Tuesday, April 28, 2009

Reducing our outgoings

It was great developing our budget and I felt a lot more relaxed knowing there was a plan in place. One thing that the budget told me though is that we were paying lots of money for lots of "stuff" and I was unsure whether all these items were necessary.

I went through the budget and considered each item carefully. Was this something we really needed? Was this something that truly added value to our lives and to our future? Was there a cheaper option available to us? This produced some interesting results and we were able to make a number of changes as follows:

Cancelled our newspaper subscription - now we read the news online and only buy a newspaper on the weekend - saves $30 / month
Cancelled our telephone messaging service - saves $7 / month
Moved our credit cards and transferred balances to lower interest rates - haven't worked out the savings on that yet
Changed mobile telephone plan - saves $35 / month
Started using the train for commuting to work every day - saves at least $35/week probably more
Started cycling to work twice a week - saves $12 / week on train fares

Currently we are spending a lot each month for various insurances including term life insurance, house and contents insurance, serious condition cover, health insurance and income protection insurance. With no emergency fund or savings behind us we see the level of cover we have to be necessary. As our finances improve we will be able to look at reducing some of the insurances we have.

In addition to cutting things from the budget, we looked at what items we had that could be sold online. Due to a long-standing elbow injury my golf clubs had gathered dust for over two years. I thought long and hard about it but then decided they could be sold. Other items cluttering our house and garage were also sold online. All proceeds went straight into paying off debt.

One area we were spending a lot of money on was our grocery bills. With no budget in place we were spending a minimum of $1200 / month (and up to $1500 / month). We decided that we should be able to easily live on $250 / week groceries (bearing in mind that we were catering for between 6 and 9 people for evening meals each day). To ensure we could stick to the budget we started doing a weekly menu plan and developing a grocery list from the menu plan. Menu planning and saving on groceries will be covered off in my next post.

Friday, April 24, 2009

Where are we at?

The first thing we needed to do when we started this mission was to figure out where we were at.

I pulled together all of our bank statements, credit card statements, etc and created a spreadsheet with outstanding balances. The total was really scary!

I then created another spreadsheet where I entered all our transactions for a month - incoming and outgoing. Those totals were scary too. How could we possible be spending that amount of money every month? The good thing about this was that it made me even more determined to find a way for us to live within our means (the old spend less than you earn thing).

I knew that the next step had to be putting some sort of budget in place. This was quite tricky as the Optimist (my lovely husband) has an income that fluctuates every month - working on commission can be lucrative but, obviously, not all the time. Regardless of this we had to put together a budget. What I worked out in the end was that our fixed income each month was enough to live on - all commission could then go straight into debt repayment / emergency savings.

The key thing that makes our budget work is to re-set it every month. At the end of each month we sit down and work out what will be happening within the next month that we need to cater for. For example, any planned trips away, birthdays and other special occasions. We also have a good idea at this stage of the amount of commission we can expect to be paid. If it's been a slow month then the amount to pay off debt is low (we haven't had a month yet where we couldn't make a payment at all).

I don't use any specific tool for our budget other than an Excel spreadsheet. In this I enter the budget amount against each category and then, during the month, I enter in the actual spend. I leave our credit card payments until later in the month so if other unexpected expenses come up I can jiggle things around. I'd rather do that than tap into our emergency fund.

The other thing I learnt from putting a budget in place is that we were paying for lots of "stuff" that didn't seem to be critical to us. The next step was to work through all of our outgoings and decide if we could live without the service or product. That will be the subject of my next post.

Thursday, April 23, 2009

Blog kick-off

Greetings to all who have stumbled across this blog.

I've thought about setting this blog up for quite a while now. I starting following a number of blogs last year when I hit a point in my life where I knew I needed to change my way of thinking, especially in regard to my finances. So this entry is to introduce you to me and explain a bit about what I hope to achieve here. This blog will cover financial planning, frugality, healthy eating and other related topics.

I'm in my mid-forties and I am married to a wonderful guy (let's call him the Optimist). I have two adult sons (one still at home with us) and the Optimist has an adult son (currently travelling overseas) and three daughters who live with their mother but visit and stay with us frequently. We live in a suburb of Wellington (capital city of New Zealand). We both work full-time and earn a great combined income but our overall financial position is not one to be proud of. I think it's a case of thinking that because we have a good income we can then afford to do what we want, when we want to do it. This has resulted in us carrying a significant amount of debt (one credit card and two personal loans) and having no real savings. For quite a while we have lived from payday to payday and the overall position has not improved.

Late last year I sat down and looked at our finances, read a few blogs and decided we needed to take action. So I ordered Dave Ramsey's book (second hand from the US), read it from cover to cover and started the process of getting things in order. Since then we've set up a budget which we re-do each month and have made many changes. The next few articles I post here will explain each of the steps we've put in place.

I'd love to hear from anyone who has feedback or who would like to contribute their own ideas.