Organize Your Budget

posted in: Budgeting | 0

Sorry, this is definitely a long post, but felt it needed to all be in one place....so grab a cup of coffee if you need it 🙂

It’s always surprising how complicated it is for many to answer a simple question:

What was the difference between my income and expenses?

A lot of people have no idea at the end of every month and just assume they did okay if their electricity is still turned on and their landlord isn’t knocking down their fucking door for rent.  This won’t fly if you adopt a frugal lifestyle.  We need to look at our accounts monthly and KNOW we’ve made progress towards our goals.  It’s extremely hard to save if you don’t keep track of your money, and why the hell wouldn’t you enjoy checking your progress, anyway?  There’s no motivation factor at work without having these numbers figured out, no sense of accomplishment for getting closer to reaching our goals, no pay off in seeing our extra investment income in the coming months, and no purpose seen for going to work 5 days a week.  It’s important to get a structure for tracking your spending and knowing what you accomplished on a monthly basis.  Live your life with a purpose and have your financial freedom in mind.

When we become adults it becomes harder and harder to keep track of where our money is going, unless you have some sort of system in place.  I don’t hate budgets personally, but I understand why people fucking despise them.  I really do.  If you can cut back your spending without a budget, more power to you, but I can’t, and I know a lot of other people can’t either.  It’s best to at least start out with a written budget until you get into healthy spending patterns.  The key to a good budget (and financial plan) in general is to create something that you can maintain over a long period of time.  Another motivating factor is we’ll be investing our monthly savings into dividend stocks, which provide immediate gratification every time we see real money being returned to us through dividend payments.  It makes our effort to save worthwhile when you see real results each month.

I’ve heard and read about all kinds of budgets, and the main difference I see between them is how concentrated/restrictive they are.  I believe that the tighter a budget, the better chance of the person telling that budget to screw off the first time they want an extra Jameson shot at the bar.  I also like to assign a total dollar value for spending, instead of $200 for groceries, $125 for gas, $100 for eating out, etc.  I find the individual categories to be way too restrictive and hard to follow.  Who am I to tell you how you spend your allotted money.  If you want to use it to eat out a couple times a week, that’s fine with me.  If you want to have a one night bender at the bar, that’s your call.  As long as we stick to our overall budget numbers on a monthly basis.  I’ve tried “category type” budgets before and find myself immediately losing motivation when my spending is nowhere close to individual categories, even if the grand total might be around what I was shooting for.  Another mistake I’ve experienced is setting a budget for an impossible spending rate.  Once you continually miss your goal, you’ll probably figure that there’s no point in trying.  If you want to cut your spending significantly from what it is now, it’s best to gradually move your budget number lower over the course of several months, instead of going cold turkey.  Usually if the transition from where you are now is too large, you’ll really notice the change in spending and think it completely sucks.

For these reasons, about 2 years ago, I’ve formatted our budget into two categories: Monthly Recurring Charges and what I call “Free Spend”.  Every month we’ll calculate our totals and assess our performance and how much closer we are to our personal “retirement” goals.  We will eventually go into depth on how to cut down on expenses as well as lower costs of things we need, but for now, let’s just get everything down on paper so we know where the hell all of our money is going on a monthly basis.

Monthly Recurring Charges:

These are the payments that are set in stone (maybe subscription based as well).  In this category, we’ll put boring stuff like Mortgage/Rent and utility bills, but also subscriptions like Spotify and Netflix.  These are things that you have chosen to spend each month.  You might be wise to go onto your bank websites and check to make sure you have everything covered.  There could be one or two things listed on your statement that you don’t even know you were paying for or need anymore.  If you have a gym membership that you haven’t used in months, you might as well face the facts and stop paying for it.  You can get plenty of free exercise if you choose to do so.  This section is the easiest to clean up, but at times hard to make a huge dent in monthly expenses (that’s where the “free spend” section comes into play).  I’ll give you an example of the budget we have to give you an idea of what falls into our Monthly Recurring portion.

Mortgage

$1360

Amazon Prime

$8.25

HOA

$113

Netflix

$7.99

Reston HOA

$62

Car Insurance – A&L

$100

Electricity

$90 (est)

Cell Phone – A&L

$80

Gas

$45 (est)

Home Insurance

$62

Water

$43

Real Estate Tax

$313

Internet

$65

Spotify – A&L

$20

SlingTV

$20

Rafael Donation

$25

Student Loans

$1081

Car - L

$250

Pet Insurance

$22

Total

$3,745

 

The most important things to notice here is that we have what I consider a LOT of excess monthly charges that we could definitely do without.  If times got tough, there are plenty of things we could cut out in a heartbeat. Netflix would certainly be one of the first things to go.  I’ve also made it clear that the $25 donation I make monthly is not a necessity, but I’ve chosen to stick to it.  Also, the $22 for pet Insurance is totally unnecessary but a choice we make.  It helps us sleep better at night, but we of course know that it’s a choice we are making every month.

