Lessons from my late mom

Thanks to her free spending, I appreciate my family's budget


Four buckets and a funeral changed my financial life in 2005.

In the year's first Value Judgments column I shared a plan we were trying at my house to pour every dime of income into one of four buckets: housing, taxes, savings and everything else.

The goal, keeping them roughly equal, was designed to bring a grand plan that reflects our values to our household budget.

The follow-up: We had some minor spillage out of two buckets and made a couple of philosophical changes to the strategy, but for the most part kept them level.

What I didn't count on were the unexpected emotional bumps that would affect the way we implement the strategy.

In August, my mom passed away after a long battle with breast cancer. It wasn't until her final days that I came to grips with what a dominant financial legacy she would leave, for better and worse.

Generous to a fault, my mom spent big on charities, political causes and friends. She never gave $10 if she thought an organization could really use $100. For many years at Christmas she gave more than two dozen neighbors and friends her chocolate fudge on a piece of fine holiday china until they all had complete sets.

But she was also a world-class shopper, which strained her marriage and - after about 15 years as a widow - ultimately left her with a much smaller estate than my parents envisioned as they worked toward retirement.

What does all this have to do with the buckets? Everything.

Sticking to a budget has more to do with who you are - and where you came from - than with carrying around a notebook and writing down every purchase. If your parents fought over budgets, you'll likely be resentful at the mere suggestion of the term.

The bucket idea begins with identifying a shared goal that makes couples a team. In our case, it was to save a quarter of our earned income without maiming each other in the process or giving up on the charitable causes we support.

This strategy doesn't work for retirees or very low-income families who pay far less than 25 percent in net effective taxes. Very wealthy households could save much more and may pay a higher net effective tax.

And if your housing costs take up 25 percent or more of your gross income, you'll have to use the savings bucket to plan for shorter-term items like furniture and travel, which could threaten your retirement nest egg.

But it works for a lot of folks. Here's how it shaped up at my house:

Housing: 26 percent

Financial planners urge clients to keep their total housing payments - principal, interest, taxes and homeowner's insurance - to 25 percent of gross income.

That's actually on the high side for lower-cost housing markets. We live in a rural area, so we fit all housing costs, including utilities, into this bucket. On the flip side, it means our travel costs are higher than many city folks who have plenty of entertainment in their backyard.

So with the slack in this category, we are now budgeting in big-ticket special projects - home furnishings, large charitable donations and major travel expenses - along with our home, which is our major expense. All of the other expenses are highly discretionary, and our income varies from year to year. So as income fluctuates, we can adjust the amount spent on projects so that this bucket doesn't overflow.

Income taxes: 23 percent

For most taxpayers, it should be fairly easy to keep this bucket to a quarter of income. With two kids and lots of deductible mortgage interest, we came in under budget here.

Savings: 24 percent

By maxing out my husband's savings plan at work and my own self-employed 401(k), we came close to filling this bucket solely with retirement accounts. But that left us with less for our taxable accounts and emergency funds. So the goal for 2006 is building up the taxable accounts.

Everything else: 27 percent

This is our toughest category. Despite my pledge in January to grate my own cheese, I succumbed far too often to other easy, expensive ways out of life's little tasks, from paying a seamstress to sew on my son's Cub Scout badges to hiring a cleaning service. At 27 percent of total income, we'll need to say no to Hollywood Video a little more often in 2006.

Hitting these targets after weekly discussions on how we were doing made a huge improvement in the way my husband and I communicate about money. And what drove it all home were the lessons from mom.

Janet Kidd Stewart writes for Tribune Media Services.

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