I am an extreme budgeter. A year ago or so, I started devising a budget. I hated having car payments (I still hate having car payments), we had a few thousand in debt that we wanted to get off our back, and I wanted to eliminate as many payments as I could as quickly as I could. It was not working out to try to figure out how much we were going to spend on groceries, utilities, everything else that month. Can people do that with any degree of accuracy?
I had always heard about how you should budget. Let me know if it sounds familiar: Take the average of what you have been spending over the past few months on certain things–gasoline, groceries, eating out, and boom! You have a budget amount for future months. Yeah, this makes no sense. This tells you what you have historically been spending but if you have been overspending in some areas, this is not going to be helpful in controlling excessive spending in the future, to say nothing for unforeseen expenses.
So my new budget was centered on what I felt we should be spending on things. So I devised a plan. I created a spreadsheet that had a list of every paycheck we would earn over the next two years (yes, I did it for two years but I am psychotic) and what bills were going to what on each one. It looks like this:
This is a template assuming a dual income household where each person is paid every other week. I don’t mind saying we make less than the example shows. I’m not sure what people get paid so I made something up.
On ours, I get paid the same amount once per month, and we have rental income which stays the same, but Steve’s varies based on commission, hours/minutes worked, etc. Have I mentioned I hate timeclock jobs!? For his income, I have a formula that calculates the average of his paychecks over the last six months at his job and puts the amount in the income column. As he gets paid, I update his income in the spreadsheet and the formula I made uses this amount to calculate the new average for upcoming months. This is the best way I have seen to forecast how much he is making. Make sense?
So from there, I just have fun with it. I get excited about payday. Not because we have money (because the money lasts approximately two seconds until I wake up and start my payment frenzy), but because payday has become a game to me. For each paycheck, I try to squeeze in as much debt reduction as I can. I try to move things around so that I’m consistently paying things down. I’m telling you guys. This is a fun system. It really is, and I recognize that I am the HUGEST nerd for saying that, but I love it. So much. I know at the beginning of each month, months (years) in advance where all my money is going and how it’s helping me reach our financial goals.
Another unique thing about this plan is that there is no “fun money” column. You can certainly add it if you want, but it just wasn’t working out for us to do that. We have tried and tried, and as much as we like to talk about not going out to eat, not going to movies, and just spending time as a family doing things that are free… it has occurred to us that this is just not realistic. It’s just what we do.
The idea is to have enough left over after savings, after charitable contributions if you do that, after everything else is paid and there is food on the table, that you don’t have to give up those things that you like to do. We still go to movies and we still eat out, but we don’t budget for those things. You can if you want to but I just have found that for us, it’s not going to happen. We know how much we have left over (from Column E) to spend if we want to, and we act accordingly. Our budget is designed in a way that after all the expenses are automatically calculated, using my handy dandy formula, we always have at least $50 left over in Column E. We would have more than that, but everything extra we have is going towards debt, and savings, and paying extra towards our mortgage.
So thanks to my killer system, we are paying off two cars, bought within the last year, the remaining balance of our credit card debt, planning a major family vacation, and paying cash for our basement remodel by the end of next year. And I happen to think that is pretty impressive. So totally tooting my own horn here. It pays to be a little stingy.
Oh, one word of advice if you decide to adopt this system (and I totally think you should): Get ready to look a little crazy at the grocery store. I take about three hours going through my grocery list because when you only have cash to buy all the groceries you need for two weeks, you have to be vigilant in your calculations.
This is also a game for me. I like to see how close I can get to my total cash amount without going over. I got within a nickel once. I mutter to myself and stand in the aisle for several minutes picking the best can of beans because EVERY PENNY COUNTS. We manage to spend about $200 per month on groceries and it could be less than that but there are very few things that I will buy generic. We could also save a lot of money by shopping at Walmart. We don’t. Also, if I could kick my Honey Bunches of Oats habit, and if we would eat microwave popcorn instead of shrimp for movie night, things would be different. But for now, we sit at around $200 and that’s fine for us.
A few more tips:
- When I first started this, I paid all of my bills twice the first month so I could get ahead. And now I pay all our bills a month in advance because it’s easier to plan. If I find out that we have a big expense coming up, I just go in and reorganize some things, and because I’m paying all of our bills early, I have a little bit more room to move things around to make all the pieces fit.
- I have every other month shaded on the spreadsheet so I can just look over it at the beginning of each month to make sure every bill is accounted for at least once.
- Whenever possible, I sign up for the equal payment plans (most cities will let you do this on your utilities if you have been there a year) so I know at least a year in advance what I will be paying each month.
- I don’t do any automatic payments unless it’s the only choice I have, and then I have a reserve account that I put the automatic money amount into until it gets pulled out automatically. I transfer it back into my checking the night before it gets withdrawn and it has worked out perfectly.
- Except for our Column E items, I pay all my bills online. For gas and groceries, I pull out cash and cashiers checks. I love when the money is pulled out automatically because I see immediately what kind of cash I’m dealing with.
- If we need extra gas or groceries, we know that’s going to be coming out of our Column E, so usually we would rather starve or walk the 10 miles to work than dip into it. I tell people who ask about my budget that if you don’t follow it, you starve. Just keeping myself motivated here.
- Everytime we get paid from anything, it goes in here. If I get $50 from a focus group I did, it goes in. I rent out my wedding dress for $150 every once in a while. That goes in here. When given the opportunity, I use these extras to pay regular bills and so I can use that extra money for debt or savings.
- Christmas and birthdays are fun for us because we start saving for Christmas in August and have enough by November to do our shopping. (We both have our own checking accounts separate from our joint for this purpose. We can shop without the other person monitoring how/where the money is being spent.) For birthdays, we both like to shop, so we get a set amount on the paycheck just before our birthday for birthday shopping trips.
So that’s that. Questions? Comments? Concerns? :)