Recalculating ….
June 20, 2009
I really hate hearing Garmin pipe up when you make an executive decision that does not follow the GPS exactly. No matter where you go or what you do, it just won’t adjust to the new route. It forces you to wait while it recalculates and brings you around in a circle to follow the original directions.
But that has little to do with this post. It’s just that I keep hearing that faintly obnoxious voice when I realize that I’ve got to recalculate my savings plan.
My perusal of JD’s post on How to Handle a Windfall followed right on the heels of .. yes, recalculating. Earlier this week, I’d had a little meeting with my notepad and pen, wherein a divvying up of expected monies was set on lined paper. I wanted to make sure that every penny had its place and the best way I know how to stretch a windfall/irregular income’s impact on my financial life is to make a plan.
It’s just as simple as me, a pen, paper, and calculator. First, I sketched out my existing holdings using my handy dandy Snapshot as a starting point.
Next, a list of expected income. Normally, I treat each piece of income as an individual transaction which means that I take out a cut for regular expenses, savings, and another expense fund from each check. The problem with this method is that I have to pick my favorite child. Savings already got a lion’s share because that fund makes me happiest when it grows. After expenses and savings, who gets an infusion of cash?
That’s where things get a little haphazard. No budgeting by the Force for me, it’s budgeting by feel. Priorities, after the first two ironclads, tend to shift according to what was most recently raided. My instinct usually goes straight for the recently wounded, and tops that up first.This causes a bit of churn in higher-activity accounts, leaving less-frequently tapped accounts languishing. For example, I spend out of the insurance fund twice a year, while the travel and car maintenance funds give it up 3 or 4 times a year. Somewhere in there, I needed a great big chunk for taxes. By the time I was through, savings had 33% of the pot, expenses a paltry 10%, taxes another 33%, car maintenance and insurance split the 24% left over, while house and insurance funds were entirely out in the cold.
Not at all masterful. And I subconsciously knew this because each night, I’d take out the notepad and look it over again. And each time, it just didn’t look right. [Or feel right.]
Recalculating:
Projecting that there might be trouble with the timing of one check, I ran two new lists. One with three checks, and one with four checks.
From both columns, I took 25% off the top for taxes.
Then I took 40% of the net for savings.
The remaining 60% (of net) was divided equally between the travel, insurance and auto maintenance funds.
Once again, the house gets neglected but I have a good reason this time. Once money is in the House fund, it’s never coming back out until I buy a house. Right now, it’s more important for me to have available cash flow in the areas there will definitely be spending in the next six or so months. So you see? Logical, clean, simple. I can use these ratios in the future for any irregular income without having to agonize over which should get more.
Well worth hearing that aggravatingly measured voice in my head.
