This pie graph depicts the relative amount of money I spent between Dec '08 and Feb '09 on cat food/litter (blue), coffee (yellow), and laundry (green). As you can see, the cost of caring for 2 cats was roughly equivalent to the combined cost of supporting my caffeine addiction and washing my skivvies. Based on these numbers, one conclusion is that I could financially justify the adoption of 2 additional cats simply by giving up coffee and laundry...The above example is just one of countless insights that money management software packages like Quicken and Microsoft Money can provide. Another insight they offer concerns the topic I've chosen to blog about today: budgets!
The tri-MOLE goal
Any graduate of the Greenspankian school of personal finance can tell you that my most basic recommended savings objective is the "Tri-MOLE Goal": that is, to amass at least 3 (and ideally 6) Months Of Living Expenses (aka "MOLEs") inside a liquid savings or checking account. Of course, to do this, one first needs to know what their personal MOLE actually amounts to. In my opinion, the simplest and most logical way to determine this figure is to create a budget.
While the old-fashioned way of crafting a budget—pen, paper, calculator—certainly remains a respectable option, if you own a personal computer I'd highly recommend using the abovementioned Money or Quicken software instead (note: one or the other is usually included with a new computer). Both programs allow users to set up electronic ledgers (corresponding to checking accounts, credit cards, etc) in which the amounts, dates, and categories of transactions can be easily entered and organized. What's more, transactions can typically be downloaded directly from a bank's website, too.
Once you've entered transactions from, say, the past 3 months, the software can then use that information to automatically generate a breakdown of your average monthly income and expenses and—voila!—you've got yourself a budget, mon ami! With this new data at one's disposal, it's much easier to calculate just how much 3-6 MOLEs really amounts to, and therefore how much money should ideally be tucked away into an emergency savings fund.
Of budgeting and bartering
OK, the time required to read this article is quickly approaching 90 seconds (i.e., the average attention span for reading a financial blog post written by complete tool), so I'd best wrap it up. In conclusion, let me just add that if there's anyone out there who'd like more info about budgeting with Money or Quicken (or even a tutorial), please let me know. I don't charge for my services, although I am now accepting free coffee and laundry.
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3 comments:
I am a firm believer in budget software as well (what a shock). If you went to Feline Pine, you might shave your litter costs down considerably. The key to an emergency fund or saving money in an individual retirement fund (Roth-IRA) is to have an amount automatically transferred every month into a separate account so that you never have the opportunity to spend it.
Can I get a free tutorial and give you my dirty laundry to do?
I would create a budget, but to be honest, I'm too embarrassed to know where exactly my money is being spent. I'm just going to assume that if I lose my job and need to stretch my savings I'll be able to cut out frivolous expenses, like hot sauce and restaurants. I could also create some more wiggle room by redeeming the cans that are hanging out underneathe my kitchen counter...
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