Probably a year or two ago I was working on the budget and came across Mint.com. Then I saw that they actually expect you to give them your log in information for all the financial institutions you do business with. Oh, hell no.

Looking at the reviews and the numbers of people who are ignorant enough to join the site it’s a colossal epic fail waiting to happen. I don’t even store my log in information for my banks and credit cards on my personal computer. Mint.com is a hackers dream come true. Getting access to their database would grant unlimited access to your finances and the finances of possibly millions of other people.

I’m not sure what kind of guarentees Mint.com is making to protect your money but I’m not willing to take the risk. That’s why my personal finance management site just makes you enter in various information manually. Account numbers and logins are not asked for or required for any of the site’s functionality. Sure it takes a little more effort but it minimizes the amount of information it needs. You don’t need to know that you spent $5 on a latte last month to do your budget properly.

In fact, any budget that expects you to go through the line items on your credit/debit card statements is wasting your time and your money.

It’s wasting your time because the money is already gone and it’s not coming back and it’s wasting your money because it’s giving you the impression that anything more than ZERO DOLLARS is a valid amount to budget for unnecessary crap.

If you want to get a grip on your finances you first need to stop pretending that you can budget for things you don’t need. “I budgeted $50 a month for coffee so it’s okay that I spend the money.” NO IT’S NOT.

Every penny that isn’t demanded by a bill that some company sent you is savings. You’re not making use of your budget to buy coffee. You’re spending your savings. You’re spending your savings on food and gas. The sooner you get that attitude about things the sooner you think harder about wasting food and wasting gas.

If you want to insist on budgeting for gas then this is the way to do it:

1) keep track of how many miles per gallon you’re actually getting
2) calculate the number of miles to and from work
3) multiply by 260 (5 * 52)
4) divide by the miles per gallon
5) multiply by the price of gas rounded up to the nearest dollar
6) divide by 12

That is the dollar amount of gas you’re allowed to budget for a month. Everything else is coming out of your savings. You can do without driving on the weekends but you have to get to work or you lose your job.

See the whole point that Mint.com misses by micromanaging your money is that it’s not telling you the minimum of what you should be spending. It’s telling you what you are spending. If I find I’m spending $200 a month on gas that doesn’t mean anything unless I know that it only costs $50 a month in gas to get to and from work every day. Now I know I’m somehow managing to waste $150 a month on gas.

And I don’t need to know where my money is going to know it’s being wasted. I know the minimum amount of money I have to spend every month to cover bills and pay for gas to get to work. Every day I simply say to myself “today I will not spend any money.” And I keep my money away from me during the day to make that happen.

Managing your budget is not a complicated process. And it’s certainly not a good idea to give out your account details to a web site no matter how secure they claim to be even if they promise to help you manage your money. It’s unnecessary and dangerous.

One of the harder things to do when getting your finances in order is overcoming cravings. Lots of people, if not everyone, has a list of items they would like to buy. Some of those items are day to day things like getting your favorite fast food for lunch or dinner.

To help cure your cravings for little day to day expenses you can make yourself “wallet broke.”

The first step to becoming “wallet broke” is making a budget that only includes the monthly bills you must pay. This includes the minimum payment on any credit cards you have. The total of these bills is the amount of money that will be taken out of your bank account whether the money is there or not. So there’s the motivation to not spend that chunk of money.

Now, you probably see that you have money left over. After all you didn’t include food, gas, entertainment, etc. But those expenses are made on the spot. They’re not scheduled and automatically withdrawn under threat of dings to your credit if the money isn’t there. So take the money out of your checking account. I like to leave at least something in my checking account. That extra money rolls into the next pay period and only after the next pay day do I re-evaluate the extra funds and what to do with them.

I like to keep cash on hand. However, it’s generally not a good idea to have wads of cash on hand so move most of the extra money to a savings account and just keep some of it as cash. The point of having cash on hand is that it deposits instantly and is accepted everywhere. It also can’t be spent if it’s not in your wallet.

