California. She has written some great articles on topics like bankruptcy, investment opportunities, debt management plan and more.

People are generally afraid of formulating a budget plan but it is an essential part to manage your finances. Consumers who did not plan a budget they generally incur insurmountable amount of debt as they start spending recklessly. If you are struggling to pay off your debt then formulating a debt management plan can help you eliminate your debt. If you hire a debt management company then the credit counselor will evaluate your financial situation and create a budget plan so that you can pay off your debt with ease. If you are preparing your own budget plan then here are the following things that you need to keep in mind: 

1. Calculate your owed amount:

Try to calculate your total amount of debt you owe to the creditors along with the interest on it. Write down amount of debt your need to pay back in descending order of the interest rate. You need to keep aside a potion of your income so that you can start paying off your debt. Put extra money towards high interest loan so that you can eliminate it immediately.    

2. You need to plan your budget according to your financial state. Therefore, track your income and expenses as it will help you prepare a stringent budget plan. You can maintain an excel sheet where you can incorporate your daily expenses as it becomes easier to track your monthly expenses.    

Items

Week #1

Week #2

Week #3

Week #4

Monthly Expenses

Groceries

Transportation

Electric bills 

Medical expenses

Emergency exp. 

Entertainment

Total weekly expenses

This chart will help you check whether your expenses exceed your income. 

3. Curtail your extravagant lifestyle:

When you plan your budget then your prime objective should be to pay off your debt. You can curb your lavish lifestyle to utilize the money to pay off the debt. Avoid eating at a plush restaurant when you can arrange a good sumptuous dinner at home. You can reduce you unnecessary expenses like gym memberships, splurging on branded clothes and curb your entertainment expenses. The money you save can be used towards paying off your debt.   

4. Open an emergency fund:

You can set aside a portion of your income in the saving account as it can be used in time of financial crisis. If you have an emergency fund then you don’t need to skip your debt payment to pay for the unexpected expenses. 

Budgeting is about managing your finance in an organized manner therefore you don’t need to panic while planning your budget. It will help you secure your financial future and liberate you from debt.

my other anniversary (with budgeting software)

 

On an anniversary, one normally expects calls from friends and family of mazal tov and fond wishes – but not today.  Today is not the day that marks my wife and I entering into what we call marriage – although it has had almost as much impact on our life together as a couple.  Today is our one year anniversary of the day when we began to choose how we want to live together.  Today is our one year anniversary of living on a budget.

Looking back, it has been an incredible journey and perhaps one of the most significant steps that my wife and I ever took.  About a year and a half ago, our financial lives were paralyzed by fear and guilt.  We feared we were not making enough, we feared we were spending too much, and every time we spent a shekel we felt guilty.  We felt financially helpless and out of control.

So I did what any logical 25 year old would do – I turned to the internet.  After a quick search, I found a simple budgeting program that allowed my wife and I to track every single agorah we were spending.  At the end of the month, we looked over our expenses and if they were less than our income, we figured we were going in the right direction.

But it wasn’t enough.  My wife and I did not know how to use the knowledge we were compiling, and in order to have good numbers at the end of the month, our fear and guilt continued.  Then one day, I ran across Dave Ramsey’s envelope budgeting system.  At first I was put off; after all, I was an MBA; certainly I did not need such an elementary system to control my spending.  But about a month later I came to the realization that I did not have any system for controlling my money and Dave Ramsey did, so unless I was going to make a new system, I may as well shut up and listen.  I downloaded an audiobook of The Total Money Makeover and was on my way.

I listened to the entire book over a few days and began implementing immediately, albeit it with a few changes.  For example, while I did not literally put the money I made into envelopes, I did develop an excel file in order to build a budget and monitor my spending (I thought I was unique; little did I know that most Dave Ramsey followers do the exact same thing).  I also decided that since Israelis get paid on the tenth, it would be best to make the months from the 15th to the 14th of the following month.

Soon after, my wife and I sat down to build our first budget.  The entire process took around 10 minutes, which is much less than I had expected.  But our first attempt was far from perfect.  There were a few times in that first month when we had to call an emergency budget meeting and decide what to move from one budget line into another, but life happens.  The important thing is that we decided what to do with our money and built a life plan around it.

