Monday, March 21, 2011

Moolah Monday - Bonus Budgeting (and shoes!)

Aren't they beautiful?  This weekend I went shopping a couple times and stocked up on my wardrobe items.  I managed to buy 3 dresses (not pictured, obviously), 3 sweaters, new sunglasses, and 6 pairs of shoes.  Hardly sounds frugal.  Depending on who you are, the $300 price tag may not be frugal either.  I averaged $23 per item. 

3 things to consider about my recent (somewhat frugal) purchases:
  • It has been 3 years since I last purchased in masse like this for my wardrobe.  This means that I spent an average of $8 per month on clothes for myself for the past 3 years on top of the frugal clothing budget we have for my husband and I monthly ($25, or in dire circumstances $50).  The last time I did it Logan was a baby - I told him that story as I congratulated him and Little Miss on being so good.  And I privately wondered what was so hard about bringing 1 baby to the store when I now had 2 and managed just fine.
  • Before purchasing more, I ran the stuff I had into the ground.  Almost all of the shoes I bought 3 years ago have exposed heels (where the material is peeled back), exposed heel points/metal, and scratched up toes to the point that the material is worn off.  Where there are straps and decor they are torn, damaged, or missing.  The only shoes I have that are in decent shape are the ones that have 3-4 inch heels that I can't wear due to my ankle injury last year. 
  • I used bonus money to make these purchases - I used well under 5% of my bonus money on this wardrobe update.
So while purchasing 6 pairs of shoes in one visit doesn't appear to be extremely frugal, the real money lesson for today is regarding budgeting for bonuses.

There are several positions out there on how to budget regular salaries; bonuses are no exception.  Depending on how your total compensation is made up will help determine the best budgeting plan for you. 

We have a fairly stable bi-weekly pay schedule for our regular salaries.  My husband and I are paid on alternate weeks, which means we're fortunate enough to have a steady stream of income throughout the month.  This also means that we have 4 "extra paychecks" per year.  In addition, we get our money from the state and rent for our other property early in the month, which helps the cash flow for all those beginning of the month expenses.  Finally, I earn a sizeable bonus paid around March each year, which typically coincides with any tax refund we might receive.  So here's how we do it.

1.  We create our monthly budget using the 4 paychecks we receive each month.
2.  We do not budget for our extra paychecks.  These become additional perk payments that either go to gifts, travel, or savings to cover random expenses that come up through the year.  They end up being a little bonus to our bank account.  Some financial experts would say that this money should be averaged and included into the monthly budget - which is a good plan but essentially we learn to live on a little bit less throughout the year and treat ourselves with the extra paychecks. 
3.  We do not budget for our bonuses.  These also become heavy sources of income each year to do the things that we put off - the unnecesary but desired things that we'd like to do. We always try to spend a little bit of fun money as a reward - and by fun money we mean "guilt-free" shopping on necesities like my clothes and shoes or my husband's shoes and video games.  One year when I received my bonus I went out and bought him a playstation 3.  Typically this "blow money" ends up being about $500 per person, which again is about 5% of the budget.  This year we've also done the following:
  • Tithed
  • Put new carpet in the rental home - this was needed after pipes burst and flooded the downstairs.
  • Painted the rental home (ok, we haven't done this yet, but we will get it done soon)
  • Purchased playground equipment (I'm hoping by making this small you don't see it, at least until I get a chance to post pictures and write another blog on the topic)
  • New tires, windshield, and car repairs for our little corolla in an attempt to get it inspected which is past due since July.
We've also been a little less careful with our normal budget allowing extra expenditures for our newest foster kiddos (who went home quickly), a few tools here and there, a few extra times eating out, things like that.
4.  We do not budget for tax returns.  Typically financial advisors will say to minimize your tax return throughout the year by avoiding paying in extra - this way you can keep your money in your hands rather than loaning it to the government for free.  This is very difficult to do in our life with both rental property and fluctuating dependents, but we try.  Anything that comes back through tax return is treated like 2-4. 

We typically try to use these extra funds as well for paying off debt, which we try not to accumulate but do have some for student loans and a few things that have happened over the year like when we flew out last minute to be with my dad after his accident - some principles (debt-free) go out the window when you're not sure whether your parent will live or die and you don't have any money with you. 

So we're not perfect but we try.

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