And that is the key to being “wallet broke.” By reducing your bank account to have only the funds to cover the bills that must be paid it’s very easy to not bust out the bank card for day to day expenses. Because you know if you do you could miss a very important payment and suddenly be in a world of hurt. So even though you keep your bank card with you “just in case” it’s very easy to not give in to a craving for fast food or a shiney trinket. The bank card is just enough to fill up your car with gas one or two times.

The second part of being wallet broke is not carrying cash around. That’s right, you keep cash on hand but you don’t keep it in hand. If I know I need to fill up my car with gas that’s a legitimate reason to grab a $20 from my stash and that’s all that goes in my wallet. So when I’m out for the day I only have $20 and I have to put it towards gas or I won’t be getting to work.

You could convince yourself that you can just grab another $20 when you get home but while you’re out you have several hours to think that plan over and suddenly the craving for whatever it is you wanted is gone. You fill up your tank, you go home and the desire to put another $20 in your wallet is gone.

The whole point of being wallet broke is keeping that constant feeling that you “can’t afford it.” And eventually “can’t afford it” turns into “I don’t really want it anyway.” And maybe down the road your wants will go away completely. HA!

It’s not about getting rid of your wants. It’s about becoming conscious of money. You can have the things you want. You’re just learning to control your impulse spending so the things you want are the things you’ve really thought about. Not the things you made 2 second decisions on.

From day to day I want fast food. But I recognize that I’m wallet broke so I can’t afford it in the moment. The moment passes, I avoid wasting money. I also want a new server, a big screen tv and a sleep number bed. I’ve wanted those things for a long time, so for the next several months to a year I take the money I’m not spending on impulse buys and put it away and in not too much time I’ll have all those things without going into debt.

So to sum it up, being wallet broke means:

* carrying around a single bank card that only has enough extra money to cover one or two tanks of gas
* not carrying around cash except when you know exactly how much you need for a predetermined product (gas, food, trinket, etc)
* not having any credit cards in your wallet

Years ago I came up with the idea for “Bank of Ben” after sorting out a lot of financial issues but it never really went anywhere. Then in the last several months I started dealing directly with finances again and started looking at ways to simplify my financial life. And after developing a system using Excel that seemed to be doing rather well it was time to take it to the next step: put it on-line.

Bank of Ben is a financial tracking and planning web-site to help you manage your monthly bills and get out of debt quickly. All your information is entered by hand so you don’t have to enter in account access information for your real bank accounts. It also features a blog with financial tips to help you take control of your own finances.

Bank of Ben also takes over the role of “Stocks!?!” which is a stock portfolio tracking tool. You can now enter in your stock portfolio information at Bank of Ben and track performance. If you had an account with “Stocks!?!” it will work with Bank of Ben and all your information will be available. Both sites make use of the same information. “Stocks!?!” will be shut down soon.

With Bank of Ben you can

* Manage your monthly itemized budget
* Track your investments
* See how much your credit card debt is really going to cost you
* See how much your loans are really going to cost you
* See how you can pay off all your debts quickly and minimize interest fees

It’s very easy to say “I want to be debt free” and come up with a plan so that in some number of years you are debt free. But what you may not even consider is that focusing on being debt free may end up costing you money in the long run.

The above chart represent two scenarios. The blue line represents paying the minimum amount due on each debt and then putting the payment into some interest earning account until 30 years have gone by. So let’s say I owe $100 a month on a credit card and in 2 years it’s paid off. For the next 28 years I put $100 a month into an interest earning account.

The purple line represents the debt focused mindset. As debts are paid off the payment is applied to the next highest interest bearing account. Money isn’t put into an interest earning account until all the debt is gone.

The interesting thing is that until I start earning about 6% in an interest earning account, it’s best to just throw my money at debts. But, if I can get more than a 6% return somewhere else it’s better to just put the freed up money that was paying debts into the interest earning account.

At the end of 30 years with a 10% annual return on investment I’ll have $360,000 more than had I worried about paying off all my debts first. The sum of the remaining debt is far less than that so I end up ahead overall.

