A uber-fast weekend edition

It was a really busy weekend with me trying to catch up on my data analysis part and discussions on some meetings and shows(yup! I'm hosting a show in my university for the Tamil New Year. I did it last year as well and it turned out to be great fun. Also, I got some really good advice(as in, real advice) that made a dent in my views of life. This year too, I'm looking forward to it.) But here are a few interesting articles that I ran across:

Strange how the buyout of one company can seriously affect two unrelated companies - a followup on my ibm-buying-sun post - happens only in the technology sector.

Buiding an innovation nation? - The innovation heat map shows it all.

Will you take advice from fictional billionaires? - Strangely some of them make a lot of sense.

Some interesting office sites - wish I had the yacht or treehouse office(I know, I know, I wouldn't get any work done!)

Some disheartening scenes from recession - most of them show signs of arrested development - construction, job scene, shopping

Do you want to - link edition

A collection of some interesting articles I read this week:

Do you want to own free land in the US of A? Here you go.

Do you want to rent rims to your new car? Off you go.

Or do you want a new car itself? (Hint: I'm thinking of one car from this family for my first car... hoping that it happens soon!)

Do you want a clean inbox and a happy email life? Here it is.

Do you want to get your creativity kicking and happy? Enjoy it here!

Finally,
Do you want to give a shot at the meaning of life? Check this out!

Budget making - the hows

Recently, I had written a post as to why someone needs a budget and how useful it is in the long run. Here is the follow up on it. How do you make a budget? Mind you, I had no clue as to what a budget is and how it would help in using the resources I had. So, I did a Google search for making and using budgets and then tried some stuff on my own to hit on a sweet spot where it is not much work any more but gives all the info I need at a glance.

Some thoughts on the budget mechanism I use:
1) I didn't want to spend money on budget tools like Quicken, YNAB, etc. for I wasn't yet convinced of the positives of a budget. So, I didn't want to spend anything on it. Further, I wasn't sure if my enthusiasm would remain after a few budget sessions to justify buying the tool.
2) I didn't want to put up my finance data online. All said and done, I'm freaky about keeping my personal info offline(at least, as much of personal info as I can). So, that threw away services like Wesabe, Mint, etc from the pool.

3) I didn't want to keep moving from one format to another.

4) I wanted to be able to tweak things as I wanted them to. Basically, I wanted something that would grow and change with my learning of finances. 

At the end, I was left with either plain old pen and paper option or excel spreadsheet option. Knowing that it is hard for me to keep up with paper, I chose the spreadsheet option. I use Excel spreadsheet for entering all the info.

Here goes the mechanism I followed for making a budget.

1) Start keeping tabs on what you spend money on
Open a spreadsheet and enter columns like date, item(what you spent on - groceries, dinner, cab, printing, etc), credit(money coming to you - salary, tax refund, etc), debit(money going out - all expenses). All you have to do is to enter all the transactions in it and sum it up. The difference between credit and debit is what you have in savings. In order to know how much you spend per category, just add columns labeled groceries, utilities, etc and enter those transactions in it. Summing them up would give you an idea as you how much you have spent on each category. You can have as many categories as you want. One of my friends has about 40 categories while another has only five. But, both of them use the budget well. So, depending on your level of need for micromanagement, the number of categories would vary.  

I used to spend a lot of money on eating out(in our university dining centers and in downtown) with friends. The second vice was shopping. Not that I brought lots of stuff, it was more passive shopping. Intrigued? I usually go for shopping with my friends and help them choose stuff. In the process, I would end up buying a shirt or a perfume or a book or a ... hope you get the drift. Also, half of my eating outs happened when I went on these shopping trips - a smoothie at 11 am, lunch at 2 pm, a snack at 5 pm and finally ending the day with dinner at a restaurant cost us way more than expected. I had no clue I was spending so much on these two categories.