Knowing that we are spending money we have and that we are in control of our financial lives is a absolutely fantastic.  We know when we should cut back, we know when we can spend more, we know when we can give and we know how to adjust our lives to make room for the things we want.

Does this make us rich?  Of course not.  Money still has to be made; being a nice couple on a budget doesn’t pay the bills.  But a budget has given us control over our finances, peace of mind, and has allowed us to plan our life together (as much as man can without God laughing…)

To celebrate this one year anniversary, and because my old excel workbook is full, I made a new Excel workbook for budgeting.

You can download my excel sheet for budgeting here.

For more information, this post explains how to use the excel sheet and build a budget

PS – I think it would be interesting it shadchanim would ask a potential couple to build a budget and live by it for a month.  I think it would do a lot more insightful than the typical laundry list of questions.

PPS – As usual, if there are any problems with the Excel sheet, please email me at jonnydegani@gmail.com and I’ll try to fix it as soon as possible.

budgeting in Israel (including software)

A few weeks ago, I mentioned the advantages of having a budget.  Much of the post is based on Dave Ramsey’s envelope budgeting system but several items are changed in order to adjust for Israel’s financial system.

To sum up, building a budget lets you tell your money what to do before it tells you.

And it really does not take long.  At first, my wife and I thought it would take hours, but after the first time (which was 30 minutes), we found that the entire process takes about 5 minutes a month.

This file contains my budgeting software. (If the link does not work, go to http://www.mediafire.com/?tftkjqmjyyi).  As you’ll see it is a simple spreadsheet.  Once a day, my wife or I type in whatever money we spend under the column for the appropriate day and into the proper spending item.  It takes about 15 seconds and gives us tremendous peace of mind financially.

Because pay in Israel comes in by the 10th of the month, I believe that the fiscal calendar for spending money should begin on the 15th.  This allows one to plan how to spend the money he or she received in an organized manner after he or she sees that everything already hit the bank.

In order to use the spreadsheet, a couple of items need to be explained:

Rows:

Inflows (to be filled in):  Add up to five sources of income for the month.  This includes any salaries earned, any presents received, and any money found.  If you got money overseas, then just add it in shekels at the approximate rate.  Remember, we’re trying to be imprecisely right, not precisely wrong.

Outflows (to be filled in):  This should include every category of money you spend.  Every time a shekel leaves your domain, you gotta stop it and say “hey! who are you and where do you think you’re going?!”  You can change the categories to match whatever you spend (note: for your convenience, I arranged it so that changing the name of one expense category will change the names in all the subsequent months as well).  I personally have fewer categories, but I left some open in case you need more.

Columns:

Now (to be filled in):  This is where you should be entering all the money you will allot for the current month.  Make sure that at the bottom total outflow equals total inflow.  Every shekel has an address.  You tell your money what to do, not the other way around.

Pre (do not fill this in.  This will fill itself automatically):  This is the outstanding balance from the previous months.  I greyed this out for the first month, because it will be blank.  In subsequent months, this will be filled in automatically so you know how much you already have left over from the previous month in each category.

Total (do not fill this in.  This will fill itself automatically):  This column tells you how much you have to spend on a particular expense.  This adds the amount you put into “now” and the amount in “pre.”

Remaining (the last column):  This column tells you how much money you have remaining for a particular expense.  This should never be in a minus.  If it is then you (and your spouse) need…

an emergency budget meeting:  This is when you (and your spouse) sit down and rearrange how much you allot in each category for the month (in the “now” column) and change some numbers so that you do not have a minus for any expense under “remaining”.  Remember, if you raise the amount for one category, you have to lower it for another category.  In the end, total inflow must equal total outflows.

Sooner or later you will need to look over your finances.  And believe me, planning how you’re gonna spend your money is a whole lot more fun than wondering where it all went.  Good luck!

how to make a budget

One of the most important monthly rituals in my house is making a budget.  My wife and I sit down somewhere between the 10th and 15th of the month in order to determine how much we can spend in the coming month and how we will build our life.  I personally prefer to make a budget from the 15th to the 14th of the next month, because by that point I know how much money I already received from my primary source of income (by Israel law, employees must be paid no later than the 10th).