So sometimes it pays to not worry about debt.

There are two key steps to paying off your debts in a reasonable amount of time.

Step 1: Stop creating new debt
Step 2: When a debt is paid off apply the payment to another debt

That’s called “snowballing.” Imagine you have 5 credit cards and you’re paying $100 on each one every month. That’s $500 in total payments. Several months down the road one of the cards is paid off. You may be tempted to relish in the fact you’re only paying $400 a month now in credit cards but the smart thing to do is keep paying the full $500 on the credit cards until they’re all paid off. By the time you get to your last card you’ll be paying off $500 a month on it.

Snowballing of course assumes that your level of income won’t go down and that you can live comfortably at your current level of income.

Otherwise you’re going to have to take the money you were paying on the now paid off credit card and pay regular living expenses.

I did a little experiment and snowballed my credit cards, my mortgage and my student loans. By snowballing all the payments starting with the credit cards and ending with the house I would be debt free in 17 years. I’m in the process of creating the “Bank of Ben” which will be a personal finance site. One of the features that it will have is to be able to show you how to snowball to save the most amount of money and get out of debt the fastest. It’ll show you month by month how your payments are being applied.

You’ll also be able to track your credit card debts, student loan, home and vehical debts and put together a budget. The site won’t require your usernames or passwords to your various accounts. I’d rather do a little more manual work than risk having financial account information stolen.

Some people fear debt. However, society runs on debt and not all debt is bad. Bad debt is debt that was accrued for worthless things such as gas, food, gambling, etc. Those things should be covered with cash. Good debt is debt that is accrued for things that have value such as an education a car and/or a house.

The catch is that you can’t get enough credit to go into debt for the things that have value until you artificially put yourself in debt for the things that don’t.

Your parents should have told you to get a credit card when you’re 18 and charge gas and groceries to it and pay it off every month. People that didn’t play this game end up at a car dealership at some point wondering why they can’t seem to get an interest rate below 20%. Because they didn’t play the game when they were young and maybe pay a little bit of interest then, now they get to pay thousands extra in interest for things they actually need.

In 2001 or so (I was about 21) I was looking to buy a car. I went to the Hyundai dealer and expected to get a cheap car and a reasonable interest rate. Instead they wanted to give me a 20% interest rate and they refused to even pretend to bargain. So I walked out. I had access to another car so I drove that for a couple years. In 2003 I saw Honda advertising Civics for about $160 a month with a lease. I walked into the dealership and at first they said I didn’t have enough credit.

What that means is that I hadn’t been playing the credit game long enough. I’ve never missed a payment but my credit card limits at that time were pretty low and I was 23 so I only had a few years of credit history. I also wasn’t making enough. Then I mentioned student loans. I got the car.

I played the credit card game for a few more years never missing a payment and making use of credit cards responsibly. When the lease was up in 2006 I went to a Mitsubishi dealer and walked out with a brand new Outlander with a 0% interest rate. I went from 20% to 0% in 5 years just by being responsible with debt. I was also making middle class income by then.

This is where it becomes obvious that “saving money on interest” by paying cash for everything is really silly. I bought a $20K+ car interest free. I was able to do that because I had spent the previous 6-8 years not paying cash for everything so that I had a strong credit history. I’m sure I spent some money on interest for credit card debt but in the end I saved thousands more than I spent on this one purchase alone.

Credit is a long term goal. You shouldn’t worry about short term interest. You should try to keep it to a minimum but you shouldn’t fear it.

The American dream is to own your own home. You can’t do it if you don’t have credit. A year after I bought the car I bought a $160K home with a 30 year fixed mortgage at 7.125%. That’s not a “great” interest rate but at the time it was about as good as you could do.

The other reason you shouldn’t fear interest is because you can minimize it. For whatever reason a lot of people pay the minimum they owe on things. Especially cars and houses. Unless you have a 0% interest rate you should be paying more than the minimum. The interest rate on my house is good but if I put an extra $100 a month on the mortgage I pay it off 7 years earlier saving around $84,000.

