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Wednesday, January 5, 2011

Getting household finances back on track

It's about time to grow up. You'd think that a 30-something, married with a couple of kids, would have learned all the trades of life already. I thought so too! But I guess that there is always something new to learn.
We just bought a new house, our kids are going to school, in other words, playing time is over. Now it's time to get serious! We need to finally face it: no more hiding from finances.

I always thought: "How hard can it be? You pay attention to prices a bit as you shop, buy cheaper things etc, and all should be fine." Wrong! By the end of every month, we were surprised how much money we spent in the end, even with the so-called 'conscious shopping'. Before we knew it, we had spent more than we could afford.
But when you have a mortgage to pay off and school tuitions to pay every month, not to mention the other regular bills such as phone and utilities, you just can't afford to live this way.
So what did we do?

Getting help from experts

First of all, we contacted the Paamonim organization. They are a charity organization that helps families get their household finances on track. Two financial experts came over to our house one evening and went over all financial aspects that are relevant when running a household. Suddenly we had to start thinking how much on average we spend on things like presents, clothing, school and tuition etc per month. Some monthly recurring things are known, such as mortgage. Other things will have to be calculated over the course of a year, such as tuition which gets paid in 10 months.
We had to look up how much we actually spend on things like fuel and insurances.
And all of a sudden when we added everything up, we were looking at huge amounts of money!

On the other side of the equation we had to write down our monthly income, including things such as Childcare benefits. This may sound like a no-brainer, but the average monthly spendings should not be bigger than the average monthly income. If you want to balance your account every month, income should be equal to expenses. If you want to save (which is always a wise idea), you should be spending less than your monthly income. Sounds simple in theory, right?

Write everything down

But how can we make sure that we actually spend within our means?
For starters, the guys from Paamonim gave me a booklet in which I am to write down every cent I spend. This booklet is divided into months, and every month is divided into categories:

Groceries: I'm supposed to write down all my grocery spendings here. This includes the supermarket, local grocer, the market etcetera.

Cigarettes: This category stays empty because we're non-smokers.

Shoes and Clothing: Clothes and shoes I buy for myself or for the kids. It helps to write down who it was bought for, so you can later check for spending trends.

Education: Tuition and school supplies. This includes school books at the start of the year and also the never ending need for restocking our stash of pencils, erasers, scissors and so on. Summer camps go into this category too.

Clubs, private lessons: Ballet lessons, piano lessons and Dutch school. Plus all the accompanying expenses such as books, special clothing etc.

Travel expenses: Bus and taxi fares. Fuel for the car goes into a separate category.

Health: Doctor's visits, tests and medication. Also including dental care.

Household help: Babysitter, cleaner, gardener and so on.

Car: Fuel and parking

Car: Insurance, repairs.

Donations: Tithing money and money I give to charity.

Vacations, trips, entertainment, restaurants: The movies, take away coffee, anniversary dinner and the like.

Holidays: Expenses that are specifically for the holidays. I bought candles for Hanukah and wrote it down under this category.

Presents: For birthdays, weddings and other special occasions.

Other: Everything else

There is a separate category for monthly bills such as insurances, electricity, gas, phone, cable/internet, taxes, mortgage, bank costs and interests, subscriptions, loan returns, putting away money into savings, and heating.
There is also a section for income, so salaries and benefits get written down there.
At the end of every month we can make up the balance and see exactly how much money was spend versus how much came in. That should give a good overview of matters.

I am supposed to keep up with this for a few months, and then I should be able to see where we can cut costs.I know I still have a long way to go, but I made a good head start by keeping records of everything that goes out. Apparently that's half the work already!

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