One of the core tenants of good personal finance is operating with a budget every month. Back in the day, before I aspired to be a personal finance nerd, I had heard of a budget, had heard that it was a good idea, and supposed that it was something I should look in to, but just hadn’t gotten around to yet. My parents never had a budget, I didn’t know anybody that had ever used one, and saw the people that I knew getting along with life well enough, so I kept putting the research off, with no idea what I was missing out on.
Few people operate with a budget in place, and we only have to look at our own United States Government to see a prime example of not bothering to respect a budget. It seems that the US government sees a budget as more of an idea, or a rough draft of what a project will cost, or how much a policy will affect the US bankroll, rather than a set of monetary rules that were jointly agreed to and need to be respected. The term “over budget” is so often used that it seems like its normal and natural to run over a budget, and to see it’s limits on spending more as a “nice idea”, rather than a hard stop.
After deciding to get in the game with my personal finances, a budget was the first thing that I learned about. It is the first line of defence in the war against financial ruin. I looked at lots of budget templates, and my financial hero, Dave Ramsey, offered paper-based budget templates in his books that are able to be printed and replicated as much as needed. I also looked at lots of spreadsheet-based budget templates, and they all have pros and cons to them.
My wife and I decided to give Ramsey’s paper budgeting sheets a good solid go, and had mixed results with it. We sat down at the end of the month to plan out next month’s budget, but were really bogged down with how much detail that Ramsey’s budgeting templates had. For example, it took us too much time to try and put a figure to next month’s clothes for the kids, then for my wife, then for me. After that, we had to decide how much to save for future clothing purchases. Then we had to plan, in detail, our car repairs, and future car repair savings, and future car purchase savings, and on and on. It was so detailed that we wound up being confused with how much to budget for each item, and it became very hard to reconcile the budget at our weekly budget meetings, and was abandoned after about 3 months. Strike one for budgeting.
Not wanting to give up on budgeting, but being thoroughly finished with a paper-based budget, we gave www.EveryDollar.com a go. Its an Internet-based budgeting tool that allows as much or as little detail as one needs, and does the arithmetic for you, as any good computer application should. I immediately purchased the “Plus” package which links your checking account to the budget, allowing you to drag and drop each transaction into its respective budget category, but this proved to be a bad move. Because I have my business checking, short-term savings, and long-term savings linked to my bank login, EveryDollar.com showed every transaction that I did, not only my personal account, but my business as well. Because every transaction, including business ones showed up. it became very confusing to try and remember if a transaction was a business income or expense, and should not be reconciled with my personal budget. This lead to frustration because I had to weed out transaction types, and I made some mistakes, which meant that I was messing my budget up. After about 3 months, I stopped using it because EveryDollar was unable to pull 3 weeks of transactions and I was frustrated with it. Strike two for budgeting.
Two months ago, it was killing me not to be using a budget, and my wife and I were in constant money fights. We both knew that a budget would really go a long way toward stopping our money fights, and we were feeling out of control with our finances, so I decided to give it a 3rd go. Again, I looked at all the budgeting options, and settled again on EveryDollar.com, but skipped the paid version, so I would have to input each transaction manually. We had a budget meeting, put every projected income into the system, every projected expense into it, and our debt elimination goals for the month. I use a spreadsheet that I developed to balance my checking account, and was able to come up with a system to track which transactions I reconciled with the budget, and which ones needed to be reconciled and categorized using colored cells.
We also decided to simplify our categories, lumping groceries, toiletries, household goods (soap, etc.), and home repair items into one category, rather than each of them on their own (and subdivided). This was done because it was impossible to remember how much, for example, a Walmart transaction was groceries, how much was toilet paper, how much was shampoo, how much was replacement cabinet hinges, and so forth. We generalized much of the budget in that way, which made it far easier to reconcile the budget, and greatly reduced the frustration level of our weekly meetings.
So, how has the first month gone you ask? Well, we underestimated the income, which is always a good thing. However we underestimated things such as groceries (we ran $250 over), school fees (a field trip came up for the kids that we didn’t know about and cost $100 not in the budget), and find that we need a “general costs” fund that covers things we can’t think of, mostly things for the kids that always seem to come up like birthday parties and the like. We have had some money fights, with me being the finance nerd, and she being the free spirit. We both agree, however, that we have fought less about money that in the months proceeding Budget v.3.0, and are both committed to keeping it up. As long as we both agree on the spending and both reconcile the budget, money fights become obsolete. Keeping ourselves within the budget will require more work and effort, and we did a pretty sloppy job of it, but will no doubt improve.
Budget newbs, I’d love to hear how your early budget experiments have gone for you, and how more seasoned budgeteers have been able to make it a success. I’m looking forward to posting our success (or failure) of month #2’s budget.