#Budgeting, #Household Math - Tracking spending...

Question

My budget has been written up and everything looks good. So I'm done, right?

Answer

Ummm... no. Now it's time to execute the plan that you've created.

Analysis

It's absolutely fantastic that you've gotten your budget squared away and things look good on paper. Think of the budget as a financial plan - it lays out what you intend to spend over the given month. Now it's time to act on that plan.

There are many ways to accomplish this - some people prefer a more detailed level of bookkeeping while others prefer way less detail. Whatever system works for you, that's the one you should use.

For the more detailed people, receipts are going to be your friend. When you buy something, make sure to get a receipt. If you don't get a receipt, perhaps carry a piece of paper or small notebook to notate what was spent. When you get home, make sure to record those expenses onto a spreadsheet or perhaps a bookkeeping program such as Quickbooks.

For the less detailed people (and I fall into this category), figure out how much you can spend each day and put that amount of money into your wallet. That is what you can spend and when it runs out, your spending for the day is done.

As you track your actual daily expenditures, you may have to tweak your budget to have it match your spending. Alternatively, you may have to tweak your spending to stay within budget.

In the process of recording your expenses, you can record expenses that will have an impact on your tax reporting. This will significantly reduce the stress of doing your taxes at tax time.

This post is part of a series on budgeting - Budgeting 101

~~~~~

Questions and comments always welcome!

#Budgeting, #Household Math - Credit Cards...

Question

What is your opinion of credit cards?

Answer

Analysis

I've tried writing the first sentence to this analysis a few times but eloquence is abandoning me. Elegant writing will simply not produce what it is that I'm trying to say, so I'll go with the simply statement of:

Credit cards are bad.

Actually... let me rephrase that. If you are a purchaser, they are bad. If you are a retailer, they're great. Why? Because studies have shown time and again that people who use credit cards are willing to spend more for products and services than people who use cash.

For whatever reason (this article proposes a few ideas), people spend more when using credit cards than when not. In fact, people are so programmed into this that even when paying by cash, seeing a sign that says that credit cards are accepted will help increase the spending of the average shopper.

One thing that the article above cites is that those who buy with credit cards will tend to focus on the benefits of the purchase. Those who buy with cash tend to focus on the costs of the purchase. It would seem that when the "burden" of paying for something is greatly reduced, now to the point of tapping the credit card on a reader or pulling up a QR code on a phone app for many purchases, it takes away the thoughts on the cost of the purchase. Purchasing in this manner, focusing on the benefits with little regard to costs, is Impulse Buying, and if it isn't the number one reason why people can't stay on a budget, it has to be in the top three.

Staying on a budget requires something that used to be called "sober consideration" - and maybe it still is. It requires a plan and then, far more importantly, execution of that plan. Credit cards act to circumvent that plan, making it far too easy to buy things and to add on to purchases already being made (ex. what's the cost of another drink when dinner is going to be expensive? What's the cost of buying that appliance insurance plan when the cost of the appliance is going to be so much?)

And so, bottom line - credit cards are an occasional necessity but as an integral part of daily life, credit cards are a financial disaster either waiting to happen (or already happening).

This post is part of a series on budgeting - Budgeting 101

~~~~~

Questions and comments always welcome!

#Budgeting, #Economics - Why is it that governments can run huge deficits for years? Why can't I?

Question

So my budget has a deficit - I apparently spend more than I earn. But governments do it all the time. Why can't I?

Answer

There is a world of difference between using a currency (people/companies) and issuing a currency (governments).

Analysis

There is a world of difference between the way money flows affect a government/country and the way they affect a person/family.

With a person/family, and even with a company, financial health is dictated directly by the ability to have more income than expenses. When expenses are bigger than income, and particularly when we're talking about a long period of time or a large deficit income, then assets will decline (bank balances, investments, etc, will drop) or liabilities will increase (bigger and bigger credit card balances, bigger loans from the bank, etc). And unfortunately there's really no way around it - if expenses are higher than income, there's a problem that is either front and centre or is waiting in the wings.

A government is a different animal. While people/families/companies use money, governments issue it. From that situation comes how governments can operate at a deficit for so long.

