Thursday, June 11, 2009

Living "a month ahead"

While most people are living "month-to-month," my husband (Lubby) and I live "a month ahead." Let me 'splain.

(Just thought an update would be appropriate in regards to the car: we just sent $1400 to the bank, so our liability is down to $1055. Hurrah!) That means that after everything we've taken out so far (most of our bills are at the beginning of the month), we are left with about $500 in the checking account and little expected for the rest of the month. So, why am I not panicked?

It has to do with our version of the "zero-based budget." At the beginning of the month (or the end of the previous month), I: take a look at our budget for the upcoming month, put the 'envelope money' (gifts, groceries, blow, and clothes) in its respective envelope, add whatever money Lubby's school will deduct to the budget requirement, then take everything else and put it to the car. This accomplishes three things:

1. It makes sure we are attacking our debt aggressively by putting every extra penny toward it.

2. It ensures that no matter what happens, we can pay our bills for this month.

3. It give my husband peace of mind.

So, let's take June as an example. We had $3000 in the bank. With budget and school, we needed $1700. Thus, we had $1300 extra to send to the car, plus the $100 that was part of the original budget, or $1400. We were left with $1600

-468 rent+water
-354 school
-150 groceries
-120 envelopes
508 remaining for the rest of the month

Let's say I bring in $300 this month and Lubby brings in $600. We will likely start July with about $1100, but since we were a month ahead, we still have time to catch our income up to our expenses. By the end of July we should be able to send another 'extra' payment to the car-- perhaps even pay it off.

I can understand why this system might not work for everyone:
-Having that money there could be a huge temptation since it feels like 'extra'
-It could be difficult to amass a whole month's living expenses ahead of time (although, if we can do it...)

However, I find our system to be infinitely better than living "month-to-month" and having to worry whether or not I will be able to pay the rent. As long as at least one income continues, I would say we have at least two months of being behind before we really run out of money and have to tap the emergency fund. Knowing I have food, and knowing well in advance if I really must only buy beans and rice next month, is what I call peace of mind.

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