Sounds a bit like the idea of knowing that Christ will return to claim what is already His and declare victory in a war that has already been won.  Can you imagine being a believer of Christ, making it to the end of your life, and then paying attention to what’s planned?

Well, that’s what most do with their money every month.  They spend all month, then they look back to see where it went.  They spend, they think they’re spending wisely, but they don’t know in advance how much they’re going to spend, and they justify that behavior every time they do it…in many ways.

So, for those of you who have a fixed income, there’s no excuse that can get you out of the blessing that you have, because the mechanics of your budget are fairly simple.

However, for those of us who are self-employed, it becomes much more difficult to determine how to handle our cash flow.  From month to month, I have no idea how much money is actually going to come in.  I can forecast based on business that’s on the burner, but to know when the checks are going to hit is virtually impossible.  As a result, I have had to sculpt a slow burn formula for spending my money every month.  It has been my goal over the past few years to cut as much of my spending as possible so I know what a baseline cost of living really is.

That, for me, has been the only way I’ve been able to figure out my own ground zero and thus the only way I’ve been able to truly budget a monthly expense plan.

What is Ground Zero?

Here’s a simple formula for Ground Zero.  Take your total liquid assets and divide them by your base-line monthly expenses…your bare minimum to survive given your current circumstances with all discretionary luxuries stripped away, including coffee, extracurricular activities, froofy memberships, etc.  Dial it in.  Get a good glimpse at living truly skinny, or as Dave Ramsey would call it, Rice and Beans.

Once you divide your monthly NUT into your total liquid assets (bank account) the remaining number should represent a number of months that you can survive with no income and thus define your Ground Zero.  The point at which you will have no more money should you not have a job.

At Mint.com you create a free account, then you authorize them to connect to all of your financial institutions…at least the ones that are compatible with it.  Then, as you transact during the course of a normal day, Mint downloads what it sees at your bank and arranges it in a nice, neat presentation complete with charts and reports and…well, it’s cool…but…

…here’s the but.  Mint.com doesn’t do anything to help you plan.  Oh sure, there’s a budgeting “tool” that’s nothing more than a group of indicators that notify you when you’ve exceeded what you define as your budgeted amount.

(the real problem with budgeting tools is that they assume you already understand the underlying theory behind what a budget really is..a plan, that you create.)

So, if you, like most of the rest of the world, estimate that you spend X on something every given month, then you might set the budget at X and just wait until the software tells you you’ve exceeded your budget.  It’s at this point that the lack of discipline is revealed as you breeze right on by the amount you set and just keep on spending.

Back to the point.  Mint.com doesn’t do anything to help you plan…no, let’s say… forecast instead.  There’s no way to project a future balance based on your current spending plan compared to your balances and your income.  It only tells you what you already know.  That’s not very valuable to me…but I guess that’s why the “service” is free.

Since we don’t write that check but once per year for most of these items, we neglect to place them in our monthly calculations and then we fall into a common trap of using credit cards to cover those expenses when they arise simply because we “forgot” about them.

The problem with that practice is that you end up amortizing your lump sum payments, accounting for them monthly with your credit card payments anyway, only with interest, so they end up costing you more than they should after the fact.

Christmas is a perfect example.  I used to find myself nearing Christmas Eve with no idea regarding what I would purchase, for whom it would be, nor how much it would be.  What I knew was that in a pinch, I could easily charge it up and get it out of the way, then worry about it later.

This is a nasty way to spend the first half of each new year, and it sours the taste of giving as you continue to write checks for Christmas gifts that are 5 months old.

A Strategy for Handling Lump Sum Payments

This is so simple you should slap yourself for not doing it.  I’ll re-iterate one particular point…if you aren’t writing a monthly budget, there’s no point in paying attention to the rest of this information.  This strategy is for those who have successfully practiced a few months of budget planning who have suddenly run into a lump sum payment they had forgotten about that they weren’t sure how to handle.