Think of government's operations this way - when governments take in money (taxes are one frequent way), they are taking money out of the nation's monetary system. When governments spend money (whether on the military, a social safety net, or any other way), money is put into the nation's monetary system. One of the goals of government is to maintain a healthy balance between taking money in putting money back into the system.

So what happens in the case of a government that is constantly spending more than it's taking in? Let's walk this one through to see what happens:

• Government spends more than it takes in, which puts more money into the economy 
• More money in the economy means that businesses and people have more money (on average) to spend
• With more money to spend, businesses and people desire to buy more things
• Demand for things to buy (more and more buyers) goes up, also risk tolerance increases (which basically means that more and more people will be willing to put more and more money into stocks and investments that are riskier and riskier)
• With demand increasing and supply not catching up, prices rise (which is called "inflation")

Inflation is a topic unto itself, but suffice it to say for now that low inflation is a mixed bag of good and bad and high inflation is (pretty much) all bad.

And so when governments overspend on a routine basis, there are ripples throughout the nation's economy, some of which are good and some which are bad. When people and companies do it, they simply end up in a bad situation.

~~~~~

As always, questions and comments welcome!

#Budgeting, #Household Math - Budgeting - what happens if the numbers add up to bad news?

Question

I've done the steps of listing out my expenses, putting in the numbers, and then identifying my income and it turns out my expenses are higher than my income. What now?

Answer

First verify the numbers are correct. Then begin to address areas that can be improved. Lastly, be open to change - if there's a large deficit, you may have to be open to things such as government assistance and the like.

Analysis

Before we get into what might you do to adjust your living situation, let's first verify that the budget is accurate. Ironically, the bigger the difference between income and expenses, the easier it'll be to verify the numbers.

If the difference is quite big and it has been happening for some period of time (and the budget is accurate), then the money that you've been spending has to have been coming from somewhere. Are your credit card balances increasing? or is there a running balance on your cards? Is your bank balance or investments balance decreasing? Are you borrowing larger and larger sums of money and having difficulties paying it back?

Again, the bigger the deficit and the longer the period of time this has been the case, the easier it'll be to see where the money is coming from. (If it turns out your bank, investment, and debt balances are not changing, then it may be the case that something has been left out of the budget or there's a math mistake).

Let's say you've verified the numbers and they are correct - expenses are higher than income. What can be done?

First off, stop and breathe. Be proud of yourself for bringing the situation to light. Coming to grips with a difficult to accept situation is praise-worthy, so take a minute and give thanks that you now have the knowledge that your financial health isn't what you thought it was.

Ok - now we can address the situation. What is the magnitude of the deficit?  If it's small then it may be that eating out a little less or other types of luxuries can be cut back and that will solve the problem.

With deficits that are larger, it'll require more work. For some people, it may require obtaining outside help, such as public assistance, to be able to keep some version of your financial life intact. For others, it may require a severe downsizing or moving from a high-cost location to a lower-cost location.

Again, the most important thing is to work with what is known. The worst thing to do when faced with a deficit in the budget is to ignore it and pretend it doesn't exist. That is the road to disaster.

So what if income is higher than expenses? Great news! Now - did you verify the budget is correct by checking your bank/investment/debt balances? Are they moving in the correct directions? If so - good! If not - you've missed something!

With the budget numbers in front of you, do you see anything that looks like you could do better? Is the dining out budget too high or is it right on? Are there opportunities to save even more money?

With all of this, remember that the budget is a living document in that it should be changed when there is a life change.

This post is part of a series on budgeting - Budgeting 101

~~~~~

As always, questions and comments always welcome!

#Admin - A bit of admin...

Math Fact-orials has been up and running for roughly 3 weeks and already been hitting milestones I didn't think would be possible so soon, including having nearly 1,000 page views!

I owe much of this success and exposure to two audiences: former users of Socratic.org (which is now a read-only site) and the art community of Sketchbook Skool.

