If you've been reading An Uncommon Way to Wealth for any length of time, you know how I've been on the eternal quest for "the perfect budgeting system". For the past six months, I've been successfully resisting the urge to try out another budgeting system, and one in particular was tempting me. It's called The B Word, and it finally got me to break a six-month streak. Don't worry, though - I'm not making my wife switch to a new budgeting system, so I'm keeping my promise to her.

"The B Word" obviously refers to that six-letter word that most often causes people to respond with colorful four-letter words. I'm speaking, of course, of a Budget. The creator of The B Word, Lee Roesner, has a kind of ironic attitude towards budgets in general.

In fact, at the top of his website is a picture of him cringing in horror at the terrible Budget Monster that seems to be staring him down (check out the picture to the left). That was actually what got my attention all those months ago when I first read about The B Word. I figured that if this guy hated budgeting as much as most people do, then the system that he created and uses himself must be something out of the ordinary.

I've read through Lee's bio on his website. He's actually not in the budgeting business - he's a self-employed graphic artist. He says that the reason he even thought about creating a so-called budgeting was that one day, about 17 years ago, his wife threw her hands up in frustration about their finances. It wasn't that they didn't have the money to pay the bills, he says, it was just that they didn't have it then. Theirs was more of a problem with cash-flow timing than an overspending problem.

Each budgeting system has a method for handling the cash-flow timing problem. The first budgeting system that I used, Microsoft Money, handled the cash-flow timing problem by just ignoring it. Sure, MS Money lets you automatically enter paychecks and such, but its budgeting feature doesn't really let you take into account the nature and timing of your cash flows.

Mvelopes Personal is much better for budgeting than MS Money, but still has a little trouble with the timing of cash flows. There's a way to overcome this limitation, but it requires using a YNAB-like buffer approach (see the next paragraph for an explanation).

You Need A Budget (YNAB), which is the system that my wife and I use, handles the cash-flow timing problem in a neat way, by requiring you to build a buffer in your bank account equivalent to one month's expenses. Any cash-flow timing problems are absorbed by the buffer. The only problem though, is the self-discipline required to build the buffer in the first place.

In contrast to all of the other systems, The B Word uses a simple mathematical principle that any fifth-grader knows and understands: Averaging. The B Word keeps an eye on your average income and expenses, rather than the volatile and greatly-fluctuating monthly or daily amounts. I call it "looking at the forest, rather than at the trees".

When you look at your financial monthly averages rather than the individual monthly amounts, you effectively smooth out the financial ups and downs. For example, if you know that you spend $3,600 a year on groceries, your monthly average is $300. If you set aside $300 a month for that expense, it doesn't matter whether this month's grocery bill is $325 and next month's grocery bill is $275, because it averages out. The same goes for your income - smooth out the bumps by averaging.

The budgeting process (or maybe it should be called a "cash-flow management session") is equally simple. You schedule two days a month to sit down and review your finances. Each time you sit down, you perform the same cash-flow management steps, with very few variations. Then you get back to living your life. I like the way Lee describes the results of using The B Word:

…you'll find that money management doesn't become a second career or even a part time hobby…but instead, like walking, falls to the background of your mind and becomes totally inconspicuous in your life.

Lee is right about money management becoming a part time hobby, at least for me. Admittedly, I like it, but most people would love to manage their money with more ease and less time investment.

Like every budgeting system, The B Word has its advantages and disadvantages. Here's the list I came up with:
Advantages:

• Ease of use - With The B Word, you're using a spreadsheet-like format that is very straightforward. It comes with a manual that explains everything you'll need to know to use the program.
• One-time cost - Some budgeting systems, such as Mvelopes Personal, require you to pay a monthly fee. I dislike paying an ongoing fee for anything, so this is a big plus in my book.
• Product support - I emailed the creator of The B Word, Lee Roesner, and he got back to me the same day. He's a down-to-earth guy who actually provides product support for his own product. What else would you expect from a guy who puts his own name and face on his product?
• Money-back guarantee - I don't see why you'd ever need this, but it's comforting to know that it's there. There's no risk to try it out, and 90 days to put it through its paces.
• Unique financial averaging system - Like I described above, I haven't seen this method of "smoothing out the bumps" anywhere else. MS Money doesn't have it, Quicken doesn't have it, and they should - it's that good.
• Streamlined system - Gets rid of most of the time-consuming tasks associated with other budgeting systems, reducing your "cash flow management sessions" to just a few minutes a month.

