Keeping Your Money On a Leash

As year-end reporting slowly comes to a close at work, I have a few weeks of “down time” before quarter end reporting starts up. This time of year is especially draining, so I’m excited for it to soon be over. We have a few smaller filings to wrap up and submit to the SEC before we can officially say year-end is over, but the light at the end of the tunnel is getting brighter.

To keep with the promise in my previous post I thought I’d do another one this week and try and keep to the every-other-week time frame. Also, I know you all are dying to dig into more numbers (or not).

I thought I’d explain more about how we budget every month, not just that we have a budget meeting every month, but what exactly that entails, and how I record everything each month to ensure we stay on track.

First, when we sit down for our budget meeting we list out what we anticipate we will need to spend money on for that particular month. These items are separate from the expenses that we regularly pay each month, such as rent, utilities, minimum loan payments etc. I record the variable expenses in a spreadsheet and we assign a dollar value to each item based on what we think it will cost. I try and inflate this number slightly just to be safe. The worst thing we could do is estimate an item lower than what it’s actually going to cost, and then mess up the rest of the budget throughout the month. We need to be honest with ourselves when it comes to budgeting. More times than not, those with budgets that fail, are not truly being honest with what their spending habits are, and instead estimate what they hope to spend. Also, a myth about budgeting is that there is no room for fun, especially when you’re trying to pay off debt. The truth of the matter is that while the “fun” items probably need to be scaled back quite a bit, they don’t need to be cut out entirely. We simply need to account for them within the budget. An example expense list is as follows:

Note that I've split up the expenses into two groups. Since Shaina and I each get paid twice a month, once in the first half of the month and again during the second half, this helps me break down which paycheck these expenses will be coming out of. Also, to help me further visualize when these expenses will occur, I assign an estimated date. For example, even though our fuel budget is $130 for the first half of the month, I can easily see that between the two of us, we have $65 a week for gas. After these expenses are documented, I add them up into one of four categories; Fuel, Food, Dates, and Miscellaneous. Dates include any dinners or lunches out, not necessarily between just us, but also with friends, such as Shaina’s occasional coffee dates with her girlfriends. I then insert these totals into our master budget, along with our other regular expenses.

The type of budget that we use is called a zero balance budget. This type of budget, as the name would suggest, allocates our entire paycheck to some category, until the ending balance is zero, giving each dollar a “home” for that month. The benefit to this is that you will then know where your money is going. Too often, before this journey began, I would look at my bank account and wonder where my last pay check went. It was stressful and quite frankly annoying to be working so hard, and to constantly feel like I had no money to show for it. Another benefit of this type of budget is the ability to look back at the previous month’s budget, know where everything went, and have the ability to adjust amounts for the next month. If you had no idea where your money was going adjusting spending habits would be nearly impossible. An example of a zero balance budget for a given month, using example amounts, and also using the example variable expenses above, would be:

Once the amounts of the variable expenses are dropped in, that month’s budget is complete. The easy part is over; the hard part of sticking to it has just begun. Next post I’ll explain some tools that I use in tracking our overall expenses, as well as some tips on staying on top of food and gas spending that so far seem to be working.