2) Take a hard look at each of the categories
Take a look at each transaction and see if there is something that you can drop without changing your comfort level too much. Mark each of it and make a note of the amount you can save in each category. For example, if you get a total of $300 for eating out every month but feel that you can reduce it to $150, make a note of saving $150 in that category. This would give you a feel of your budget.

For me, eating out was a result of me not having time to cook at home. By scheduling time to cook at home(at least on weekdays), it became easier to plan my groceries, get them and finally cook and eat at home. Bonus point was eating healthier stuff at home.

3) A budget draft
With the newly created cap for spending on each category, you are now ready with a budget draft. Try to consciously reduce spending in each category for the next month. Check to see if each transaction is worth it. For example, the blender that you get at Walmart might be worth the cost for it may help you cook faster whereas the cute teddy that you see in Toys R Us might not make the cut.

For me, I brought some microwave bowls(about ten or eleven) that cost me a lot more initially. But they help me store food and I don't have to cook every day. Whereas, shopping didn't make it. So, I stopped going out for shopping 'just like that' to avoid getting unnecessary stuff.

4) Making changes
Repeat steps 1 and 2 again and compare it with your expectations. Sometimes, your expectations might be satisfied(you expected to save $150 and saved $150 - keep it up). Sometimes, you might have done better than you expected(you expected to save $150 but saved $200 - keep up the good work and change your budget accordingly). Sometimes, you might have done worse(you expected to save $150 but saved only $100 - change your budget to reflect that).

For me, I had thought I would save a lot on eating out(which I did) but went over budget on groceries(expected but I hadn't thought of it). So I changed my budget to reflect the change.

5) A final word
Keep repeating the above steps and you would see that as the months go by, you have a fair idea as to what you do with your money. A budget is a living document and changes with changes in our life. Especially, for students, its hard to say that you get a set amount of money every month. Some months, you get to work more while in some others, you have so many deadlines that you just can't work part time. So, based on your situation, the budget can expand or contract. For, it is you who is being accountable to yourself.  Do what works for you!

Further, you can decide how to have fun and do it well. For example, if traveling is your kind of fun, you can save money for it and have fabulous vacations. It really doesn't make sense to spend money on movies and eating out when you could use that money towards your vacation. In all, its all about your priorities and a budget helps you chart a way towards those priorities.

For me, I try to keep all my spending on necessary expenses to 70% of whatever I earn, 20% on irregular expenses and 5% for fun spending and 5% for saving. Though this is not a hard and fast rule(I order to-go more often on days when I have a deadline looming ahead, my 'eating out' category shoots up while my groceries category goes down a bit), I try to stick to it as much as possible.  

Happy budgeting!

What type of a budget works for you? Do you use any software to track your expenses? Any comments?

Budget Making - the whys

I'm a grad student. That amounts to someone who does not have enough money to satisfy their every whim and fancy. Oh wait! That amounts to someone who does not have enough money to satisfy a bit more than their whims and fancies. Though I'm covered for food, shelter, clothing and of course studies, I can't really go out for a night and buy things off my mind. Or even if I charge it to my credit card, I can't pay it back in full and would start a horrible debt cycle. So, the only recourse to that is to make sure that the dollars I have stretch to their best and give me enough cushion to do that one-day-shopping-bling-thing.

To tell the truth, I was brought up in a family where I can have any amount of money in my hand provided I gave the right reason for it. Being a kid(and an obedient kid at that ;)), I didn't have much necessity for money to spend on my own. Further, in India, you didn't have that many opportunities to spend too(esp when I was in school). In college, though, I could spend the money I had and could just ask my mom for more. But, I was overloaded with courses and projects and organizations that I didn't have much time for other things. So, all this left me with little or no experience with handling cash within a set limit.

When I went to do my internship, I got a good amount of money but the days were very set and we didn't get many opportunities to really spend a lot. And, I always hung around with friends and we made sure that the things we did were inside everyone's budget. Funny, but that was the first time I really thought about budgets. However, since my scale of comparison was my friends and since one of my friends' budget was inside mine, I really didn't have to do a budget for myself. I just went along with what she said and that worked well for me(didn't have to rack my brains - she did the number crunching) and my wallet(I didn't see any big dents here). So, there too, I didn't have to do anything with a budget.