Disadvantages:

• Lack of connectivity - Because of the unique nature of The B Word, you don't really need integrated access to your online financial accounts as you do with Mvelopes Personal, so I'm not sure how much of a disadvantage this is.
• Newest version isn't available for Macintosh - Only an issue for Mac users. Note that the older versions, which work on Macintosh, still have the same functionality as the new version. The only difference is that the older version requires spreadsheet software such as Excel or Appleworks, whereas the new version available for PC is a standalone program.
• Totally different than the usual budget - Let's face it, when you get The B Word, you'll have to adapt to something different than you're probably used to. Seems a small price to pay for the benefits, though.

Conclusion:
The B Word is a unique, well-conceived cash-flow management system. I can't truly call it a budget because it doesn't feel like a budget - it's too easy to use for it to be a "budget". Judging from my own evaluation of it, as well as the numerous user testimonials at Lee's website, it works well in a wide variety of situations and with widely-fluctuating cash flows. If you're a Mac user, you'll have to use the older version, but it does the same thing as the newer version.

If you want to see what I'm making all this fuss about, here's a link to Lee Roesner's "The B Word" website.

First off, I'll admit that I'm a renter, at least for the moment. I have no personal, hands-on experience with mortgages, mortgage paperwork, refinancing, and so on. But I'm trying right now to look ahead to the time when my wife and I buy a home. We've already talked about buying a home, and we've come to some conclusions regarding what we will and won't do when it comes to buying a home. Mortgage payment as a percentage of our take-home pay - I realize that it's not necessarily in our best interest to listen to our lender when it comes to deciding how much of a mortgage we can "afford". I'm sure that we could qualify for a much larger mortgage than we can really afford, and many lenders would be all too happy to help us dig that financial hole for ourselves.

The fact that we have pretty good credit and very stable income wouldn't hurt when it comes to qualifying for loans, either. Actually, it could hurt us if we were to qualify for a larger loan than we could afford, and then foolishly accept it.

Don't buy until we can afford a decent down payment - We're looking fairly far ahead and saving for a decent down payment. The down payment affects everything else, from the interest rate that we'll pay, to how impressive our offer to purchase is to the sellers.

I might have a different perspective if our circumstances were different, but we'll be moving two times in the next year due to Navy obligations, so it doesn't make any sense to start buying a home at this time.

Shop around for a good loan officer - We'll likely get recommendations from friends as to who is a reliable, ethical loan officer. Admittedly, we'll move around a lot, so the pool of friends who can provide a recommendation would seem to be small, but that's one of the (secular) advantages to belonging to an organized religion - you've got new friends wherever you go

Barring that, I'll take a few Realtors out to lunch and pick their brains. It is amazing what you can learn for the price of a meal. You might even make a good friend.

That's it for now - more to come as we come closer to buying a house and taking on a mortgage.

I was helping move a family in our church last Friday, and my financial advisor happened to be helping out there, so we got to talk a lot about "best practices" when it comes to buying a home. He's a homeowner and also a lender, so he gets to see both sides of the home-buying transaction. Here are a few of his tips:

Qualify for a home loan before you go house hunting - It's better to know that you're limited to $250,000 when you're shopping for homes. You'll avoid looking at homes that are out of your price range. You'll also avoid getting attached to a great $300,000 home, finding out you can't afford it, and then comparing every other affordable home to "the one that got away". Better not to even go there by being smart upfront.

Make your own decisions about what you can afford - Your lender has your best interests at heart…that is, he doesn't want you to default on your loan because your mortgage payment was too high. But that's about as far as your interests and his interests overlap. But Your lender has his own ideas about what size mortgage you can afford, and he may try to convince you that, "Sure, you can afford this mortgage payment. It may be a bit of a stretch, but you can afford it." Make your own own decision about what you can afford when it comes to buying a home. Do you want to be paying for your 6-bedroom house for the next 30 years, and struggling to make each payment? Or would you be more at ease living in a 4-bedroom house, paying it off in 15 years, and being confident in your ability to make each payment?