It is important that both the husband and wife work together to agree on this budget.  This does not mean the wife just lets the husband do what he wants and she agrees; she must be part of it.  I have heard plenty of couples who financial problems start with the fact that one spouse controls all the money.

Making a budget means assigning an address to every shekel you earn, telling it to do before it tells you.  In order to do this you need to determine two things:  your inflow of money and your outflow of money

inflow:

Include any money you have received in the past month.  This includes any money you earn, your spouse earns, and any money you receive as a gift.  For example

₪300 from Bob’s birthday
₪100 from Sue babysitting
₪3000 Sue’s paycheck
₪2000 Bob’s paycheck
₪5400 total

As you can see, we’re dealing with only ₪5,400.  No more.  There is no spending anything above this without going into savings, or even worse, debt.  If you need more, then realize what you will have to do, and consider how you will need to pay it back.

 The next thing is to list our outflows of money.  I prefer to list them by order of flexibility.  For example, I cannot change the amount I pay for rent, but I can change how much I eat out.  Obviously your list will vary.  It may even vary every month; that’s fine.  The important thing is that every dollar you have has an address.

 Finally, fill in the amounts starting from the least flexible to the most

₪2600 Rent
₪150 Internet
₪500 Electricity
₪200 Water
₪100 Phone
₪300 Transportation
₪100 Medical
₪1000 Groceries
₪50 Clothes
₪100 Eating out
₪100 Misc
₪100 Charity
₪100 Savings
₪5400 total

Your inflow must equal your outflow.  Every shekel you make has to have an address.  If you get some extra money during the month, you can either choose to add it to your current month (add the money to you inflow and outflow) or save it for the next, but do not do what most people do and spend it both times.

A wise woman once told me that every budget is a fiction; it’s just a matter of how historical your novel is.  If you see that something is not working in your budget, or that you are going to have to break a limit on something, then call an emergency budget meeting with your spouse where you both determine what you will have to change in order to ensure that your inflow still equals your outflow of money.

I personally keep an excel file on the desktop of my computer than will automatically subtract any money I type in and tell me how much I have left.  Some people I know like to keep a countdown of how much thay have left to spend in each catagory on the fridge.  The important thing is to be aware.  Once you have a budget, you’ll be surprised how much more easygoing you’ll be about spending money.  No more guiltly meals out and regretful splurges.  Next time you go out, you’ll kow that it is exactly what you can and should be doing with your money.

working for God Inc

We’ve all done it one time or another.  A beggar sticks out a hand and you whisk by.  You only have ₪ 10 left and you can’t afford to give it right now.  But then another beggar comes, looking much more desperate than the last.  So, out of pity, you give that extra tzedakah that you’re not sure you can afford.

Or maybe it is a phone call you receive from a Yeshiva asking for money.  You know you should give, but it’s hard to commit.  After some clever begging on the Rosh Yeshiva’s part, you fork over some money.  Maybe you can afford it; maybe you cannot.

And it isn’t that you don’t give tzedakah.  You give to your shul, your Yeshiva, and your pet tzedakah that you admire.  But sometimes the requests are too much and you become annoyed that others are asking for money when frankly, you already gave your share.

But it does not have to be this way. Tzedakah does not have to be some pity and guilt contest where you weigh your needs against others.  Luckily, all you have to do is change your mindset pertaining to how to give tzedakah. 

When I make my monthly budget, I allocate the approprate amount for tzedakah.  While I look at my finances, not sad faces, I am able to make a rational decision as to how much I can afford to give.  I don’t designate the funds for a particular charity yet; I simply designate funds to be given to the Almighty.

From then on, I am the distributor of charitable funds for God Inc.  The Almighty trusts me to be his agent; my job is to find viable places to give His money.  I am not trusted with an unlimited amount of money, just the amount designated in my budget.  When a request comes, I don’t check to see if it is worthy of my money; I am checking to see if it is worthy of God’s money.  It’s no longer personal; it’s professional.  People who work for a foundation and distribute funds never do it personally.  They give what the foundation would want them to – they do not give less, they do not give more and they make sure that they give to the right charities that will use the money the way the foundation’s leaders would want.