Like it or not you have to play the game. If I hadn’t started playing the credit game early I wouldn’t have the car, the house and the education I have now. The things that make up the American dream. Now that I have all of that I can stop using credit cards. Which is exactly what I’m doing. They are only used for unexpected large expenses.

If I continue the path I’m on I should be debt free before I’m 50. That gives me 15 years of throwing money into savings and investments. There is around $2000 a month I’m putting towards debts. 15 years with $2000 a month going into savings is $360,000 not including any interest earned.

In short, the game is this, build your credit quickly, achieve the American dream of a house, a car and an education, pay off all your debts, save all the money you were putting on debts for retirement. Retire without a house payment. Do whatever you want.

Powerline Blog has a post about Muslim Mortgages. According to Islam it’s forbidden to charge or pay interest which makes it very difficult to buy a house since few people have enough money to pay for a house in full with cash.

Minnesota has come up with a plan: they buy the house and then sell it for an increased amount “interest free.”

The increased amount is equal to the interest that would be charged through a traditional loan. So basically Muslims are being given a simple interest loan when they buy a house but it’s not called interest. It’s just a higher price for the house.

So let’s say you want a $160,000 property. The bank wants 7% interest. They run the numbers and after 30 years you would pay $230,000 in interest for the loan. You add in the original $160,000 and you’ll pay $390,000 over 30 years which works out to about $1083 a month.

With a traditional loan you can save yourself tens of thousands of dollars in interest simply by paying extra on the mortgage every month. With this “interest free” loan you’re stuck paying $390,000 for a $160,000 house. Paying extra will only cut down the time it takes to pay it off, not the overall cost.

If you could get a real interest free loan that would be awesome but this is just silly.

In today’s economy “living within your means” is back in fashion. However, you have to define your “means.” In the most basic terms it means spending no more than you make. If you take home $2000 a month you spend $2000 or less per month. If you have credit cards and want to use them you don’t put anything on them that you can’t pay off by the time the bill comes due. You don’t create debt.

I would define your “means” as the amount of money you can make in either the first 40 hours a week you work or the salary you have from a single job. It’s common these days for both parents to work or for people to work multiple jobs just to pay the bills. Not because they want to, but because they have to.

Any additional money outside a single full time job should be considered “extra” and not factored in when making large purchasing decisions: anything you have to take out a loan to purchase.

The reason for this is simple: you’re killing yourself.

Back in college I was typically working two jobs and I think for at least a short period I was working three. But after a few years I had learned enough skills to consolidate those two jobs into one higher paying job. And that’s the key; you work, you learn you make more money in less time.

If you’re forced to work 80 hours a week just to pay the bills you’re giving yourself no time to get an education and get into a position where you can make more in less time. Because your bills require you work 80 hours at your current skill level you can’t cut back hours to go to school. You can’t cut back hours to get a life.

And if something comes up, you’re already working every waking hour during the week so you can’t go out and earn more money for an unexpected expense. If you’re living off of a salary or 40 hours a week of hourly pay and an unexected expense comes up THEN you can get a second job temporarily to work that debt off.

The first 40 hours are for living. The next 40 hours are for emergencies and extra spending money.

So really your means are not how much you make but how much you can make without killing yourself. Sure you could work 80 hours a week and afford that $300K house but do you really think you can handle 80 hours a week for 30 years?

If you want to work more to earn more money then go for it. But just keep in mind that the more you extend yourself because you have to, the more you’re going to be hurting when something goes wrong.

There are a lot of ways to design your budget and the vast majority of them result in you micromanaging your money by trying to categorize every little thing your money gets spent on. Some people even encourage you to go back through 1 year of bank statements. It’s no wonder most people don’t do budgets and those who do think it’s so hard. Here’s a tip: shred every bank statement you have. The money is gone, forget about it. The past doesn’t matter because you’re going to change how you spend your money.

There are exactly two categories your bills fall under: fixed and variable. The fixed expenses are the expenses that will get you angry phone calls, a ding on your credit, etc if you don’t pay them on time every month. A variable expense is everything else.