Buy a yard, too - You're buying a home in order to get away from the whole renting scene, right? If you've been living in an apartment, you'll understand that it's nice to have some distance between you and your noisy, nosy neighbors. Distance requires yard space. A privacy fence doesn't hurt, either. So, when you're buying a house, don't skimp on lot size in order to buy a larger house. A yard may be just the thing to make your home a real sanctuary from the world.

Have an exit strategy in mind - If you're only going to live in the house for four or five years before selling it, focus on increasing the return on your investment. Some useful ways to do this include buying an under-landscaped yard, because you may not be able to recoup the premium you'd pay for an overlandscaped yard. You might also consider buying a house with three to four bedrooms, since this is the most popular house size and you'll have an easier time finding buyers. If you're planning on staying there for the rest of your life, you might keep in mind how best to pass your house on to your kids and avoid estate taxes.

Know the math - "The More You Know" isn't just a good name for U.S. public service announcements. It applies when buying a home, too. If you know how to do mortgage calculations, and if you understand points and other fees, you're that much less likely to fall for the tricks of a sneaky lender. Not that lenders are all sneaky, but it doesn't hurt to know what you're doing when you make one of the most important decisions of your life. Buying a $30 financial calculator (such as a Texas Instruments BA-II Plus or an HP12C) and learning how to use it can be a wise investment.

Make friends with a real estate professional - I like this piece of advice the best (and so does my financial advisor friend ). Take him out to lunch and pick his brain. Even if you don't end up buying your house or getting your mortgage through him, you'll have a great resource when it comes time to buy your home. That $40 lunch might save you thousands. I'm trying to convince my financial advisor to consent to an interview, so keep an eye out. I want to add more audio to the website, especially useful interviews, and I think that would be a great way to start.

It's April 15th, and that means it's Tax Day already (or at least it would be if not for the weekend). For those of you who entered the contest for a free year of Mvelopes Personal, I want to thank you again. For those of you who didn't enter the contest, shame on you - I had some cool free stuff for everyone who entered. Don't worry, though - I'll run another contest sometime in future.

You can find out whether you've won the contest by listening to this mp3 (click the button on the left side of the bar below, or just click on this link). Don't worry, it's a small file. I usually don't have audio on my website, but I'm considering doing some podcast interviews in the future, so please bear with me while I work out the bugs.

Here's my You Need A Budget review, for those of you who were wondering what it's all about.

This falls into the "Just in Case You Doubted that I'm a Financial Nerd" category:

I had one of those "Aha!" moments earlier today while on my way to an Advanced Cost Accounting class at the university. We're currently studying the cost accounting method for so-called "Just In Time" manufacturing systems, and I suddenly saw a real-world (okay, a "my world") application for this formerly boring concept. In Just-In-Time (JIT) manufacturing systems, raw materials are delivered "just in time" to the manufacturer, arriving exactly when they need to be inserted into the manufacturing process. Obviously, there are significant scheduling considerations and numerous calculations required in order to make sure that the right amount is delivered at the right time.
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I'm in a Federal Tax class at the University, and it's required as a part of my Business Administration BS degree. That is honestly the only reason I ever set foot in the class. Perhaps I've had a bad attitude towards that class from day one, but I can honestly say that not one single concept I've been taught in that class makes sense…to ordinary people. That's not to say that there's not some convoluted, complex reason why the tax laws are the way that they are. But there's a difference between being clever (as in the case of those who draft tax laws) and being intelligent. Cleverness would suggest that there's always a way to outsmart those who try to outsmart the tax laws. If there's a loophole for the rich, then there's always a law that can patch the loophole. Intelligence, on the other hand, would consider that there's a reason why we, the government, have to take as many tax dollars as we can. It's because we're bleeding funds like a stuck piggy bank, throwing cash at every problem that bleats loudly enough for a handout.

It's a sad and telling fact that the tax code is so complicated that even H&R Block can't prepare its own taxes correctly.

