PocketCoinage

After my most recent posting about Bad v. Good Debt, I got all fired up about paying off my student loans as quickly as possible.  I mean, I only wasted $1,520.48 in interest alone!  Before this posting, I really did not run the numbers to realize how much money I was losing.  I told myself there had to be a way I can reduce the payoff time to less than two years.  Currently, I am on target to pay off the loan in about four years.  However, four years is not going to cut it with my vision for the future.  I needed to put the numbers down on paper and see the results.

So last night I sat down to work on an updated budget spreadsheet that worked with my varying paycheck.  I found out that by slightly modifying where each dollar goes (house fund, emergency fund, etc.), I am able to boost my school payment from $440 to $700 every month.

How did I increase my monthly payment by $260?  I was able to:

• Judge my base take home pay and budget based on that
• Slightly cut back on how much money each item receives
• Cut back on a few unnecessary items (wants)
• Use the extra money in my pay exclusively for debt reduction

This alone should bring it down to around 24 months.  However, I’m going to take this a step further in an attempt to knock it out sooner.  Since I save bi-weekly, this creates an extra “payment” every year.  For example, I put away money for the mortgage every pay period.  By the end of the year, I will have an extra payment to use for pure principal.  For a short period of time, I’m going to be using this extra mortgage payment to knock out my student loan debt.  I’m also going to allocate some money from my tax return to reduce this debt.  By going this route, I am on target to pay off my student loans by December 2012 (15 months).  Who knows, if I come across some money, it may be less than 15 months!  Unfortunately, once all is said and done, I will end up losing another $800 in interest.

I’m not sure why a lot of people cringe at the thought of budgeting.  It is a good way to get your finances under control.  In order to budget properly, you should have an understanding where your money is going.  An hour or two of your time can change the way you look at your finances.

I budget based on my bi-weekly paycheck.  I take my monthly expenses, divide them into two, and put them into appropriate savings accounts.  The advantage of this is I am not tempted to spend the money.  I find that if it’s in my checking account, I am more likely to spend it.  The other advantage of my bi-weekly savings is that I will build another monthly payment over the course of a year. This is particularly useful for building that extra mortgage payment every year.  Some mortgage companies charge you to change your payments from monthly to bi-weekly.

Budgeting for Variable Bills
I’m still working on this area in my personal finance.  One example of a variable bill that I have is the gas and electric.  I’m thinking about taking the average price of the bill over the past year and putting that amount away into another savings account. So when my bill is $50 in the spring or $250 in the winter, I will have enough money to cover it all. Sure, I can assume the worst case and always put away $250, but that will limit my cash flow.  Have any suggestions?

How do you budget?