July 27, 2012

Budgettabouddit! Part Deux: Expenses

Last time we talked about moolah, it was all about budgets.  That is, having a cold, hard, system for tracking the cold, hard cash that comes into your house and having a plan for how that cash will exit your house as well (though hopefully not all of it will be leaving….).

 

Let me get all Dave Ramsey up in your biz now: Our money shouldn’t control us.  We should control it.  Right? Right Smile  (If money stuff gets you into ‘deer in the headlights’ mode, check out a Dave Ramsey book from the library.  You’ll be glad you did.)

My little soapbox was inspired by the shocking revelation of a friend of mine that she’s totally clueless about how she spends her money.  In a nutshell, she is consistently out of money at the end of every month and has no idea where it goes. 

So here I am, pontificating to the bloggy world and trying to share what I can in the hope that it might inspire some good-budget-ideas for some of you lovelies.

I started with describing our budget: actual income to the dollar and *planned* outflow.  Ours is on an Excel spreadsheet (still working on getting you guys an Excel template), but it’s just as easy to do it with pen and paper.  Here are the basic steps:

     1.  List your income, all your bills, and any other expense category (like “groceries”, “gas”, “eating out/entertainment”) that applies to you.  Put the monthly dollar cost next to each of them.  If you don’t know, guess or pick a number you think is reasonable. 

     2.  Calculate what should be left over. 

BOOM! You have a budget!

Below is a simple example.  Above the “subtotal” line are bills and essentials, while below the subtotal are the more discretionary expenses.  Next to your “budget” column should be columns for months, where the actual amounts spent in each category are recorded.

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At the end of the year, take the average of each category and use that number to make next year’s budget. (Say you actually spent an average of $60 on your electric bill. Next year’s electric budget will be $60.)

SO.  TRACKING.  This is really the important part.  The “budget” portion is the door to the Keebler Elves’ tree.  A list of what you actually spent over the last month(s) is the cookie factory inside the tree.  I dig the door, but the cookies are the whole point of the tree, right?

Ok, weird analogy.  Moving on.

How do you track what you spend?

Well…the way we do it is we use either our debit card or our credit card for everything.  This works for us for a couple reasons: 1) we pay off our credit card every month and 2) we don’t get carried away.  Then, about once a week I download all our transactions into my spreadsheet onto a tab for that month.  I categorize each expense, then I add the categories up and enter the totals on a summary page.  Sounds a little complicated, but it’s not.  If you’re moderately to very familiar with Excel and want to know how I do it, let me know and I’ll get back to you. 

Excel.  Debit.  Credit.  Download.  Hold. Up. 

Totally new to budgeting? Totally freaking out? If *my* method sounds totally over the top for where you’re at, don’t worry.  There are tons of ways to go about this. 

My suggestion is this:

1)  Enter bill amounts into your monthly expenses as you pay them.  As in, record the bill amount on your budget, THEN write the check.  If your bills are on auto-pay, change your preferences so you get an email whenever something is paid.  Do what you need to do to know every amount that leaves your account each month. 

Then, for daily purchases, there are two options:

a) Use cash only.  Withdraw what you need in cash at the beginning of the month.  Once it’s gone, it’s gone, and it will hold your feet to the fire to be careful with spending.  (If you regularly overdraft your account, the cash method is the only way to go.  You’re literally paying a price for overspending.)

OR

b) Keep your receipts.  A pain, I know, but what’s worse- a pile of receipts to organize once a month or frustration ALL month?  At the end of the month, categorize your receipts into your expense categories (by store would be easiest to start with.)  Say, all the grocery store receipts into one pile, Home Depot receipts into another.  Gas station into another, etc.  Add them up, and enter what you spent into your categories.

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Don’t sweat it if you overspend in a category, just make sure 1) you cut back in other categories or 2) you underspend next month. You want the average at the end of the year to come out as close to your budgeted amount as possible.  If your budget (the list of what you thought your bills should be) is way off from reality, adjust it with the actual bill amounts.  After a couple months, you may want to adjust it again, this time using the average from the last few months.

Once you’ve got one month of data, take a good, hard look at it.  Is there any money left over? Is it enough?  Are you okay with what you spent in each category?  Could you do better? 

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If you need more left over or you think some expense was too expensive (pun intended!), make a date with your list of last month’s expenses.  The next day, do the same thing.  Sit with it. STARE at it.  Talk about it with your spouse.  Evaluate your needs versus wants.  I do this at least once a week.  I sit and think about whether our spending in the last month was really as low as we could get it, and what we could do to get it lower (meal planning and one grocery trip per month is my current goal – I’ll tell you more about that later).  And I wonder what we could do with the savings. 

There’s probably a few places you could trim or eliminate, too.  Don’t sneeze at the little stuff – small cuts add up. 