Fast forward to my grad days. The first year and my second internship period was a repeat of my first internship period. So I really didn't have to care about it. But my second year was different in that I changed jobs inside campus(went from a relatively high paying one to a low paying one) and changed my apartment. And a few friends graduated. Some went for internships, all of us left back here started becoming serious about finishing our degrees. Slowly, that led to changes in my lifestyle as well. I had to look for different ways of having fun. Its not something fancy but I had a goal as to not ask my family or others for money. And it was not a hard thing to do. Rather, it was fun. I learned a lot out of the process too.

Now I have a simple budget that works for me and helps me live a satisfied and fun filled grad life(yeah, with that one-day-shopping-bling-thing). But I know that a number of my friends and readers don't do it often. So, here is a short series of posts about budgets. This would also help me revise mine and see if there are any changes I can make into mine.

Five simple reasons to have a budget:
1) It tells you where exactly your money goes. Whether you a Wall street banker or a sweeper, you earn money in exchange for your time. Time that can never be earned again. So, it makes sense to know what you do with the money you got.

2) It tells you how close you are to your goals. You can be a poor grad student(like me!) and dream of going on a world tour before you turn 50. Or you can dream of getting that penthouse with an awesome view on top of a 50-storey building in NY without any strings attached(mortgage, for example) before you turn 35. Or, you can even dream to have your honeymoon trip to space. For all that, it is important to know what exactly do you have now to get to where you want to go.

3) It reminds you of the resources that you have and consciously tries to make you spend within it. For example, if you have an income of $1000 and an expense of $800, then you live a way better life even with lesser stuff than with an expense of $1200 and more stuff. (yeah, you can charge it to your credit card but that brings my next point!)

4) It tells you the amount of debt you still have. Debt is like shackles and chain, it comes with you wherever you go. So, the higher the debt, the more constrained you are from living life as you want to. The lesser the debt you have, the more risks you can actively take in your life and gain more returns. Suppose if I get into my head to go to Bahamas tomorrow, I can do so if I don't have any debt and wouldn't be setting any legal action against me. But if I had $10000 as debt with me, then I'd have to settle that first before making my move to Bahamas. So I can't live life as I wish it to.

Charging things to your credit card is easy to do at first but then, you pay more than the price you see. For example, say you see a cute valentine's gift for $500. You decide to charge it to your credit card with 10% interest(there are very less cards with this rate now). And you decide to pay it in terms of $100. At the end, you would have paid close to $730 - An increase of $230 over the price. Naturally, the actual price of the gift goes up by $230. For that, you could've paid cash for $730 and bought a better gift. Or, used cash to pay for $500 and kept that $230 for some other purpose. If you decide to pay $200 each month, that comes to a little over $600. So, you get to pay only $100 more. So, try not to carry a balance in your credit card/debt. Or if you do, try to maximize your payments to it so that you have to pay only a slightly higher amount.

5) It shows you how much more your resources(income, savings, etc) should increase to make your life more satisfactory. Suppose you decide that you want to blow away $100 a weekend. So, that comes to $400 a month. And, assume you are already spending the money you get and don't have money to spend for your weekend flings. You can look to raise your income by $400 a month so that you can spend them without any worries of getting into debt.

I had read about budgets earlier. But then, I had thought that budgets were a bore and kept you inside a particular boundary. You can't do as you wish. However, I found that it wasn't true. Rather, budgets liberated you from boundaries like credit card debt and helped you achieve whatever was your dream. My goal is to finish grad school without any debt. I went close to getting into debt and my budget was the tool that pulled me out of it. So, I'm relying on it to keep my goal going till this May(hopefully I don't have to stay another semester at school).

Do you see any other reasons for doing a budget? Or do you see any reasons for not doing the budget? What are your experiences with the B-word?