Socratic.org is where I cut my teeth on answering questions online, where I found my love of all things factorial, and saw in action how topics such as budgets, household math, finance, accounting, and so many other topics that are important to people are ignored by academic math sites. One of my main goals is to bring household math into a place where people can use math as a tool and not regard it as a nightmarish exercise in frustration (I feel like I can hear people, whether consciously thinking or unconsciously feeling something like: "Please... whatever we do... whether we choose to buy the new car or lease it... don't make me figure out which one is actually better! Make the numbers stop dancing in my head!").

With that ideal in mind, I've been posting here and there about budgeting and will be adding a few more posts to that conversation. There are already a few posts about household finances and more will be forthcoming (both from me and from you - my readers!)

Sketchbook Skool's response to the post about the numbers of trade items and also the number of unique trades has been nothing short of phenomenal. A thousand and one thank you's to Aleesha, my artistic wife, the source of many of the questions on the blog, and the inspiration for the blog post about Sketchkon and who put the post onto Sketchbook Skool's Facebook page.

Looking ahead, I've found a way to satisfactorily put equations that look like equations onto the blog (thanks to latex.codecogs.com) and so that is what I'll be doing over the course of the next few days. I'm really looking forward to seeing math rendered the way it should look! 

I'll also keep on with Socratic.org Sunday throwbacks, where I'll grab questions and answers from a host of different topics that seemed to grip people's attention. This week's question will be Why Are Arteries So Much Thicker Than Veins?

I'm extremely grateful to my current, past, and future readership and I hope that as the readership grows and develops, the blog can do so alongside so that it is always meaningful and helpful. And the best way to help make that happen is to send me emails, leave comments, and ask questions! 

#Budgeting, #Household Expenses - Budgeting for Expenses - Putting in numbers...

Question

I've made my list of expenses. Now what?

Answer

Let's add some numbers! 

Analysis

In my last budgeting blogpost, I talked about identifying all the expenses and ways that money leaves your pocket. We want to look at the budget over the course of a sensible and useable timeframe, and that's usually one month.

The overall idea here is to budget for expenses using the Accrual Method - as soon as you are obliged to pay an amount, that should be recorded in your budget. This is why credit card payments will not make an appearance on this budget - we don't care how we pay for something, we only care that we need to pay.

Some items in our list of expenses are very easy to figure out monthly. Rent, mortgage payments, car payments, and the like are usually a single monthly payment and are easy to put into our budget sheet.

Some expenses are monthly but fluctuate. Electricity costs, for example, fluctuate based on the season (when it's colder, the costs go up). For costs that fluctuate, cycle, or otherwise change significantly over the course of the year, I'd recommend adding up the amount spent over the course of a year, then dividing by 12.

Other expenses are yearly. For instance, when paying insurance costs, I tend to pay a yearly lump sum, which results in a bit of a discount. Again, drop those costs into the yearly column and divide by 12.

And for costs that are every few months? Find the costs per year and divide by 12.

Here's an example:

https://docs.google.com/spreadsheets/d/1bDvJ0qpCvjIGNMs9AhliwCIlYY8XLLP8dnXbH1TxueE/edit?usp=sharing

This post is part of a series on budgeting - Budgeting 101

~~~~~

Questions and comments always welcome!

#Budgeting, #Household Math - Budgeting Basics - Expenses

Question

How do I budget for expenses? 

Answer

This will take a few posts to do, but in this one we simply identify all the possible outlays you experience and put them in a spreadsheet.

Analysis

As we start preparing a budget, it's important to first identify where money goes. Do you pay rent or a mortgage? Pay for a car? Insurance? Gas? Or perhaps transit - maybe a daily fare or a monthly transit pass? Utilities? Cable? Phone (landline and/or mobile)? Food?

Let's first list out those items that you know about into a list (we'll be modifying the list, and so using a program like Excel (PC), Numbers (Mac), or Sheets (Google - it's free and can be used online). Here's a sample:

Mortgage
Condo Fees
Condo Insurance

Water
Electricity
Gas (Note: the heater and stove are natural gas)
Cable

Phone, landline
Phone, mobile

Groceries

Dining out

Auto payment
Auto insurance
Auto fuel
Auto maintenance, repairs


And perhaps you have other expenses that need to be added into this list. If you think of it, write it down!

Once you've done that, take a look at your credit card statement for the past few months. Do you see things there that aren't on the list? Clothing? Add it. Video games? Add it. Go ahead and put in all the categories you think of.

I've built a google spreadsheet to follow along with these posts (it's view only):

https://docs.google.com/spreadsheets/d/1ZxwZz7Nn5ZYVV-x6HgPavTP6wkfIswP8-NTvV9gTTR4/edit?usp=sharing

In our next step, we'll add numbers.

This post is part of a series on budgeting - Budgeting 101

~~~~~

As always, questions and comments welcome!

