You Need to Plant a Fruit Tree

Today, after 6 long years we ate the first Paw Paw fruit from our paw paw trees. Back then I ordered 3 each of two premium Paw Paw cultivars. They arrived on my front porch when my oldest was only 11. I carefully dug 6 holes and added compost and dirt... and guarded love. How would I be able to wait so many years before their tiny branches would offer up their yummy fruit?

Cutting into the soft flesh and scooping out the pulp was an awesome experience even before tasting it. In a culture that thinks a long-term plan covers 60 days, I had patiently pruned, fed, protected, and loved the little plants. Now I realize that we all need to plant a fruit tree, literally or metaphorically. 

What are you doing that has a 5 year or more time horizon? What will require long-term faithfulness from you? We live here in a place with microwaved meals, phones that become obsolete in two years, and starter marriages. 

It is not healthy for everything in our lives to have short time horizons. 

So find something that will take you five years or more to do. (It’s actually not a very long time.) Invest your life and energy and hopes into it, and in five years you will be delighted that you did. 

Creating a Budget (Money Issues #3)

I love Jesus. Most of the time I like Jesus. I am learning to love the church again. These are thoughts as I continue my faith journey from deconstruction to reconstruction and beyond…

Creating a Budget

In Living Within your Means, I mentioned using a budget. I discussed a closed loop vs. open loop budget and general parameters. Here I want to dig into the details of how to create such a budget. First, we will discuss overall goals. Then we will consider creating categories/subcategories. Finally, we will look at the implementation.

Budget Goals

Before we create a budget, we need to define the requirements for the budget. Once clearly defined, these will guide us. You must set your own requirements, but here are mine.

• Give 10% to support my place of worship
• Save 10% in an emergency fund until funded, and then invest in long-term investments
• Live on 80% of what I make
• Give additional money to other needs
• Save money toward significant occasional expenses such as car repairs.
• Have enough categories that the budget is effective, but no so many it becomes cumbersome
• Keep wearing the clothes I have from 1980 to save money on clothing. :)

Define your requirements carefully. Many people jump into categories right away, and it takes longer than if they started more intentionally. Sometimes, you could run into requirement conflicts where you can't fulfill all of them at the same time. In those cases, carefully evaluate which requirement has to change. However, it is very unwise the violate the 80% rule. As soon as you get used to living on 100% of what you make, it will be tough to change back, and the 80% rule is the foundation that will empower your entire financial life.

Creating Categories/Subcategories

The next step is to create your categories. The categories I use are:

• Auto
• Christmas
• Entertainment
• Financial
• Food
• Giving
• Health
• House
• Miscellaneous
• Personal
• School
• Sports

A category is useful when you

• Spend a significant amount of money in it
• Need to save money over time for it

I define three types of categories.

• Monthly: Every month you spend a consistent amount
• Regular: On a certain regular schedule you spend a consistent amount
• Occasional: You don't know when or how much, but you will have to spend.

For example, I, like most people, spend a ton of money on housing every month and it is a consistent amount. If you did not budget for that, you would put at risk one of the most essential safety/security items in your life. Season passes to Six Flags has been a regular category for my family. This is a small part of the budget, but I only spend the money once a year, and I want to make sure I have enough saved when the time comes around. Auto repairs also are an excellent example of an occasional category. Most months you will spend nothing on auto repairs, but then out of the blue, something will break. By saving a little every month when you don't need to, you will have enough money when the repairs are needed.

You may use a subcategory if

• A category includes multiple types of categories.
• You want to differentiate the different ways you spend money in that category.

For example, in my Auto category, I have subcategories called fuel, taxes, and repair. Fuel is a monthly expense; taxes are every other year, and repairs happen occasionally. For me, it would be confusing to have all that in a single category. The three items could be their own categories, but by making them subcategories, you can also "roll them up" to see the total spend in the auto category. In the sports category, I have subcategories for each child. Each is a monthly category, but I like to differentiate the expenses.

Here are my categories with their subcategories:

• Auto: Car payment, fuel, insurance, tax, repairs
• Christmas
• Entertainment: Camporama, General, Six Flags, Vacation
• Financial: College savings; Disability, Liability, and Life Insurance and Savings
• Food: Eating out, Farming, Groceries
• Giving: 3 child sponsorships, missionaries, FCA, church, church missions
• Health: Exercise, health insurance, health spending
• House: Repair, Electricity, Internet, Mortgage, Heating Oil, Water Purification
• Miscellaneous
• Personal: Hair, Clothes
• School: Tuition, Books, Odyssey Online
• Sports: Abigail, Lydia, Chelsea

Once you have your categories and subcategories, list them in a spreadsheet (click for a template) or even paper.

Now you need to figure out how much money you make. You need to know your actual pay, your take-home pay, and what is removed from your actual pay to get to your take-home pay. Before you get your check, you may be paying:

• Taxes
• Retirement Investing (401k, 403b, IRA)
• Health Insurance

Next, you need to know how often you are paid (Biweekly, bimonthly, or monthly). This can be a little complicated because most bills are monthly and most paychecks are biweekly. The most straightforward scenario is to be paid monthly or bi-monthly, and everything matches. If you are paid weekly, the best plan is to base your budget on two paychecks per month. You will then have two extra paychecks every year. Use this extra money as additional savings, Christmas money, or maybe heirloom quality furniture.

Tangent alert: Don't buy crappy furniture. Try only to buy furniture that will outlast you. You are better off with few pieces gathered slowly than having to re-buy furniture that wears out every 5-10 years

Now take your monthly pay and distribute it to all the categories until the money in your categories matches your income.

Implementation

If you are like a lot of people, you will get this far but not have the discipline to continue. For the budget to actually help you, you must IMPLEMENT it. The foundation of implementation is asking this one question before spending money: Is there enough money in the appropriate category or do I need to put this off until later? Also, you will need a place to track your spending, and there are MANY options here.

The simplest way is cash in envelopes. After getting paid, take out the cash you intend to spend and put it in specific envelopes labeled for each category. Spend the cash until it is gone and then stop. You will never go over budget. You can transfer money from one envelope to another if you are short in one category and have extra in another. The bonus with this method is that you feel more loss when you pay cash and you naturally spend less. And not every category needs an envelope. You can still pay your utility bill and rent electronically. Use envelopes for categories that vary in amount, and you go somewhere to spend. Categories like food, entertainment, and miscellaneous would fit. The challenge is internet commerce. Buying online cannot be done with cash. A good answer is to take out the full category amount in cash. If you buy something online for $19.50, take a $20 bill and store it away for the next month.

A set of spreadsheets can be all you need. It is straightforward to have one sheet per category and track your spending transaction by transaction. This would be best for a person with a smaller number of transactions.

Lastly, you can use a specialized financial program to track your spending. These include Money, Mint, and Mvelopes. I currently use Mvelopes. This system excels in helping you track category spending in real time. Some systems only let you see at the end of the month how well you stayed on budget. I call this Open Loop. A Closed Loop system like Mvelopes enables you to see exactly how much money remains in each category 24/7. That way you can decide to buy or not based on real facts and not overspend.

Should you be a rare, disciplined person and follow the three steps above you will experience true financial freedom. You may not buy everything you want, but you will know your limits and not suffer the stress of overspending and debt.

Photo by Sharon McCutcheon on Unsplash