You may be thinking that your electric bill is variable because the amount changes but that’s not the definition I go by. The electric bill is a fixed expense because you must pay it every month. You can’t do without electricity. Just because a bill is fixed doesn’t mean you can’t do things to reduce the cost.

One of the gray areas is the required bills that are only paid once or a few times per year such as insurance premiums and your car registration. You can either consider those variable expenses and not budget for them or you can consider them fixed expenses and figure out the amount per month you need to save for them. I consider them variable expenses because money that doesn’t go out of my possession during the current month goes into a big pool in a high yield savings account. I’m aware of the bill but I don’t worry about it on a monthly basis. You may want to create a separate savings account for bills that are not paid monthly and put the monthly amount under your fixed expenses. It just depends on how good you are at not spending your savings and how much per month you put into savings. In my case the amount I put into savings per month is more than the amount of any non-monthly bill. So in the worst case scenario I make a smaller deposit into savings a month or few out of the year.

The other gray area is credit cards. The first step is to stop using them. If you need them then you’re spending outside of your means and you need to fix that. Either way, stop using them. Now see what the minimum payment is for each of them and add the amounts to your fixed expenses. This ensures that your credit cards are being paid each month if they have a balance.

The second step is to determine what you’re going to do about them. If you have a low interest rate on them it may be better to just leave any extra amount off the budget and increase the amount that goes into savings. Then pay off the credit card in full when you have enough in savings. The other option is to figure out how much extra you can put on them and get them paid off as quickly as possible. Your goal should be to pay your credit cards off within one year and no more than two years.

So the first step to creating your budget is figuring out what all your fixed expenses are and when they are due. Put them in order by date.

The next step is figuring out when you get paid and how much.

And finally figure out how much money is left each pay period after the bills for that period are paid.

If you don’t have enough money in a pay period to cover the bills in the same period try to adjust when the bills are due.

For example I get paid on the 1st and the 15th. So any bill from the 1st to the 14th is paid for with the first pay check. I like to pay extra on the mortgage and the mortgage is due on the 5th so it’s paid with the first pay check. However if I include the extra amount I’m not left with much money so I moved the extra payment to the 15th. So now I have an extra $100 to work with from the 1st to the 14th. The sum of the fixed expenses from the 15th to the end of the month is about half of what I get paid so the second half of the month is when money is moved into savings.

So for example I’m left with $200 from my first paycheck and $800 from my second paycheck after all the fixed expenses are taken out.

I now have $1000 to use for variable expenses. $500 of that goes into savings so now I’m left with $500 for food, gas, etc.

For most people gas is not a huge expense since they live close to where they work. For those of us who commute long distances to work it is a noticable expense. Either way figure out how far you travel to and from work. In my case the round trip is about 100 miles. Now multiply that by 5. So in a week I travel about 500 miles. Weekends we tend to travel 100 miles as well so on an average week we travel about 600 miles. At 24 miles per gallon that works out to 25 gallons of gas per week. At $2.00 per gallon that’s about $50 a week in gas. So I figure about $250 is needed for gas every month.

So the amount left for food and everything else is $250. And to make sure everything fits within that amount you have to find ways to avoid spending money. If you want to go see a movie then fine, go see a movie but remember you only have $250 that has to last for the moth.

The only trick to making a budget is making sure the things you must pay for are covered. The rest of it is just avoiding spending money and putting away most of the money in savings to keep it out of your reach.

You savings is something you dip into when you want to make a large purchase (more than you have available in your extra monthly spending money) and have considered whether or not it’s worth dipping into your savings for. It’s also there for when you run out of spending money and have to buy food or gas. It is entirely possible that even after doing everything possible to save money you find that you can’t really afford to put as much as you did into savings. If you put $500 in and find you needed an extra $50 for gas then put $450 in next month and try again. Or see if you spent money you didn’t need to then put $550 in savings next month to make up for the withdrawl.