#Budgeting, #Household Math - Budgeting - Why?

Question

Why should I budget? What's the point?

Answer

Much like a doctor's visit when you feel ill or are having a check-up, a budget acts that way for someone's financial life.

Analysis

There are many ways to talk about budgeting and finances that keep the topic strictly focused on dollars and cents (or whatever the names are for your particular currency!). But I'd like to talk about it in a more holistic fashion.

Let's talk about "health". What does it mean to be "healthy"?

Probably the most common way "health" is referred to is with "physical health". When we're ill, we reach for some sort of medicine (whether traditional, Eastern, Western, alternative, or whatever modality you typically reach for) or perhaps go to see a medical professional. Perhaps we even see the doctor once per year for a physical to help find illnesses that are lurking silently within our bodies.

There are other types of health as well. Mental health, for instance, refers to the health of the mind, the intellect, and the emotions. Spiritual health refers to feeling a healthy connection to God/the Universe/Life/whatever name you choose to refer to it.

All these different types of health all impact one another. For example, poor physical health can lead to depression (poor mental health) and poor spiritual health ("Why do bad things happen to good people?"). Each of these factors can impact the others.

And so now let's talk about "Financial health". Being unhealthy financially can (and I'd argue, will) impact your other health aspects: physical, mental, spiritual, and others. And conversely, being unhealthy in other areas of your life can (and again I'd argue, will) affect your financial health.

Aside from the more obvious examples of how your financial life can be impacted (physical sickness making employment difficult, reducing income and increasing medical bills), there are the sneaky ways that financial health can be impacted. One example is of "retail therapy" - spending money in order to feel better. And this type of therapy can sneak up on us - online shopping, buying large amounts of "comfort foods" and "comfort drinks" - think high fat, moocho-yummy coffee drinks all the way up to alcoholic drinks - and other types of purchases. All of this can turn into a vicious cycle where spending is conducted to counteract the feeling of depression from an unhealthy financial situation.

And this is where a budget can help.

A budget is akin to going to the doctor - it allows for an examination of what is going on in someone's financial life, to have facts and not feelings on something (it's far better to know that way too much money is being spent on Starbucks than simply feeling that it's the case).

A budget is also akin to getting a physical - financial health can be examined and areas found that can be tweaked so that even better financial health can be achieved.

This post is part of a series on budgeting - Budgeting 101

~~~~~

As always, questions and comments are always welcome!

#Budgeting, #Household Math - Budgeting... What's it good for?

Question

It's great that I read everywhere about the need for a budget, but what is it?

Answer

A budget is a tool that people use to figure out their financial health.

Analysis

I like this definition enough that I'll repeat it:

A budget is a tool that people use to figure out their financial health.

The most basic question that can be answered is "Am I living within my means?". More complicated questions can also be answered, such as "Can I afford that expensive thing?". Questions involving more involved financial questions, such as "At what age can I retire?", will probably require a Personal Wealth Plan of some sort - simply analyzing monthly spending probably will be insufficient to answer that kind of question.

The main idea behind the budget is to see where your financial strengths and weaknesses are. Where there are financial weaknesses, you can then develop strategies to deal with them. For instance, if it turns out expenses are higher than income, the budget can identify that that is the case and then steps can be taken to address it.

To budget, we look at the two sides of financial life - Money coming In and Money going Out. In future posts, I'll reference topics in the post about the Statement of Cash Flows for a business because there will be some overlap in concepts.

The first place to start is to think about your expenses and how often they occur. For most people, the big expenses occur once per month (rent/mortgage payment usually being the biggest of them all). And so, in general, it's best to work with a budget that looks at a monthly timeframe (we'll deal with non-monthly expenses and incomes in their respective sections).

I think the last thing to say about what a budget is is that it's something that can be quite individualized. Depending on how exacting you'd like to be can greatly affect the budget. What are the items you want to track? What are the items you don't want to track? Generally if there is a lot of guilt and shame involved, like perhaps the "amount of money spent at coffee shops" or "the amount of money spent online shopping", those are items that need the most attention!

In future posts, we'll talk about the How of budgeting...

This post is part of a series on budgeting - Budgeting 101

~~~~~

As always, comments and questions are welcome!

