4/17/2012 Portland, Oregon – Pop in your Mints…
Now that we have dealt with what will happen in the monetary realm as the world comes to an end, we must leave eschatology in its proper place, namely the future, and return to our daily toils.
Today’s installment of The Mint is out first attempt in this space to tackle budgeting.
Every person, family, company, and nation needs some sort of budget. Some do it for show, but a great majority create and attempt to adhere to a budget as a matter of survival. In the final analysis, the ability to properly create a budget or forecast is second only to the ability to perform to or understand deviances from said budget in terms of importance to one’s economic existence.
Many people understand that they need a budget, but have trouble gathering the courage and mustering the time to create and maintain a proper budget. In this space, we offer some tips which we pray you will find helpful as you sit down to this seemingly daunting task. Enjoy!
Tips for budgeting beginning with compiling expenses:
Think Easy Maintenance – If you are using a computer spreadsheet, use one you are comfortable with.
Include the kitchen sink – Throw into your budget anything you are currently doing as well as those things you think you may want to do which involve shelling out cash. Finally add the things you hope you won’t have to do but, if you have to, you will have to shell out cash for them, too.
Be a Conservative – It is better to underestimate your income and overestimate your expenses and to be pleasantly surprised than to assume everything is going to go well and to get shocked when an emergency drains your accounts.
Don’t forget taxes – Whether they be of the sales, income, property, or use variety, taxes are unfortunately a large part of the average American’s budget. While somewhat difficult at first, you will have a clearer picture of your finances if you record your gross paycheck as income and then record the deductions before net pay as expenses or transfers. It is a bit painful, but it will greatly help you make some key decisions making in the future.
Or depreciation – Perhaps the most overlooked expense line in a family budget is that of depreciation, or what may be more easily understood as “the wear and tear expense.” Depreciation is simply recognition that anything, a car, house, etc. deteriorates over time and will likely need repair. Contemplating depreciation allows you to unconsciously develop a rainy day fund to deal with unexpected repairs or regular maintenance.
Large ticket purchasing tip: The difference between a good investment and a bad one is often determined at the time of purchase. Learn to buy large ticket items, cars, houses, etc. out of season (that would be the winter in most places) and be sure to negotiate a price reduction for any major repairs. This will make your depreciation expense (which is a function of the purchase price of an asset) more tolerable and help you sleep at night.
Note: Depreciation and asset valuation are part of what I call “balance Sheet budgeting, which we will get into more tomorrow.
A note on Health insurance – This is perhaps the fastest rising cost for most families. Consider focusing on a healthy lifestyle and reducing your health coverage to major medical or other type of high deductible plan. However, do not give up so much coverage that you risk forgoing necessary treatments in the case of an emergency, you do not want to be faced with a tough life or death decision and have it boil down to finances.
Assume inflation – Ever since the Federal Reserve took over control of the nation’s money supply in 1913, the US Dollar has lost over 95% of its purchasing power. In 1971, then President Nixon officially took the US Dollar (and world’s monetary system) off of the gold standard, the decline accelerated. The value of the dollar continues to decline at a rate somewhere between 2% officially and 10% unofficially each year. It is important to recognize rising costs as a fact of life and consciously plan to increase your income accordingly.
Which brings us to income. How exactly does one increase their income at a 2-10% pace each year?
We will address that any other questions tomorrow as we explore the Income side of the budget and respond to the ever present question, “How are we going to pay for all of this?”
Stay tuned and Trust Jesus.
Key Indicators for April 17, 2012
FED Target Rate: 0.16% ON AUTOPILOT, THE FED IS DEAD!
MINT Perceived Target Rate*: 0.25% AWAY WE GO!