Tuesday, October 24, 2006

Jewish Economics - Pitfall #1

A must-read to start is (Orthonomics) Sephardi Lady's latest, Budgeting Tool #1: Monthly Budget Tracking & Budget Summary. She has an excellent, thorough listing of what you can, should and must do - and how to do it. I want to mention a couple of the pitfalls you may run into in trying to do them, so you can avoid them.
  • Fixed vs. variable expenses: People - especially young couples, especially young about-to-be couples - sometimes underestimate just how much their fixed expenses are going to be. I still remember the 'Woah' look on my friend's face when I went through it with him a couple of years ago. But usually, people have a pretty good handle on their fixed expenses after a while if they're paying any attention to their budget. The tricky part is variable expenses. Even if a couple is paying attention to their expenses, the variable expenses add up to a lot more than people realize. People will estimate, then add a good 30% assuming they aren't thinking of everything... add when the month ends, they can't figure out how they have no money left when they thought they'd have plenty. It's amazing how much the little drugstore buys and extra food and whatnot add up to. Mind-boggling, really. Be careful to try and track those variable expenses as much as possible to see how much they're adding up to. Don't drive yourself nuts - it's not worth it - but if (say) you are using a debit card, those purchases will be on your statement. Cash purchases you may need to write down.

  • Don't forget about basic expenses. I know this sounds obvious, but it's amazing to see how easily people forget to include expenses such as: Gas and electric, cell phones, home phones, DSL/Cable, car insurance, health insurance, gas, etc.
  • There were more, but I'm drawing a blank at the moment. Plus, it's good to see only a few bits and pieces at a time. One final note, that SL already touched on but is worth spending more time on: Interest. For those people who are using credit cards and aren't paying them off in full, they often neglect to add in the interest into their budgeting when figuring out how much money they're spending. I would tell people not to get into credit debt in the first place, but it's often either unavoidable or too late for that: But it's not too late to start tracking it.

    Just as an example of the first part above, here's what our basic fixed costs were for our old 1-bedroom apartment (on average):
    1. $983.25 Rent
    2. $125 Gas/Electric
    3. $396 Health
    4. $70 Phone + DSL
    5. $140 Cell phones
    6. $100 Transportation
    7. TOTAL: $1814.25/month [$21,771/year]
    For everyone, especially young couples - and especially couples-to-be [Y'all know who you are ;) ] - make sure you're well aware of these numbers. We didn't (and don't) have a car, which would have knocked it up many thousands more. We did have tuition, but I'm not even going to touch that here, as that both varies highly from person to person and is a completely different story. Please feel free to point out anything I may have missed, especially as it pertains to what I've tried to cover in this particular post (or SL's post). Thanks.