You probably noticed the high mortgage and fees associated with our housing, it can be summed up simply as we live in an expensive area.  Pretty much all townhomes are comparably priced around here if we want to live within 12 miles of work (which we do).  Our housing and utilities are just short of $2100 per month and we can’t do much about that, besides conserve our utilities as best as we can on a daily basis.  We know we’ll get some of that mortgage payment back when we eventually sell the property, but most of it is just typical living expenses, which are definitely high in this area.  There is of course a positive tradeoff, in that salaries around here are also higher.  We have definitely discussed moving to a cheaper area in the future to bring all these costs down after we save for a couple more years.

The last thing to mention here that I’m sure a lot of people are dealing with is student loan/debt payments.  I was fortunate enough to have my college paid by my parents (thanks Mom and Dad!) but I know others weren’t as lucky.  Lauren paid her own way, which is incredibly admirable.  She’s an extremely hard worker, and after 5 years in the workforce, has a great job to show for her hard work and determination.  It’s safe to say that some of her drive and work ethic simply comes from the fact that she invested in her future by paying for college.  She is now lucky enough that she can comfortably afford to pay a high student loan payment that we just got re-financed (she pays a higher monthly payment in exchange for the lower rate).

I’d suggest listing out everything you pay for monthly and assessing what can easily be negotiated down or cut out.  I’ll address how we went about doing that for ours in several other posts, but for now the idea is to get an accurate list of the recurring payments you make on a monthly basis.  After all, we can’t figure out how to trim down our spending if we don’t know what we are spending in the first place.

 

Free Spend:

This is where we can cut back an incredible amount of waste in our budgets.  It’s a matter of developing good habits, and choosing hobbies that don’t cost a lot of money.  There is SO much spending in the average budget it’s scary.  When you adopt a frugal lifestyle and realize simply that life is great, you look back on your budget with extra cash in your hands at the end of the month and wonder what the hell you ever spent it on in the first place.  Plus, chances are you’ll have less of a hangover to boot!

Lauren and I have been adapting to a new lifestyle (suburbs instead of the city) so we started off using our Big Board of Money on a weekly basis since our spending habits are much different here than in our previous home.  We wanted to stay on track and get an idea of what a normal “good spending” week was.  For this reason, we started tracking what we spent weekly and writing it down once a week.  No arguments or asking what each of us spent our money on, just writing down a number with no judgment.  Now that we are a little more consistent, we’ll probably move to a monthly meeting to share our spending numbers.

Anyway, the basics of free spend is that it includes EVERYTHING besides our recurring monthly charges.  This means gas and groceries are included, because after all, driving places is a spending choice, and groceries need to budgeted for as well.  Also, other things that come up have to go into this section, such as oil changes, car inspections, wedding gifts, personal property tax, etc. Pretty simple.  I recommend either getting an app to keep track of your spending (I use the free MoneyWise android app), or just look at your bank statements at the end of each month.  It helps me to track it by the day, but that’s because I’m odd and treat my free spending like a game to see how little I can spend in a week/month.  I know that an excess allows me to buy more new stock every two weeks when I get my paycheck and less of it goes toward evening out my credit card bill.

Keep in mind that leaving something out that you don’t feel “counts” only hurts yourself in the process.  The money is still not in your account and anytime you start to leave things unaccounted for it becomes a bad budgeting habit.  Tracking your budget without including all of your spending defeats the purpose of tracking it at all.  If you went over your budget because of abnormal things that come up, no big deal, you can do better next week/month.  Life puts us through plenty of rough situations, often times requiring money to be spent.  In the long run, if you keep tracking of your spending, you’ll spend far less than if you just ignore it just by being generally aware of how things add up.

Lauren and I set a goal for $400 per week to spend.  Once again, we are lucky to both have good jobs that we can allow this much spending.  Between the two of us, we probably spend about $175-$200 on gas and groceries each week and then have about $100 each to do with what we want.  Sometimes we need things for the dog, or buy gifts, need oil changes, go out to dinner, etc.  Again, I find this method of budgeting to be a game for myself every week.  I pride myself on coming in under budget, and even have some sub $100 weeks to be proud of.  With free trades in Robinhood, having extra money every two weeks to invest provides instant gratification for me.  Lauren is a little less excited about the budget (I think J)but she is excited about the light at the end of the tunnel when we can be free of 9-5 jobs before the traditional retirement age of 62, so that keeps her motivated.  Not all of us are weird like I am about saving money, but almost everyone can enjoy building a life they’ve always dreamed of living.  With our monthly budgets and dividend investing plan, we can easily see our hard work paying off for us by the month!

 

Does anyone have any good budgeting systems they use?  Anyone not need a budget to save money? 

 

 

 

 

 

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http://monthlycents.com/2015/11/15/organize-your-budget/

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