The whole point of not micromanaging your money is changing your attitude from “I need to see a movie every month, I need new clothes every month, etc so I have to budget for movies and clothes” to “I have $X to spend and I’m going to spend as little as possible and only on the things I need.” If I friend is in town and you want to take them to see a movie then do it. If you need a new pair of pants then get them.

A budget should include normal monthly expenses. Don’t budget for things you don’t need because you shouldn’t make a habit of buying things you don’t need. You don’t need to budget for seeing movies or going out to eat. When you want to do it just ask yourself “is this worth dipping into savings for?” and learn to say “no” a lot more.

Recently the government announced that they are out of money for the Digital Converter Box coupon program. Well, it’s not that they’re out of money it’s that they havn’t decided yet to allocate some more money from the billions they got from private companies when they sold off the soon to be available bandwidth. Unless of course Obama gets his way and they delay the transition yet again. Now that somebody has paid billions of dollars for something they will get after the transition I think it’s pretty unlikely to be delayed much if at all.

Although I have cable I decided to request a coupon last month and use some extra money I’ve earned to get a converter box. I’m currently paying for cable through the HOA at a cost of $8 a month which I’m sure won’t last forever. I have a TV that isn’t digital and a TV tuner on my PC that isn’t digital. So I figured that for $10 I’d give it a whirl.

When I picked up my converter today I realized why they aren’t just free with a coupon: because the state gets the tax on the full value of the converter. The converter I bought cost $50 and tax is 8.8% so I paid $4.40 in tax and THEN the $40 was taken off. I was taxed 8.8% on $50 not $10. So the state gets a cut of this deal as well. The reason that the government is just having private companies build these things is because it’s creating a new market which is a good thing in this economy. Companies can then charge a reasonable amount over the value of the coupon and make a profit without pissing off consumers (too much). That box is not worth $50-60 but it is worth $10-20.

A day or two ago Slashdot had a discussion going on this coupon shortage story and somebody posted a sob story about a poor friend who couldn’t afford the $10-15 for a converter box. Maybe it’s not absurd that there exist some people who seriously can’t find $20 in their budget in any reasonable amount of time (less than 6 months) to shift from some other non-essential to a converter box so they can continue watching TV which they claim is so important to them and I was tempted to feel sorry for such a person until I plugged my brand new antenna into my TV. An antenna which happened to cost $13.

So let’s pretend I’m so strapped for cash I can’t afford a digital converter box and all I have is a cheap pair of rabbit ears. The channels, I mean, *channel* that comes in is channel 8. PBS.

In the posted sob story this friend couldn’t afford $10-15 for a digital converter box and expected the government to bail him out in some way so he could watch TV.

Meanwhile I’m forced to pay $8 a month for cable or all I get is a very fuzzy version of PBS. Should the government mandate that over the air channels be accessible for free everywhere in the US? Of course not. Whether you can’t afford a $10 converter box or can’t afford $45 a month for unsubsidized cable, or can’t afford a rooftop antenna it’s all your responsibility to find the money or do without broadcast/cable TV.

It’s not up to the government to make sure every home in America can get TV stations. It’s up to people to adjust their financial priorities so they can afford to have it if they want. If that means doing without something else for a few months so you can get the converter box or a better antenna then that’s what you have to do.

People need to stop whining and do what needs to be done. Some people should feel lucky that it’s only going to cost them a one time expense of $10-25 to get a converter box. For many people they have to subscribe to cable and pay a monthy fee indefinitely or they get nothing.

In my case if cable stops being subsidized heavily by the HOA it’s going to go and when that time comes I’ll either have to fork over money for a better antenna or just do without broadcast TV. Sometimes the problem isn’t financial, it’s location.

The other reason I don’t feel sorry for the guy who wanted it but “couldn’t afford it” is because I couldn’t afford it either and yet I got it. I find ways to make extra money so all the money from my day job goes to things we need and the extra money is used for toys. It doens’t matter how much or how little you make, sometimes you need to be resourceful and find ways to earn extra money if you want something.