The hardest part of having a budget is sticking to it. So I’ve come up with some ways to simplify it.
PLAN your spending
At the beginning of each month, I like to think about all the “Life” expenses that we will have and want to make sure that we have enough money for them. For example, later this month I am attending a baby shower and I wanted to buy a special gift for another friend who is turning 30. I’ll deduct those amounts from the “Life” budget at the beginning of the month to make sure that I have that money set aside for when I’m ready to make the purchases. You may also set aside some money for a much larger purchase you want to make later in the year. For example, I wanted to buy this kitchen island cart from Crate & Barrel and it cost $600. That would have killed our “Life” budget if we applied it to one month, so we decided to post-pone buying it for 3 months and just allocated $200/month towards the purchase.
TRACK your spending
Just like a diet, a budget requires that you TRACK what you spend. There is no point in setting up a budget and not keep tabs on where you money is going.
My tip for easy budget tracking is to only track your “Life” expenses on a daily basis. Food and transportation I’ll track weekly and I consider money in my housing, utilities, savings etc categories to be already spent. Its gone as soon as the 1st of the month rolls around. Its easy – you KNOW how much your mortgage or rent will be every month. There is no need to track it.
But there IS a need to track food and all other miscellaneous spending.
One method my husband and I used is our “Daily” method – basically we divided our “Life’ budget by 30 (or 31 depending on the month) and tried to stick to that. If either of us wants to spend more than half of the daily budget that day, we need to clear it with the other person to make sure we STAY on budget.
So say we have budgeted $1,200 per month to spend on “Life”. In June, that would be $40/day total or $20 each.
Then every day we would take 5-10 minutes and update a spreadsheet (using a Google doc is great way to do this, as then you can both access and update the same one in real time). Add up the total spent, subtract from the balance from the day before and divide by the number of days left in the month to see what your remaining “Daily” balance is.
The reason this is a good strategy is because it will make you think about spending more than your daily allotment. So, with my example of $40/day, if I want to buy a pair of shoes for $120, that is like 3 days worth of our whole family spending. Now, that might be ok – we don’t NEED to spend $40 per day. Some days, we will spend less than $40, some days we won’t spend anything at all. But at least I know – and perhaps if I want to get those shoes I’ll be more conscious with my other spending to make sure the budget isn’t blown. I might skip that latte, arrange to meet a friend for a walk in the park instead of for dinner and make my husband lunch for a week so he doesn’t have to buy it.
Example: Budget Tracker example
Above is an example spreadsheet I created (I like to add little comments to my sheet to remind myself what I spent money on and so my husband knows too). You can replicate it for the other categories you want to track too, like food and transportation.
Using the Excel or Google Docs spreadsheet is a good basic way to track your budget and spending. However, there are some great apps and websites out there that can help you. I really like Mint.com – it links all your banking, credit card and investment info to it and it updates it every time you log it. You can set your budget amounts and then allocate transactions to it – its pretty good at guessing (so when you buy something at a grocery store, it will automatically add it to the grocery budget)) though sometimes you have to adjust it (for some reason, whenever I went to this one coffee shop it would categorize it as “Hardware Store”).
Note: some people are uncomfortable to put all their financial information like that on a website for security risks. You need to do what you feel comfortable doing. I check my Mint.com balances every day so I’d be aware if something funny was going on.
CASH FLOW is king
One of the easiest ways to get off budget is to screw up your cash flow. If you run out of cash, you will go into debt. We NEED cash for certain expenses such as our mortgage, property taxes and any other expenses that are debited directly from our bank account. This requires a bit of planning regarding the timing of paying our bills. So will my bank account may LOOK healthy on the 1st of the month, a lot of that money may be required to pay those bills. So, sometimes as much as I’d love to pay off my credit card (which I always do in full) right away, I will often wait till just before its due. This avoids me going into overdraft – which can get really pricey at $5 every time I go in plus interest. That being said, its a good idea to have overdraft protection in case you do forget a bill or miscalculate your dates, because an NSF charge is much higher AND will affect your credit rating.
So off you go! Next in the budget series will be a post on Making the Most Out of Your Budget.