So there you go.  Tracking actual expenses is really Step #2 of financial housekeeping and the meat of this sandwich, er, cookie?  Hopefully you’ve gotten a few ideas, and if you have any other systems that work great for you, leaving a comment could be super helpful for someone else out there.  Just sayin’ Smile 

Finally, there’s one last thing to cover.  It is Step #3: forming a plan to *kill* debt with a snowball.  And I mean – KILL it.   If you have debt, you’ve already got an expense you can completely eliminate.  I’ll cover it next. 

I know you can’t wait!

ASig

7 comments:

  1. This is great. I just got married a little over a month ago and I am NOT ready to let go of my own bank account and combine accounts. I know that sounds crazy but its true. My husband doesn't use a budget. He looks at his account, sees how much he has, and pays what ever is due. I on the otherhand have a budget that I use, but he wants no part of it. AHHHH!!! How to move forward and combine is my question... A template would be great. Your thoughts??

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  2. Hi Sharesae - I think if you're not ready to combine accounts, there are other good ways to keep track of your new household finances. You could keep everything separate and divide expenses according to the percentages you each bring in. Then, since you're more budget-oriented than your husband, let his share be the bigger (simpler) bills like maybe the mortgage/rent and a car payment - whatever adds up to his percent of expenses. Then your share could be the utilities and grocery type stuff, since you would probably keep better track of those. Then, any savings *you* realize in household expenses (like from couponing or meal planning etc?) would be a little bonus for yourself.
    The challenge with this would be who pays for the big stuff, like vacations or a new couch. Maybe you each still cover your percent of those things too? Or maybe you agree ahead of time that you'll only spend your tax refund each year on that type of stuff. Or maybe you trade off. Sounds like you're pretty on top of things, so I'm sure you'll find a good solution!
    Meanwhile, I'll try to figure out a way to publish a budget template, and maybe that will help too.

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  3. I suck at budgets. And unfortunately so does my partner. We keep talking about working things out, but its virtually impossible for us. Add to that that we have a huge mortgage, animals, a place that needs work and pitiful wages... you get the picture. Its always stretching dollars from one paycheck to the next. The very idea of budgets freaks me out! I wish someone could come and work it out for me! (wanna visit Tasmania any time soon? We have a guest room! LOL)

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  4. I don't budget anything, and I have no idea how.

    I'm not married, and have no kids, so I'm doing everything on my own. And I make under 25k per year.

    At the end of each paycheck, after I pay bills, I normally have $25 for food for two weeks. It is not a happy time. I HATE getting paid. It's depressing.

    Any help with how to even begin with a budget would be great. But I don't have excel on my computer, either, sooo...

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  5. Hi Nestlechip - I'm so sorry to hear that payday is depressing for you. It should be fun to see your bank account fill back up every couple weeks! You're smart to be thinking about a budget if you've never done it. It's super simple and you don't need Excel at all. Here are the steps:

    1. On the left side of a piece of paper, list out your monthly income and bills and what they are *supposed* to be. Like if you have a cell phone and you know your bill is supposed to be $50/month, put that.

    2. To the right of those numbers, put what the bill *actually* cost you last month. Like, your cell bill cost $70 because you went over your minutes or something.

    3. Since you already know you only have $50 leftover each month for groceries, you should be able to arrive at this number by subtracting your bills from your income. You may need to wait a month for your actual bills to come in before you can list all your actual expenses.

    4. Look at it. A lot, and at least once a day. Maybe rearrange the expenses into the items you literally have no choice but to pay (rent?) and the ones where you could somehow save a little money (not going over on cell minutes, for example, or going on a "lights out" campaign to reduce the electric bill by $5 or $10 one month).
    5. With time, keep filling in your monthly expenses, in a new column for each month as your bills come in. This will show you how your bills change each month and you can calculate the average after a while and use that for your "planned" expense column.

    6. You now have a budget. As in, you *know* why you have only $50 left each month. That's the key. Maybe you can find some savings in there, maybe not, but you will feel way more in control once you know who's getting your money.

    I really hope this helps. You're on the right path to want to keep track. Good luck :)

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  6. Zefi - you can totally do it! It's not impossible and I bet you'd feel so much better knowing how much you spend on repairs to your house, your animals, and everything else.

    Check out the pen-and-paper steps I wrote to Nestlechip above. If it's really tough to stay motivated, I suggest making your budget (Step 1 above) and then pile your bills and receipts on top of it. As you pay each bill, write in how much it was for the month on the budget. At the end of the month, categorize your receipts as best you can, and include those too. (Maybe even by store would be easiest for now, even if you bought multiple categories of stuff in one place.)

    I'll talk more about expenses in a future post, but I hope this helps and good luck! You *are* a master of your finances...you just don't know it yet :)

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  7. Katie:

    Thanks for the suggestion! My income and expenses aren't too entirely complicated, so I think writing them out on a sheet of paper may work. Any little thing I can do.

    And I'm reading your posts after this one, too, so those are helpful! :)

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I love comments, so feel free to leave your 2 cents :)

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