Tuesday, January 13, 2015

The year of the budget

Budgets.  Who likes to talk about that (lots of people actually, there are gobs of books on the subject).  We kinda had one for many years but never really followed it.  Like we said "we'll spend this much" but didn't really check in on it or hold ourselves to that limit.  We figured we are pretty frugal people and we were fine.

Ehhhh...that's kinda worked.  We've managed to pay off our loans and do some big things (like adopt a child or go to Europe) but if we had actually stuck to our budget we'd be in a better position than we are now.  I have quite the garage sale pile going in the basement as proof of things purchased we don't need (plus all the Goodwill donations we've made and the other two garage sales...).  When you don't think about what money you are spending you end up spending some of it on crap.  Or at least things you don't really need.  All my big purge cycles over the last few years has really made that obvious.  As much as I love the cash inflow from having a garage sale, it would have been better had we never spent that money in the first place (although, not everything in the garage sales are things we've bought...we don't keep everything we've been given either).  

It's a combination of going down to one income and all of my recent cleaning sprees that has led us to really appreciate having a budget.  Having me stay at home with our child(ren) has always been our goal and intent.  We knew my paychecks were only temporary (even though "temporary" ended up being almost 8 years).  We have to be more careful with our spending simply because there just isn't as much to spend.  Plus, this is basically my current life motto:

Knowing we can only spend so much in different categories really forces us to think about our purchases and get creative when it comes to what we want.  I'm much more apt to wait for a sale if I know buying something full price will prevent me from having the money for something else.

We're on year 3 now of really having a budget and sticking to it.  Every year I think we do a little better than the year before.  Here are a few things we've learned about how to make budget easy and actually work:

1) Have a money software of some sort
I use Microsoft Money which is no longer a product they produce.  At work I set up a client on Quicken which is very similar.  I enter all our receipts, breaking the expenses into different categories, and use it to reconcile our bank accounts and credit cards at the end of each month/cycle.  I can use my software to run spending reports for any given period of time like current month, last month, the calendar year, etc.  I can look up what we spent on things years ago (I've been using this all but 6 weeks of our marriage).  It makes it easy to see what we are spending and where.  I don't know how I would keep track of it all otherwise.

Upkeep seems time consuming but it really isn't.  I spend 60-90 minutes once a week on it and paying all bills.  I think it is time well spent so we know what we are spending.  You have to have some way to keep track of where your money is going. 

2) Budgets are for you to tell your money where it's going
This is from Dave Ramsey (I recently read his book, Total Money Makeover).  If you don't tell your money where to go, it's very likely it's just going to disappear.  A plan is necessary if you want to stay in good financial health. 

3) Give yourself some fun money
I have another post coming about how we handle this but the gist is, you have to have some splurges or you will go a little crazy.

4) Make your budget balance to zero
As in, plan on where every dollar of your net paycheck (and other income is going).  That means even other contributions to retirement plans, college funds, or extra savings accounts.  We budget for every dollar of planned income but...

5) Leave some room for unexpected expenses
It always something.  Unplanned large car repairs, unexpected house repairs, medical expenses (hey, foot surgery).  We budget everything going according to plan (i.e. only medical is for a few copays, OTC medication, and bandaids.  Only auto expense is gas, registration, and normal upkeep.) but then set aside a couple hundred dollars every month for those other things.  Because some unplanned things will happen.  There is no avoiding it.  This isn't to cover "fun" things but those necessary adult expenses that you hope you don't have but likely will. 

6) Give yourself goals
And not just "we'll stay within the budget this year".  This is a huge one, and something we've really just figured out this year.  We've set some financial goals for ourselves and they will take some sacrifice and work.  Knowing that really helps us limit our purchases.  It's been less than two weeks but it still has popped in my head multiple times while shopping "do I want our dream or this {whatever} at Target.  Usually the dream wins.  Knowing we are making sacrifices now for an exact purpose really makes a difference.  Maybe we won't make our dream, but at least we'll know we've really really tried AND will have kept many things from ever making it to the garage sale pile. 

We are no experts on the subject, if you want that read some Dave Ramsey, but this is what has worked for us so far.  And honestly, sticking to the budget is exciting.  Challenging at times, but exciting. 

How do you handle your finances?  Are you a budget convert too?

No comments: