Beating Broke

Personal Finance from the Broke Perspective

Why you Should only use Three Categories for Your Expenses Budget

By 13 Comments

I teach an entrepreneurship and financial literacy elective to 8th graders.  I have learned that when it comes to the topic of family or personal budgets, simplicity works best.  I’ve seen all sorts of budget templates online, most of them unnecessarily complex.  While adding multiple categories can provide layers of detail to a household budget, it can hide or at minimum endorse, certain expenses. I teach them to simplify their expenses budget.

For the expense side, you only really need three categories: 1) Fixed costs 2) Variable costs and 3) Non-necessities.  When you add categories like, Transportation, Loans, Entertainment, Utilities, Daily Living, Housing, and so on, the budget sheet takes on a life of its own.  I get it, personalizing your family budget by adding columns, headings, and colors can be a ton of fun.  Not!  Sure, you may have been using the same budget template now for a decade and it works for you.

As the saying goes, “if it ain’t broke, don’t fix it.”  I too had been using the same budget template for several years.

Budget Template
Budget Template

As you can see from the picture, I had several categories and the Excel spread sheet allowed me to sort any way I needed.  I’ve seen templates with a similar style, a long laundry list of fixed and variable cost items all under an “expense” column.  While this may work, it’s not going to help (as much) when it comes to making a push to save more money.  After teaching my students using an example, balanced budget from PwC’s Earn Your Future Curriculum, I decided to adopt this style for my family, but not just because it’s simpler.

Three Expense Category Budget
Three Expense Category Budget

You don’t teach the skill of budgeting for the sake of your students knowing “how” to do it.  You teach the skill so that they know “why” they’re doing it.  So after the basics, I tell my students that the ultimate goal of a budget is to identify opportunities to cut spending.  “Wasting money is stupid,” I say to them.  “Plus the more money you save, the more you’ll have available to buy assets.”  Yes, they know what assets are by this point.

The PwC template makes it easy for me to provide my students with an easy to grasp savings strategy.  I ask, “If you were going to cut back your monthly expenses, where would you look to do so first?”  This template is so intuitive.  Of course the response is, “Non-necessities.”  This is why I love this budget style so much.  You are forced to differentiate your variable expenses.  More importantly, you are showing yourself the map to future potential savings.

Budgeting doesn’t have to be a chore.  And a budget should be a visual that doesn’t take an accounting degree to make sense of.  If an 8th grader can’t take one look at your budget and tell you where to slash, perhaps you’re making it too hard?

According to a 2013 Gallup pole, only 1 in 3 Americans prepare a “detailed” household budget.  Maybe it’s because Americans dislike being detailed?  What are your thoughts on household budgeting?  Please share your comments below.

How to Turn Unwanted Christmas Gifts into Cash

By 1 Comment

The stress has come and gone and Christmas is over. As you go through your gifts you might see some that aren’t your style, don’t fit, are duplicates of something you already have or something you just don’t need. You don’t need to have them sitting around your house collecting dust in the back of your closet. Christmas is also a financially difficult time of year, and you might need to get some cash in your hand along with another type of assistance such as a car title loan to use toward your debt. Consider turning your unwanted Christmas gifts into cash and use it for something that you really want or need through one of these five ways.

Return them to the Store

One of the most common things to do is to return the item you received back to the store where it was purchased. It helps to have a receipt when returning something to avoid receiving a lower price than what was paid or being limited to store credit for the amount of the return. Stores tend to have more lax return policies around the Christmas holiday and take items back for longer time periods than usual. Don’t take too long to return the item or you might get stuck with it if you end up trying to return the item after the specified time frame. If you do end up with a gift card and don’t anticipate using it, read on to see how you can turn them into quick cash.

Trade Them

Trade your gift online through one of the many trading websites and services available. Sites such as Cardpool, allow you to trade or sell gift cards to others. Trade your gift card for one to a business that you’ll patronize, or sell it for cash. Depending on where your original gift card is for, you can typically get back up to 90 percent of its value. You get rid of the gift card and the recipient gets a small discount on their purchase. It’s a win-win for everyone. PaperBackSwap is a book lover’s dream. You list your unwanted books and earn credits to get books others are looking to get rid of. Gamers benefit from Game Trading Zone to swap games and accessories with others interested in gaming.