Does this mean you shouldn’t give extra if you see a need?  Of course not.  There are some extreme times when you have to sacrifice from another line in your budget and have an “emergency budget meeting” with your partner in order to reallocate money in your budget.  But (1) this should be very exceptional and (2) you should not decide to reallocate your money without consulting your partner first.

Generally speaking, give once a month, give generously, and then stop.  For the rest of the month, you’re working for God Inc.  Good luck.

components of a financial plan

I am not sure at what point after I began trying to take control of my finances that I realized I had no idea how to know if or when I would actually attain the control I was seeking.  When would all the obsessive research and spreadsheets be enough that I could confidently say that I was in control of my finances?

While there is no magic formula for the perfect financial plan, I knew that whatever plan I’d follow, I would have to take into account four phases of my life: the present, the unknown, the past and the future.  Below is the list I compiled of the major components of my financial plan:

(1) The Present:  Make sure you spend less than you earn

  • (a) Live on a budget – this means composing a monthly spending plan, including your fixed expenses, variable expenses and tzedakah
  • (b) Occasionally review and attempt to reduce expenses
  • (c) Increase income – this includes watching your investments (for example, your keren hishtalmut) to make sure you are getting the most out of your money.

(2) The Unknown:  Plan for occasions when things do not go according to plan

(3) The Past:  Deal with your financial past

(4) The Future:  Plan and build towards your ideal future

What other items do you think are important to a financial plan?

PS – As you can see the plethora of links above, I have written on all of the subjects above except one – planning for an estate.  If anyone has had any experience and would be willing to speak to me about it or write and article, please contact me at jonnydegani@gmail.com.

too much at once

Welcome back; it’s been a while.  On one hand, I have so many ideas that have been popping into my head over the past few weeks and on the other hand, I don’t know what to say.  The birth of my son has been such a life changing experience that words do not begin to describe the vast amount of life experience I have gained, nor sleep that I have lost, in the past month.

And while so much life was happening all at once, my money felt like it was spiraling out of control.  Every day I was running to get bottles, equipment, medicine and so many other things, all while trying to help take care of my wife and child who were staying at my in-laws, that I could not keep up with my expenses.  Additionally since the entire area of raising a baby is fairly new I had no idea where, if at all, I could cut costs.  Finally, the time for a new monthly budget came and my wife and I could find no time to work on the budget together.

But after a few days, I came to a few realizations that calmed me down and helped bring my financial life into control.  On a bus ride (yes, I still don’t have a car) I was set down a couple of rules in my head to help me cope with the first few weeks of a new baby:

1 – I should not worry too much about money.  I estimated how much I was spending and came to a realistic figure.  As it turned out, this figure could easily fit into my budget and so I should record it in my expenses.  My feeling is that it is better to be imprecisely right than precisely wrong and as long as I estimate conservatively and try to record my finances even once a week, everything will turn out okay.

2 – My wife is my ultimate authority regarding what to buy and where to cut costs.  She is more knowledgeable than I am in this area (she helped raise her nephews and nieces) and I need to rely on her to decide what to get.  She knows to ask others for advice when she is unsure, and I trust her to decide who and what to follow.  I may ask my wife about cutting costs (ie trying a different brand), but I trust her to have ultimate veto power.

3 – In my wife’s absence, I will do all the budgeting and expense tracking myself, knowing that when we move back home in a few weeks, we will look at how much money we have been spending and call an emergency meeting to fix the budget I built.  It is more important that we start with something and then change it later than to just ignore our finances.

Now that my wife and I are home again, we have begun getting a grip on our finances.  We have resumed planning a monthly budget, where, for the next few months, we will keep an additional line in our budget for all the random things we will expect for the new baby.

In short, when life deals you too much at once to follow your finances: (1) estimate conservatively, (2) trust your partner and those who are more knowledgeable than yourself, (3) if necessary take temporary measures to ensure you have some sort of accountability, and (4) cease all temporary measures when the need disappears.

Have you had something happen that threw your finances for a whirl?  How did you deal with it?