Here’s how to handle it.  I’ll use auto registration as an example.  Every year you’re going to register your car and every year you know that the fee will be less than the prior year.  That’s good news.  To make certain you plan ahead, take the previous year’s registration fee and divide it by 12.  Add that expense to a line on your monthly budget.  That’s it.

See?  I told you it was simple.  Now you know what it costs you per month to register your car.

What about all of the other lump sum payments?  After all, not everything is due at the same time, and dividing by 12 may not work this month because the payment is due in 3 months.

Well, this solution I’ve found works well for me.  I have added up all of my annual fees based on what’s happened in the past and padded it a bit for unexpected annual “gotchas” of the non-emergency type.  I then created a new savings account at my online bank and I called it Annual Dues Account ( most of mine are called annual dues, but you could call it “lump sum account.”)  I took the total amount of the lump sum payment and divided it by 12 to get my “monthly burden” so to speak, then created an auto transfer in that amount from my personal checking account to that lump sum savings account.  Every month my reserve account gets a small supercharge that creates a buffer for those lump sums.  When a payment comes due, I just write a check from that account, and never think twice about it.

Since all of the lump sum payments are due at different times of the year, the first year will require a few extra adjustments.  For instance, if you’re calculating your Christmas budget in August, you have 4 months left before you have your lump sum payment, and 8 months have already passed.  You’ll need to either catch up your deposits by depositing 8 times the monthly amount for the months that you’ve missed, or reduce your budget by 8 times the monthly amount, go cheap this Christmas, and save 4 months worth of your Christmas budget.  Another solution would be to divide the annual budget by the number of months remaining before the payment is due.  Once the lump sum due date has passed, you’ll be on schedule to have the money you need for the following cycle.  Obviously some lump sum payments aren’t so discretionary, so you’ll have to break the cycle as far in advance of the payment due date as possible so when the due date hits, you’ll already have a portion of what you need saved.

Once you’ve identified all of your annual, bi-annual, semi-annual, quarterly, or non-monthly periodic payments that happen in your life, you’ll have a grasp on the corresponding monthly expense and you’ll have a better grasp on your plan.

Tuition for school is not an emergency, and neither are extra curricular activities, or prom, or other expenses that have come to others before you.  If you can investigate the potential cost of something before it comes, you can include it in your lump sum payments.  School supplies, bike tires, annual charitable contributions…you name it, it can be planned.

Don’t let this part of your budget pass you by.  It’s as important as your monthly food budget.  It’s going to take one full cycle to get the system rolling, but once you dial it in, you’ll no longer need to worry about the lump sum.  Don’t forget to adjust if you start something new, but hey, you wouldn’t start something new without planning for it anyway.

Have you ever felt like that?  Months, maybe years of living on less, eating rice and beans (seriously?) and pouring every freaking penny you earn above your living expenses into debts you owe, all while incurring more and more bills.

It’s April of 2012 and I’m nearing the final stages of Baby Step 2.  I had posted an article a long time ago that proclaimed my freedom from baby step two and on to baby step 3.  I was ahead of myself.  I had the IRS looming in the background that I hadn’t considered.

On top of that, since the baby steps were new to me only 4 years ago, over that time frame, I’ve had to re-examine my behaviors to help me identify what it is that caused me to procrastinate my way into stupid taxes.  With the ebbing and flowing of my income, I have had to continually adjust my budget to make way for the prioritized items.  In some cases, that’s put some bills on hold, which inevitably leads to late fees.

So, where do I stand as of now?  I’m working on that, but here’s the gist of it:

• I owe the IRS for 3 years worth of taxes including self-employment tax.
• I owe my neighbor a few hundred dollars for a shared block-wall project.
• I owe my HOA for some past due payments and the annual insurance premium.
• I owe the Arizona Department of Revenue for state taxes.
• I owe a few other odds and ends here and there…
• and the one that really drives me bananas – I have too many loose ends that need to be tied up that involve capital investments in technology for marketing purposes that I’m hesitant to invest in because it’s scary.