Friday, July 26, 2013

Step 2 - Starting to Budget

Step 2

Setting up AND following a budget

Budgets? We ain't got no budgets. We don't need no stinking budgets! 

It is tough enough juggling (its akin to cat-juggling) and paying for a large family without the added stress of having a financial mess that rivals the current mess that is The Kardashian’s. When dealing the extra challenges of raising a large family (all worth it of course, wink wink), do you really want to be in financial distress? I didn’t think so.

No a budget isn’t a magic wand that makes everything alright. But it will help give you some financial peace of mind. And any task that can reduce stress is a thing worth doing (smoking weed being an exception).

I’ve seen budgets with anywhere from 3 (needs, savings, wants) up to 70 categories, yes 70. My current budget spreadsheet as 22 categories and next to each category is a column labeled “budgeted” and one label “actual”. There is a 3rd column labeled remaining that tells be how much is left in each category or how much I have gone over. Plus the columns are totaled at the bottom for the big picture view. I also have a table to track my income. And then there are columns and rows were I list every purchase made it each month as they happen.

It may seem like a lot of work. But once you have the initial setup done it’s not hard to use at all. You do have to enter everything you spend money on but I enjoy doing it. And it gives you a great handle on your finances. And at the end of each month you know exactly how you did. You are either in the red, black or even-Steven.

If this seems overwhelming than maybe a simple 3-category budget might be better at first. You first list all your needs and how much they will cost you. Mortgage, food, utilities, charity, insurance etc…and no, going to Five Guys for a burger and fries is not a need (although it is pretty close). Neither, sadly, is shopping at Victoria Secrets a necessity. Second, you write down the amount you want to use for savings and paying down debt. Then whatever money is leftover goes in the “wants or blow” category. Just remember once you have spent everything in the “wants” category, you are done for the month. So plan well. This is an easy way to get started on budgeting until you feel that you are able to switchover to a more detailed budget. Some people do just fine on the simple budget but I find that I do better on the more detailed one.

Just because you have money left in a category doesn’t mean you can spend it. Let’s say it is the last day of the month and you have $10 left in your food category. Should you rush out and buy a box of Ritz crackers, a can of Cheese Whiz and a bottle of Mad Dog 20-20? Or should you add that $20 to your retirement account or apply it to a credit card balance? 

Here is a mocked-up sample of the spreadsheet I use.


Karen Howard said...

Rob, do you re-budget at the beginning of each month, or do you make a budget for the entire year? Bob and I do the latter, and it never seems to work (because of the difficulty of estimating seasonal and intermittent expenses, and the difficulty of planning an entire year in advance).

Sam said...

Don't forget that a budget spreadsheet is like a family job chart you have to make it meet the needs of your individual family. Most importantly the fact that for many many years God always provided for us even when we we didn't make enough each month to pay our bills we didn't go into debt-God just met our needs!

Rob F said...

Karen-I do both kinda. I have a basic budget for the year laid out. Somethings I know pretty much what they will be each year. Property tax for example or car insurance. And I put away 1/12th of all those "fixed" expenses each month into an online savings account.
I have a rough idea what food, gasoline, utilities etc...will cost each month. If they are way off for a month or two I will adjust the amounts.
Each month we overspend in some categories and underspend in others. But not by much.
The only category I max out each month, if we are under at the end of the month, is the Charitable contributions one. Any other category that has leftover money in it goes to cover overages. And any left after that goes into savings/investment.
For example, for July we have extra in our food budget (go figure) but have gone over our gasoline allowance (lots of summer day trips by Sam and the kids).
Next time you are over I'll show you the spreadsheet I am using.

Rob F said...

Sam-right you are sweet-cheeks