I admit that I received substantial inspiration from Ben Stein's book, How to Ruin Your Financial Life. So, any imitation on my part is purely because of my admiration for the book. I think that I liked it most because of its tongue-in-cheek tone. Here goes:

1. Make sure you pay your credit card bill every month - Make sure, though, that you pay no more than the minimum payment. If you pay too much on your credit card bill, you might have to forego that HDTV you've been eyeing at Circuit City.
2. Get an adjustable-rate mortgage - You, too, can take advantage of today's low rates. Don't worry about getting burned by rising interest rates, because interest rates are pretty stable on the whole.
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I won't even ask if you know somebody like this, because I'm sure everybody does:

They've got $10,000 on their Visa credit card balance…and they've got five other maxed-out credit cards. They make minimum payments on all of their cards. They just bought a widescreen HDTV, and they're upgrading their home theater room with a new surround-sound system. They buy a new car every three years, or maybe they even lease their car. They don't own their home; they either rent, or they've got an adjustable-rate 30-year mortgage because of the lower payments. You get the picture.

And now, to top it all off, they're counting on their tax refund to cover their nigh-overdue payments. I've got news for you, my hypothetical friend - you're not going to be able to keep this up forever. Your bad habits will catch up with you, sooner or later. Next year's tax refund may not be the lifesaver you think it will be, especially if your mortgage's adjustable rate goes up a point or two.

Here's a less-stress, more-sanity way to live: More on Tax Refund? Get Real!

This tip is about how to exclude part of your apartment manager compensation from taxable income. But first, let me give you the standard legal disclaimer: I am not a tax professional, and I don't give tax advice, so seek the help of a duly licensed tax professional before even attempting to decipher the intricacies of the convoluted U.S. tax system. And don't bother filling out anything other than a 1040EZ without at least two H&R Block consultants by your side.

Whew, got that out of my system. Okay, so here goes:

My wife and I are currently resident apartment managers, compensated entirely with "free" rent. We've been doing this since July of 2004, and it has been one of the best things to happen to us - the money freed up by not having to pay rent goes a long way. Taxes for 2004 weren't a problem, but when the tax documents for 2005 started to come in during January, we noticed that we'd gotten a W-2 for apartment job. The mind-blowing part was that our taxable income on those forms was in the $8,000 range. Keep in mind that this was for the same job that had triggered no taxable income in 2004. Go figure.

Fortunately, I married well. That is, my father-in-law is a CPA, and apparently does taxes for fun :). I did our taxes this year, calculating that we actually owed money. Then, my father-in-law took a look at everything, worked his magic, and found a substantial refund.

I had calculated our taxes with the $8,000+ extra taxable income from our management job. Fortunately, there are provisions in the Internal Revenue Code that prevent employers from including in employees' gross income the value of lodging provided, as long as it is a condition of employment. Here's the actual Internal Revenue Code excerpt that my father-in-law showed me:

(a) Meals and lodging furnished to employee, his spouse, and his dependents, pursuant to employment.

There shall be excluded from gross income of an employee the value of any meals or lodging furnished to him, his spouse, or any of his dependents by or on behalf of his employer for the convenience of the employer, but only if —

(1) in the case of meals, the meals are furnished on the business premises of the employer, or
(2) in the case of lodging, the employee is required to accept such lodging on the business premises of his employer as a condition of his employment.

In addition, Regulations § 1.119 (b) Lodging state:

The value of lodging furnished to an employee by the employer shall be excluded from the employee’s income if three tests are met:

(1) The lodging is furnished on the business premises of the employer
(2) The lodging is furnished for the convenience of the employer, and
(3) The employee is required to accept such lodging as a condition of his employment.

In our case, we are on-site apartment managers, so our lodging is a requirement of our employment, furnished "for the convenience of [our] employer", and it is definitely on the business premises of our employer.

If you're in a similar situation, you may find that part of your gross income can be excluded from your taxable income. Thank goodness for my father-in-law — his expertise has meant about a $700 positive difference in the outcome of our taxes.

For all those who've signed up for the Uncommon Way Newsletter, thanks so much. There's only one week left until Tax Day, when I'll be holding the drawing to see who wins a free year of Mvelopes Personal. Don't worry, I'll make it something special, maybe a podcast that you've got to listen to to find out whether you've won or not (insert devilish grin

For those of you who haven't signed up for the newsletter, I encourage you to do so. I've made or found some great bonuses, and everybody who signs up between now and Tax Day gets all the bonuses. Heck, even if you don't win the free year of Mvelopes, you'll still get some cool stuff — and there are "runner-up" prizes and "you lose, but thanks for playing anyway" prizes.

Seriously, though, I'll get back to blogging normally here in a few days. I'm under some pressure to get assignments done for some college classes, and I can't devote that much attention to the blog at this minute.

Later.