Beating Broke

Personal Finance from the Broke Perspective

Balanced Billing: Budget Helper

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In our house, we have a gas fueled furnace for heat and an electric fueled central air unit.  So, as you can likely deduce, our gas bill is much higher in the winter months and our electric bill is much higher in the summer months.  But, our bill hardly ever fluctuates.  Why is that?  We’ve got both bills set up on a little budget helper called balanced billing. It’s a lifesaver when it comes to doing a budget, and it offsets those peak months like the Money Beagle just had.

How does it Work?  It’s pretty simple really.  The gas/electric company takes our bills for the last year and adds them all up and then divides by 12.  That’s our bill for the month.  With the gas company, it adjusts each month, so we’ll see a variation of up to $10 or so dollars each month.  And with the electric company, they adjust once a year so we usually end up with a little bit higher bill (about $20) for one month to make up for any difference and then it’s back to where it was.  I highly recommend it.

How is Balanced Billing a budget helper?

Here’s a little anecdotal story to cement the need for such a program.  When I was still in college, I lived with 4 other guys in this awesome old house.  It didn’t have air, so it was warm in the summer.  In the winter, it had a gas fueled boiler that fed those old registers in each room.  The first winter we lived there, our typical gas bill up to that point had been about $200.  Not bad when you split it 5 ways.  Then we had a particularly cold November.  Our bill in December was over $650!  Obviously, it was a bit of a shock to us when our heating bill was more than the rent each month!  Luckily, we were all pretty good friends and a couple of the guys floated the rest of us some money to help pay for the bill.  But, imagine what would have happened if that had happened to a family that was living paycheck to paycheck?  Even if you aren’t living paycheck to paycheck, imagine what that would do to your budget!

And that, my dear readers, is why balanced billing can be such a wonderful budget helper.  If you’re interested, it usually just takes a quick phone call to the utility company to get it set up.

Starting a Business: Can You Afford the Risk?

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Freedom! Be your own boss! There are plenty of people out there that will tell you that starting your own business is the only way to go. You can set your own hours, and do what you are passionate about. And, sometimes those things happen.

Eventually, you might be able to set your own hours.  Eventually, you’ll be able to make gobs of money doing what you are passionate about.  Eventually.  Until then, you’ll work long hours and probably not make much money doing it.

As with anything, starting a business can be a very risky proposition.  If you decide to do it full time, you’ll have to leave your job.  Doing it part time is a valid response to that, but then you’ll be working even longer hours than you already do.  And, sometimes, your passion just isn’t profitable.

But, I’m not here to discourage you from trying.  In fact, I’d like to do the opposite.  But, if you’re going to start your own business, do it responsibly.  Know ahead of time that you will likely be working long hours and making less money than you have planned for.  And know ahead of time that a very large portion of new businesses (about 60%) fail within the first 5 years.  I’d be willing to bet, however, that a very large portion of those failed businesses failed because the business owner didn’t do their research and didn’t know what they were getting themselves into.

But you will.

Can you afford the risk of starting a business?  Let’s ask ourselves what we will need financially to devote ourselves to our new business.  We’ll need to have a way to pay ourselves.  You cannot count on the business to make enough revenue to pay yourself with.  You’ll have to have a way to pay for start-up costs.  It’s actually pretty expensive to start a business.

If you’re still in the planning phases, visit your local branch of the SBA, or find a local business incubator, and sit down with someone to discuss your business plan and the costs that will be associated with it.  Those experts do this all the time, so they’ll have a much better understanding of what it will cost you to get running.

Once you have a firm idea of what it’s going to cost you, you’ve got to start saving up.  Plan on saving at least a few months of salary and personal expenses, but I would shoot for at least 6-12 months.  And if you can, start saving any extra so that you can put that towards business costs as they come up.  Again, the business isn’t likely to pay for itself right away.

A solid savings plan will not only help you get your business started properly, it can also do a great deal towards keeping your business operating if necessary.  And having an extra cushion to pay your own expenses will save your sanity while you expend all your energy into your business.

The Accounting Mistake that Almost Bankrupted Us

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Everybody makes mistakes.  It’s just how quickly you discover them and if you recover and learn from them that makes the difference.  Make a mistake and ignore it, and you’re likely headed for disaster.  Learn from the mistake, and avoid making it again, and you just might save yourself.

Recently, while catching up on our budgeting, we noticed a pretty large discrepancy in what the bank said we had (or didn’t have as the case may be), and what our budget said we had.  I’m used to some difference, but it’s not all that much normally.  This time, we’re talking about a very large difference.  Our budget said that we had nearly $2000 left over from the month of June.  Our bank?  Said we were nearly overdrawn.  Something was seriously not right.

And we had to figure out what.  I’m no accountant.  I don’t do math well (I took Trigonometry in college 5 times before I passed it.) and I am horrible at accounting math.  I’m a computer guy.  Computers are good at math, I leave it to them.  Unfortunately, as I was soon to learn, they are only as good as the data that you feed them.  And boy oh boy have I been feeding them some fun numbers.

Here’s what’s been happening, as best as I can figure.  As part of my payroll, I have child care flex taken out of my check.  Each month, about $400 is taken out of my check.  Each time I pay my daycare, I send in a form to HR and they reimburse the amount that I’ve taken out of my check.  So, at the end of the month, that $400 has been reimbursed back into my account.  Because of the way this works, I decided (when we started using the program) to not enter either transaction into my register or my budget.  My reasoning was solid.  A debit followed by a credit makes, essentially, a non-transaction.  Or so I thought.

Some of you may already see the problem.  Some may need this extra bit of information.  In determining the amount of income we budget for, we use the gross pay amount from my check.  Why is that important?  Well, let’s say, to keep the numbers easy to use, that I make $1000 a check.  I add $1000 to the income column on my budget.  From that $1000, my employer takes out $200 for the Child Care Reimbursement.  Now I have $800.  I then pay my daycare $200.  Now I have $600.  My employer reimburses the $200 to me.   I am back at $800.  That’s how the accounting should have been done.

Now, let’s take a look at why the way I was doing it was wrong.  I get paid $1000.  I put that in the income column of my budget.  I pay my daycare $200, but because that amount is reimbursed, I don’t enter it into the budget.  I also don’t enter the reimbursement or the initial withholding into my budget.  With no transactions, my budget still says that I have $1000 in income that I can spend.  When I really only have $800.

Of course, I’m using some simple round numbers, but you can see why that would be a problem.  Especially if it’s been building that way for at least the entirety of this year.  If I’ve been padding my budget-able income by $200 a check ($400 a month) for 7 months, that gives me $2800 in income showing that I don’t actually have.  And that is why my budget and my bank statement were so very far off.

Whoops.  Luckily, it didn’t cost us much to find the problem.  Unfortunately, we don’t have that much money just lying around.  Especially since we’ve been overspending by $400 a month.  So, we have to cut back as far as we can and watch our expenses until we can manage to bring that deficit back to $0.  Not any fun at all.  But, that’s the price you pay for a mistake.  At least we learned from it (enter all transactions, no matter whether they zero out or not), and will recover from it.  It’ll just make life a little bit harder for a while. But, if we hadn’t caught it, it could have bankrupted us.  It could have, essentially, cause our financial ruin.

The only thing that saved us is doing a budget and keeping track of our money.  Which is yet another reason that I advocate so strongly that you keep track of your money.  Even if it’s only going so far as balancing your account statements at the end of the month, you’ve got to know where your money is going.  It may save your financial life.

What mistakes have you made in your search for financial independence that set you back?  Or, maybe, that cause a bit of a windfall?