Wednesday, August 8, 2012

Creating a Budget. Gulp.

When both my husband and I were working, we didn't make a budget to follow. We had a very casual "let's not spend more than we make" approach, which was working in the sense that we were indeed not overspending... usually! But other than a set monthly amount for our daughter's college fund, we weren't saving much. I reeeeeally wish we had created a budget for ourselves, because we could have saved so much more money, but, alas! Stupid hindsight.

As the hubs and I discussed whether or not we could make it on a single salary, we crunched the numbers and found that we could definitely live on a single salary... but that we couldn't have the same lifestyle. And that I'd have to create and make us stick to a strict budget. It was a bit intimidating for me, but at the same time I saw it as a fun challenge and part of my new job as a homemaker. So we bit the bullet and I've been a homemaker for almost four months, and the budget is working! Don't get me wrong, I'm no pro, and I'm constantly refining the budget and trying new ways of saving money. But so far, so good! So I'd like to share my approach to the undertaking and what I've learned to date, all in the hopes that it maybe helps someone else or offers some ideas and/or inspiration!

Spreadsheet = Sanity

I strongly recommend going digital with your budget. It's so much easier to manipulate a spreadsheet; even the simplest of spreadsheet shortcuts can save you loads of manual work! If you don't want to drop lots o money on fancy programs, just install OpenOffice, and use the OpenOffice Calc program. It's a lot like Microsoft's Excel program: less bells and whistles, but it's free. And free is good.

There are many budget templates out there, and after trying a few I decided that I just needed to start my own from scratch. I wanted something really flexible, and I also wanted spending categories that were more granular. So even though my end result isn't as pretty, it does the job for me!

Within the spreadsheet, I have multiple "worksheets". Think of these as separate pages all within the same spreadsheet. I won't prattle on about those details in this post, but maybe in a future post??

Understanding Your Expected Spends

Regardless of whether you go spreadsheet or hand written, you need to be able to understand your "expected spends". Aka recurring costs like energy bills, garbage bills, mortgage, rent, etc. In my spreadsheet, I created a worksheet to capture these costs.

Put simply, just start listing out all items that you know you're going to pay every month. My list looks like this:

  • Home/car/life insurance
  • Energy bill
  • TV+Internet bill
  • Garbage bill
  • Utilities bill (Gas, water)
  • Cell phone bill
  • YMCA bill
  • Public Radio donation
  • Loan payment (for a home project we did)
  • Mortgage payment
  • Gas (For our cars: this is an estimated amount)
  • Annabel savings transfer (to our daughter's savings account)
  • Vacation savings transfer (to a savings account to be used for vacations)

How do you account for bills like energy, gas, and water, that change per month? That's a tough one, and I waffled on what amounts to put down. In the end, I decided to be safe and use the highest bill amount I've seen in the past six months (or so). I rounded up the number just to have something nice and even. This way, if the bill is lower for that month, then yay, we get a windfall of extra money! Well maybe not a windfall, but you know what I mean. It puts you in a much better place than underestimating, because underestimating could put you in the red for the month. Also, some of my bills (utilities and garbage) aren't monthly. Regardless, I include them in the total costs for the same reason: to be safe!

Math Skillz

Next up, total up those expected monthly costs into a single "total expected spend per month" amount! 

And temporarily move on to creating a list of the amounts that you plan to make in a month. If you are salaried, then this part is easy. If you're hourly, then estimate the minimal amount you could make per month. If the amount will vary greatly per month, then you'll need to take the time to estimate this per month.

Next, subtract the total expected spend from the total amount of money you will make per month. The end result is... your discretionary money!

(Total amount made per month) - (Total expected spend per month) = Discretionary $!

Err, what's discretionary money? That's all the money you have left after all the bills are paid off... aka the money you can use for other stuff like food, toiletries, unforeseen medical needs, clothes, etc. Discretionary money is what you'll be using to keep your family fed, healthy, and as happy as possible. So knowing this number will help you understand how much you should be spending per month in order to NOT overspend, and better yet, in order to save money!!

Discretionary Money... Now What?

There are maaaany different ways to proceed. I'll tell you what I did, from a high level:

1 - Out of curiosity, I divided my total discretionary amount by 4, to see roughly how much discretionary money I could technically have per week. This was enlightening, to say the least.

2 - I decided to NOT spend that actual amount per week. I wanted to make sure I left myself with a "discretionary amount cushion" per month to account for unexpected spend (hospital trips, prescriptions, house needs...).

3 - I decided to use a very light version of the "envelope system" to help keep me on track per month. The simple definition of an envelope system is "a popular method for visualizing and maintaining a budget. The key idea is to store the cash to meet separate categories of household expenses in physically separate envelopes.". 

I say I'm using the light version, because I simply decided to choose an amount that I want to spend per week, TOTAL. This amount is for groceries, toiletries, house goods, and pet supplies. And I make myself stick to that amount. More on that in another post, methinks.

Back to the Spreadsheet

I haven't mentioned the spreadsheet for a while, so time to get back to that! In a nutshell, I use the spreadsheet to track literally EVERYTHING that we spend money on per month. I track the when, where, total amount, and cash/credit card/bill pay category. I even created different categories to use, so I can see totals per category (auto gas, utilities, restaurant, food, etc). 

I even have a spreadsheet cell that lets me track my discretionary amount per month, so I can literally see the total number decrease as the month goes on, as a constant reminder to stay on target with my discretionary spending! 

It all sounds nerdy, but whooooo boy does it save me time. And WHOO BOY does it keep me honest.

Sometimes I want to slack on the spreadsheet, but that directly correlates to bad spending behavior, for reals. So I keep at it, and it has been the key to success thus far. A spreadsheet, or some other way of tracking ALL spend, is the only way to keep yourself honest and on track. In my opinion, it is a necessity.

Finis... for Now!

I better stop typing for now, as this is getting lengthy and I think I accomplished my goal of explaining the basics of how I tackled the budget creation process. I'll try to create more posts to go into more detail about some of the topics I touched on, like the envelope system and more spreadsheet details that I've found helpful! For now, let your brains rest. And then... to the spreadsheets!!

No comments:

Post a Comment