Ha! Gotcha. This post is really about budgeting. I knew if I titled the post “Budgeting” you’d close your browser faster than I can say Cheerios. Why Cheerios? I have no idea. It was the first thing that popped in my head. Probably because I have three little kids and Cheerios are pretty much everywhere in my house. But I digress.
You know, I really didn’t even want to type this post. Just saying the word budget makes me cringe. And I worked in corporate finance for ten years, with most of those in a budgeting roll. But honestly, every family no matter how small (even if you’re a family of one) or big needs to have a budget if they’re going to have good financial health. But budgets don’t have to be as cumbersome and complicated as you might think. And if you just spend a little time on one it will be the best tool for you to make sure you’re staying on track with your cash. We’ve been using a budget to track our income and expenses for over five years now. It’s not fancy but it works well for us and I believe is simple enough for anyone to use.
I’ll still give you a picture of a shoe. Because I like shoes. Okay I love shoes. Okay, I really, really love shoes. Maybe I’ll have to post about shoes. Because I’m pretty good at finding cute, quality shoes for really, really good prices. Like $3. For real. Okay, yes, I will post about shoes. But another day. Back to budgeting….
Step 1: Expenses. You’ll have to track your how much you’re spending and on what for a good three months or more. What? Three months, you say? Yes, three months, I say. Your spending can fluctuate month by month, so using three months should give you a decent average. Now in our family we make most of our purchases on our credit card* or through our checking account, so I use our online statements to see where we’re spending our money.
*If you’re trying to watch your spending I do not recommend using a credit card for your purchases unless you are meticulous about paying it off each and every month. No exceptions. I’ll talk about credit card use another time.
As you go through each purchase from your statements, categorize each one into a category. Our major categories and sub-categories include:
- Debt (Mortgage, Student Loans)
- Utilities (House Gas, Electric, Water/Trash, Cable/Internet/Home Phone, Cell Phone)
- Insurance (Life, Car/Homeowners)
- Household (Car Gas, Tuition/Kids Activities, Food & Toiletries, Eating Out)
- Other (Church Tithing, Miscellaneous)
Of course your categories will vary somewhat from ours. You may have a car payment or health insurance premiums. We try to keep our variable/non-essential spending to a minimum and do not have categories for things like clothes, toys, haircuts, etc. That all goes into Miscellaneous. But if you find yourself spending a lot on a particular type of item/service create a category for it to track it specifically. If you’re a big ATM user be sure to make a separate category for cash withdrawals to see how much you’re taking out each month since it’s harder to track where that goes.
Step 2: Income. Now that you have your three months of expenditures you’ll want to see if you’re bringing in enough income to cover that. If you have a salaried job it’s pretty easy to figure out. If you have a commission-based income or work an hourly job where your hours may vary, you’ll have to determine what you typically average each month (using old paystubs or your deposit lines from your bank statement works great).
Step 3: Compare Income vs. Expenditures. Its okay, go ahead and look. I promise it will be alright. Are you making enough money to cover your spending? If so, good for you! Be sure to sock away that extra cash into retirement, kid’s college savings or some other rainy day fund. Or spend it on shoes. Not really, that wouldn’t be smart. Well, maybe just a few pairs.
If you are running negative don’t worry, you’re probably in the same boat as most everyone, and there are ways to fix that. Certain expenses are fairly fixed and/or hard to adjust quickly, like mortgage, utilities, etc. More than likely you’re finding large expenditures each month in food & toiletries, eating out, and all the other miscellaneous categories. There are many, many ways to help cut back on that spending to bring your personal budget back into balance. And I plan to address many of them here, but not today, since I’m sure your head is spinning a bit right now.
How to track all of this? I use Excel. But with my background in corporate finance I can use Excel like nobody’s business. Just ask The Husband. I haven’t worked in the corporate world for almost a year and he still calls me with Excel “how-to” questions. I’ve never used software like QuickBooks so I can’t comment on that, but use whatever you’re comfortable with. Go with good ol’ pen and paper if you have to. The point is just to do it. It is so important to know how you’re spending all that hard earned money. You won’t regret it. And you can curse me as you’re working on it if it makes you feel better. I can take it.
For those of you already maintaining a family budget, what tips do you have in creating and maintaining yours? What methods or software do you use?