#Budgeting, #Household Math - Household budgeting - Needs vs Wants...

Question

What do you mean, when talking about buying stuff, by Needs and Wants?

Answer

While there are many different opinions on what this means, my own take on it is that Needs are the rational, left-brain framework of what it is that we're looking for when buying something, and Wants are the creative force that actually make the decisions.

Analysis

Before I dive into this question, let me preface it by saying that this is my own thought in this.

It seems to me that, even when we scratch the surface of this topic, that things can get pretty muddled pretty quickly. Why? Follow me down the rabbit hole...

Let's talk basics first. What is it, at least according to Maslow (here's a link to a wikipedia article about him and his theory), that we need? First come the physiological needs, such as Food and Shelter. So let's dive in on shelter.

We know we need shelter so let's now collectively visit a house (envision whatever type of house you'd like). So here's the question - do you need that particular house? And the answer should be pretty clear - no, you don't need that particular house. And in fact we can do this exercise for any given house, condo, apartment, shack, cabin, or hole in the wall. At some point, to make a decision as to what we'd like for shelter, we need to act on Want. Which runs counter to what people say you should do so as to be "financially responsible".

But it's true - in order to meet Needs, the actual decisions are made based on Wants.

And let's face it - Wants are fun! Wants are cool! It's Wants that put that kickin' stereo system in the black Corvette you just bought. Whereas Needs are just... boring. Rational. In a way, you can even look at Needs and Wants as the different sides of the brain fighting it out: the Left side dictating Needs and the Right side swimming in the glorious glow of Want.

It's when we act on Want too much that people get into trouble (we Need to keep a check on our Wants!). I think Needs help to establish a framework for certain Wants (such as a "nice house" or "a cool car"), but they also need to act as a limiting impulse on the relatively expansive feeling of Want. Because if we give in to Want too much or too often, we'll lose sight of the Need we're trying to fill.

And so purchases should be made with both sides, if not in total agreement, at least being allowed to chime in and argue their respective sides. For example, when buying a car, identifying the Needs surrounding the purchase (means of transport, protection from the elements, move many people plus cargo, practical, not too expensive, good with gas, etc) and also the Wants (good acceleration, cool colour, sporty, fun, etc) and finding a balance that is manageable.

This type of activity, of taking time to full consider a purchase from a Needs and a Wants standpoint is an aspect of what is often called "Being Mindful".

This post is part of a series on budgeting - Budgeting 101

~~~~~

As always, comments and questions are welcome!

#Accounting, #Household Math - Moving the accounting into the home...

Question

Do accounting principals apply to my personal financial life?

Answer

Absolutely! See below for a few ideas...

Analysis

Bookkeeping and accounting really only refer to the tracking of financially-related transactions over the course of the life of a financial entity. That entity can be a company, a government, or a person/family - to anything that conducts any sort of business, accounting applies. Of course, as the complexity of the entity increases, so do the challenges of recording those transactions and making sense of the resulting information.

One of the ways we see how this applies is in the preparation of tax forms. When filling them out, you are essentially asked to account for income that's been made (from various sources and it matters where money comes from because the tax treatment can change based on the source). Alongside that, you are also asked to account for specific types of expenses - say for instance mortgage interest - because those monies spent are treated as deductions (and again, the reasons for those payments will determine how the tax calculations are done). For most people, taxes are a nightmare requiring frequent sleepless nights, gathering information. However, if an accounting system is implemented and used throughout the year, the burden (physically and mentally) of filling out the forms would be greatly decreased.

Another place accounting shows up in a household is through budgeting (company's call it financial forecasting or some such other term). What is anticipated that will be made in income? What is anticipated that will be spent? Is the income number bigger than the expenses number???

And one more place I'll mention is in the area of Needs vs Wants - or the making of financial decisions. For instance, while there is a need for a car, does that mean you need the newest Mercedes? On the other hand, is it financially better to buy an old clunker, given that it'll need more repairs and work?