Sell Them

It makes sense that selling your items can give you cash quickly, but it helps to understand where your item will sell quickest and give you the most money. Don’t expect to get the full value of the item, because buyers want to find a good deal, but you can still get some cash from the item. Craigslist is a quick way to sell items without needing to pay listing fees or worry about shipping costs. Always meet people you meet from Craigslist in a public location for safety reasons. Other sites, such as Poshmark, allow you to list accessories and clothing that you don’t want. You’ll appeal to a large pool of buyers looking for your items, but keep in mind that you’ll be required to pay small fees in exchange for listing your product on their website.

eBay is another site with millions of users. You can sell pretty much anything and everything on eBay, but keep in mind you have to pay a listing fee along with a seller’s fee, which is a percentage of the sale price of your item. OfferUp is an app only service that allows people to buy and sell items to individuals in their local area. It requires parties to meet in person to exchange items, which saves on shipping costs but stay safe by always meeting up in a public location.

Give them as a Gift

Indirectly get cash by saving the item and giving it to a friend, family member or coworker who you feel would benefit from it. Clothing you got might be too small or large for you but would probably fit someone you know perfectly. Keep in mind who gave you the gift so you don’t embarrass yourself by trying to give it back to them or someone you mutually know.

There’s no reason to leave unwanted Christmas gifts lying around when you can turn them into cash while helping someone else get something they want at the same time.

Breaking the myth that you don’t earn enough to save

By 1 Comment

I live in New York City. A friend of mine, who makes a low-mid 80s salary, recently told me that he doesn’t see how he’ll be able to ever stop living check-to-check at his current salary. Mind you that he doesn’t have any children or other mouths to feed other than his own. Meanwhile, I have another friend who makes low 40s and has managed to save at least $5,000 over the course of 1.5 years. This reinforces the fact that people of all income levels earn enough to save. It’s not how much you make, but rather your overall mindset that matters.

I have had the opportunity to have visited marginalized communities, very poor, where there is the concept of savings. I have witnessed people who make a savings, no matter how small, for rainy days. It is not a formal savings, is variable and not very planned, but it is savings for when needed.

Upper classes: less saving and more debt

Breaking the Myth
Breaking the Myth

Even if I do not have the statistics to back it up, I realized that those who saved less, were those that were in the middle to upper-class sections of society. Why? Because unfortunately they are heavily indebted.

As BeatingBroke has pointed out, we live in a society where it seems that we are measured not by what we are, but by what we have. This apparently gives us social status and even a sense of belonging. Heck, even the number of Twitter, FB, or Instagram followers is apparently tied to your worth nowadays.

The more we own, the more we are wont so spend because we have suddenly been made more aware of other “shiny new objects” that we just have to have in order to “keep up with the Joneses.” We now have access to lines of credit that allows us to go up to a full year without paying interest! We are humans and we want to live better, we convince ourselves saying: “I deserve this.”

Then we pledge our future income on big ticket items that deplete, nullify, or make virtually impossible to start, or continue any sort of savings plan. This endless cycle prevents us from building appreciable. Look, there is nothing wrong with spending a little when we do it in a conscious way, nor should we feel bad about this. But all in balance.

Saving: All about Priorities

That is why it is so important to have clear priorities in life. Some say that the security for your family is paramount, while others are concerned about being able to live well when they’re no longer able to work. But not enough of us have an emergency fund, life insurance, or have even been concerned enough to make a retirement savings plan. They say (my friend, for example) that they do not have enough to do so because they are still paying the monthly payments of the flat screen that they bought last year. I imagine that “taking advantage of the offer” was more important.

A few years ago chatting with my brother, I asked if he had begun his saving for retirement. He was an unmarried person at that time, working and earning a salary that without a doubt was sufficient for his needs. He was a person that almost every weekend partied and dined at nice restaurants, and in addition was paying a hefty car note. Unsurprisingly, his answer was no, but that he had plenty of time. He’s 38. I just shook my head. What else could I say that he hast heard 100 times over.

The fact of the matter is that one never earns “enough.”  If one expects to save when you reach some magical number, then guess what, it will never happen!

I have always saved because ever since I was a kid, I got used to getting by with a portion of the money I made. I always separated some money and place it in a portfolio that is not used, inside the drawer of my socks. (hey, I was 12, don’t judge me 🙂 . At certain stages of my life I have had to live with a limited income, but that was never a pretext: I always found the way to save something.

The point I’m trying to make is that I am by no means rich. Especially when I was just a little kid. But my parents instilled in me the will and wisdom of saving. Whether you’re a millionaire, or getting by on minimum wage, saving even just 5% of your income every week, can put you in the right mindset to be able to save even more money when you, hopefully, eventually grow your income to the point where your savings can become substantial assets.

Instead of trying to always keep up with the Joneses, start saving a little for that rainy day. There are plenty of apps and financial instruments to help you along the way. But remember, mind over matter.