Monday, October 15, 2007

My financial routine

I took a poll last week about my financial routine and whether it was kick-ass or not. As I was answering the poll, I realized that while it definitely works for me (I’ve been using some version of this routine for about seven years now), it IS a little complex and there might be some ways I can refine it.

Day job paycheck and budgeting
First, I use a written budget. When I first wrote it up, I figured out how much money gets assigned where, and then each payday I just go through and transfer things.

I divide my share of the rent payment, electric bill, and cable/internet bill in two and take that out (well, technically it stays in my checking account until the first of the month). I also leave my cell phone money in the checking account.

Then I figured out what goes into savings for my various sinking funds and transfer that via electronic transfer at my bank into my savings account and/or ING account. As I make transfers, I update two sinking fund trackers in Excel, one for ING and one for my bank’s savings account. These show both the total balance of the account as well as the individual balance for each fund. I found this easier than having a separate bank account for each fund, especially because some (like prescriptions) are rather small.

Then I write a check out to myself for a set amount of “envelope money” per pay period. I keep my envelope money in a coupon folder and I stick to a cash-only budget for my daily spending.

Another way to look at it would be:
Direct Deposit amount xxxxx
Stays in checking account xxxxx (rent, bills to come)
Transfer to ING xxxx (long term sinking funds)
Transfer to savings account xxxxx (short term sinking funds)
Cash for envelopes xxxxx (daily spending money)

Now, those other income sources.
I have a few sideline “businesses”, which is a funny way to put it but that’s what the IRS calls it. I’m not self-employed by any means, nor do I hope that someday these other jobs will become my full time work. I love my day job…I just wish it paid me a little more so I could save more. I’m making ends meet just fine, but it’s daunting to not have much to plow into savings and investing.

These side jobs include mystery shopping (as detailed in an earlier post) which brings in anywhere between $10-$150 per month, performances with my dance company (I aim to do 1-2 per month at $100+ per job, which covers the cost of all my classes), and the rare and sought-after focus group (which pays $75-$200 a pop for voicing my opinions, although it’s sort of just luck trying to get them).

The tax implications
Each of these side jobs is income that is or could be reported to the IRS, and taxes are not withheld. Mystery shopping and dance jobs both incur costs that are tax deductible; focus groups are just a tax liability.

I estimate what I’m going to owe at the end of the year by keeping a running log and putting aside 30% of the income (this is not to say that I automatically put aside 30% of each check or cash payment, which would make things much easier than it is. I keep track of it and then try to remember to add to the taxes sinking fund sometimes with whole checks later on). This system has worked for me because I do keep good records of my expenses (travel, supplies like costumes and makeup, meals on the road because of the work) and I deduct them as allowed when doing my taxes. I’ve had to pay taxes for the last two years instead of getting a refund, but I expect to and that’s fine with me.

Budgeting the income from these side jobs
The income from these jobs goes several different places. For the most part, I treat it as unbudgeted mad money, but I still always plan what I’m going to spend it on before I do.

Some mystery shopping companies pay only by Paypal. This money usually just sits in Paypal until it reaches $300 or so, when I transfer most of it into a sinking fund or use it for some other planned thing (like clothes shopping, which I don’t budget for out of my main paycheck). Or I’ll leave it in there and go a little crazy on Ebay or Silver Jewelry Club a few times a year.

Other mystery shopping companies pay me by direct deposit, which is usually funneled right into my separate mystery shopping checking account. I keep a minimum balance of $50 to $100 in here, and use it for mystery shops which require purchase by debit card so I don’t use my main account’s debit card. I tend to use any balance above $100 as mad money towards the end of a pay period, which is probably a little detrimental to my self-control. I try to make myself transfer it in to sinking funds that could use the help, like gifts or travel around Christmas time, or the ever-hungry moving fund.

Dance and focus group income goes to beefing up the tax sinking fund and other sinking funds. Other times the money will go for Spa Week or seasonal clothes shopping. These payments are often cash, so sometimes I end up spending part of it out of pocket before depositing the rest.

Wrap up
Yet another way to look at my financial routine. This has actually been quite helpful in helping me figure out a few things I want to start doing, and other ways to make the process more routine. I transfer the same amount per month or pay period (depending) to some of my sinking funds. Would it make sense to make it automatic? I still need to update the sinking fund trackers, which I think is the only reason I’ve not done this, but I should look into it.

Update spending tracker with all income/outgo

Daily As Needed
Balance checkbook (when I know something is outstanding)
Update mystery shopping and dance job log when payments come in or when shops are performed
Update tax log when payments come in
(*I keep all three of the above logs in my Palm Treo, which gets synched to my computer about three times a week, so I can make these updates on the run)

Balance checkbook (payday)
Transfer money to sinking funds in bank savings account and ING account
Update sinking fund trackers
Cash check to fund envelopes
File receipts for tax deductions (mystery shopping, dance jobs)

Pay rent
Pay electric and cable bills (one half of each, online, when they come in)
Pay credit card bill (cell phone and Blockbuster are auto-billed to credit card. Not much else usually shows up on it)
If applicable, send in medical bills for reimbursement
Reconcile all sinking fund trackers with actual account balances (including interest payments)
Want to start: tracking net worth

Pull credit report (I’m going to start using to pull my report from one bureau every quarter, instead of all three once a year)

Taxes—this is a weekend-long event that I try to complete by Valentine’s Day. I usually have to pay, but not much since I aim to even things out through deductions.
Move. Well, not really, but it’s been almost yearly for a few years now!

I could do several things that would make the whole process a little less time consuming—but really, I don’t mind putting in the time. I’m interested in personal finance, particularly MY personal finance, and the effort to keep on top of everything really seems to be paying off.

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