~~~~~

Comments and questions always welcome!

#Household math - Which size is the better option?

Question

While shopping online for tea I found a type of tea I like with 2 options for buying it: 16 bags for 134.30 of my currency and 24 bags for 169.89 of my currency. Which is the better option?

Answer

It's far cheaper to buy the bigger box assuming you are actually going to drink the tea. If you are more of a tea collector than a tea drinker, it's better to buy the smaller box.

Analysis

To answer this type of question, we need to set up equal terms so that we're comparing "apples to apples". One way we can do that with this problem is to look at the price per tea bag. We can set up the math for this in this manner:

Price / number of tea bags = price per tea bag

For the two options:

134.30 / 16 =  8.39 units of currency per tea bag

169.89 / 24 = 7.08 units of currency per tea bag

There is roughly a savings of 1.30 units of currency per tea bag, which is a big savings (when looking at this in percentage terms). To look at this problem in that way, we take the savings and divide by the better price per unit:

1.30 / 7.08 = 18.4%

And so the first method of buying the tea is wildly more expensive than the second.

The only caveat on this result is that, if you are like so many people who do more collecting of tea than of drinking it, then buying less is better. However, if you are intending to drink the tea, it's far better to buy the bigger box.

~~~~~

Please feel free to ask a question!

#Admin - A new blog, a new beginning, a new conversation on math-y topics!

Hello one and all and welcome to Math Fact-orials!

In this post, the first of this blog, I'll talk quickly about me, this blog, what I hope to achieve, and all that.

About me

I love thinking and learning and sharing what I'm thinking and learning. Most recently, I was a Hero and Featured Answer Reviewer (Algebra, PreAlgebra, English Grammar) with www.Socratic.org, with (at the time of this writing, with roughly 2 weeks of life left in Socratic):

- over 890,000 views,
- 2400 answers, and
- 700 edits of existing answers.

But since that website is currently scheduled to be shuttered mid-August 2018, I've decided to start my own Question and Answer site (i.e. this blog) that will focus on things I find important/interesting/fun/etc.

Some more things about me:

- Formerly a Certified Public Accountant (in the USA) and a Chartered Accountant (in Canada)
- Holder of a Life Coaching certificate
- Spent a few years in the US Navy as a Supply Corps officer

About the blog

While I don't want to set anything in stone (this is a living blog after all, so it will morph and change as I do), there are a couple of areas I'll tend to focus on at the start: Combinametrics (or the number of ways of doing/arranging/organizing things) and something I'll call Life Math - this will encompass things like Business Math, Budgeting, Investing, Accounting, Financing, and all those non-sexy math topics that academics tend to shun. Life Math, by its very nature, is a bit more "squishy" than academic math - there typically are more "squishy" answers than in academic math. For instance, is a 10% discount on a shirt a good discount? It might be, but then again it might not be - it's up to the reader to decide. But in these kinds of questions and answers, I'll do my best to lay out some things to think about.

I intend to right about how to approach a problem as the first part of any blog post, and then to have an "Answer Key" below, which will show the various answers with changes in the starting facts. For instance, if a shirt that costs $30 has a 10% discount (with a final cost to the customer of $27 before sales tax), the same process will work if the shirt is $40 and there's a 20% discount (with a final cost of $32 before sales tax).

Questions are very welcome!!!

If you have math questions, please do ask! Post a comment (I approve all comments) and I'll be sure to respond and write on the blog in response. No names/specific locations will be used and so don't worry about anonymity!

And I think that just about does it - so Welcome! and I hope to hear from you.

Parz

Update, 22 Aug 2018

Through editing and updating the organization of the blog, I'm hoping it'll be more useful (and easier to find the information you are interested in!). Links, labels, and subjects are all being edited, reworked, and otherwise made better. Get ready for Math Fact-orials 2.0! (or maybe just 2!... - factorials and decimal points don't get along very well...)