The budgeting world is big. It is overwhelming, often leaving you with questions unanswered, or sifting through a sea of information. See how our personal budget slowly evolved to what it is now and how it helped us tremendously.
Let’s face it though, if you have searched anything about budgeting, you know there is no lack of information. Everyone has there theories, strategies, and methods that they swear by. But what is right for you?
There is no right answer. Each person has a unique financial situation. Each person has a different style and personality and unique needs. But what worked for us, could help you find what works for you! Why? Because we’ve been there. We have sifted through this information. We have found the answer to what is a Zero-Based Budget? and How do you set up a Cash Budget? It wasn’t easy. But it was worth it.
Let me walk you through our personal budget and what we implement as far as these budgeting strategies and tips.
What you Need
Let’s talk tools. There is a lot you could use, but not much that you need when you are starting a budget. I credit Microsoft Excel as being the top reason we have been able to run a successful budget and payoff debt. Microsoft Excel is an amazing tool to help organize, automatically calculate, and sort through your finances without having to sit down with a calculator and pencil and crunch numbers until your head hurts.
A Monthly Budget
Lets start at looking at the overall picture. We use a monthly budget to track expenses. We do this because it is easier to track, plan, and stay within the confines of our budget.
For example, in our grocery budget, we typically spend $300 a month on groceries. It is much easier to spend $300 in a month, and be aware of how much left of our $300 we have as the month progresses. If we ran a year-long budget, $300 x 12=$4,000, it would be very hard to budget all year out.
Emergency Savings and Zero-Based Budget
Our checking account always has a starting amount of $5,000. That money is part of our emergency savings, which I highly recommend saving up for, it is not money to “spend”. You will see later how we tie in our emergency savings into our budget.
In a given month, we may run a surplus, or deficit, but when the next month rolls around, we begin over at $5,000 as if we are starting at zero. We operate a Zero-Based Budget, meaning we have a purpose for every penny that we use.
Cash Budget-Our personal budget
On the first of the month, we withdraw some money out of our checking account for the portion of our budget that we use the cash based, or envelope system. The categories and amounts for our cash based budget include:
- Groceries – $300
- Toiletries – $30
- Gifts -$30
- House expenses – $25
- Clothing/laundry – $30
- Eating out – $85
- Personal Cash – $100
Total Cash Withdrawal (Checking) $600.00
When cash is withdrawn, our checking account just dips down to $4,400. Out of these categories in which we withdrew cash, we keep a running tally in Excelof how much we have spent, and Excel will calculate and tell us how much we have left. Although we wouldn’t have to track our cash budget like this, we like to document purchases for future reference.
The numbers on our budget are constantly changing. We have raised the amount groceries, lowered eating out, changed the miscellaneous category many times. It is all about fine tuning these categories and the years of data we have accumulated has helped us do that.
Automatic Payments and Monthly Bills
Next up, we have a column in excel where we have every monthly bill we can set up for automatic payments. These categories include:
- Car Insurance
- Gym Membership
- Life Insurance
These expenses slowly roll around throughout the month. We have peace of mind we don’t have to worry about missing a payment as they are all set up for automatic payments.
Since we run a monthly budget and sometimes do not get paid until the middle of the month, our checking account (stocked with our $5,000 emergency fund) decreases as we pay bills. When the rent due date rolls around, the checking account drops an additional $1,125.
Based on our total monthly expenses (plus cash withdrawal), and knowing income checks will eventually be coming, we have no worry about our checking account hitting $0, or over-drafting and incurring a fee. In fact, even if we didn’t get an income check for the entire month, the total expenses do not exceed $5,000.
Using A Credit Card and Transportation Expenses
We use the credit card on all bills that we can, outside of our cash budget. All gas purchases we pay with a credit card, and then document the cost in Excel. Many bills are also put on the credit card. At the end of the month, we simply log into our credit card website, and pay the entire balance in full.
In the area of gas and transportation, we take a few different things into consideration. Gas is a necessity. We don’t limit our driving because we are on a budget. If we need to go somewhere, we go. If you put a limit on a necessity like this in your budget, it will cause your budget to fail.
Rather, I take a different approach to this category by combining gas and vehicle maintenance into one category. This gives me a lot of wiggle room in the gas expense category. I took data from our budget in Excel spreadsheets over a three year period and calculated a monthly average of how much we spend.
These expenses include gas purchases, new tires, oil changes, occasional car wash, new wiper blades, and all vehicle expenses related, except for car insurance. The total came out to $300 dollars a month. So, at the beginning of the month, within our budget we have an expense calculated in of $300.
As we buy gas and enter the expense into the spreadsheet, the $300 automatically goes down, by the amount of the charge. For example, if we buy $30 in gas, the spreadsheet now shows $30 in gas charge, and now $270 left in the vehicle category, still totaling the original $300.
At the end of the month, after all gas charges have been entered, the amount leftover is sent off to a separate savings account. This leftover money is set aside and allocated for vehicle expenses which are inevitably coming up. There may be 3-4 months where we only spend $130 in gas, leaving $170 extra leftover which is allocated into an account.
When an oil change expense rolls around, we have money set aside to pay for it. When we need new tires, we will have the money aside for it. Although this isn’t a 100% cure all for all vehicle expense, it is an excellent strategy to help avoid unexpected large expenses within the vehicle realm. Although this works for our personal budget, it may not work for everyone.
Saving for Annual, Bi-Annual, and Irregular Expenses
Similar to the allocating extra money for vehicle expenses aside, we set aside money every month for bills that do not occur monthly.
Let’s take life insurance for example. We pay an annual premium of $492 for a 20 year term fixed rate. If we wait until the bill is due, we will suddenly be scrambling to find an extra $500 lying around.
Every month, we have these expenses included in our “monthly bill” column. At a certain time in the month, I have my checking account automatically transfer $41 dollars from my checking account to a designated savings account. When the life insurance bill eventually rolls around, we have the exact amount needed to pay the bill.
I use this strategy for every expense I can, from Life Insurance, Car Insurance, Car Registration, etc.
Note: I use one savings account for many of these type of expenses. I simply keep track of how much money is in each category in a separate Excel sheet. I can’t tell you how nice it is to have this strategy for these expenses, it really helps regulate our budget and it’s very rare our monthly budget is ruined due to an unexpected or isolated expenses.
Closing Out the Budget at the End of the Month
Now as all these expenses and incomes come and go, the end of the month inevitably rolls around. At the end of the month, we do a couple things to “close” out the month and prepare our accounts for the next month.
First, we pay off all our credit card debts, (being careful to make sure all charges are posted and some expenses aren’t still pending).
Second, I decide what we want to do with the extra income that we’ve earned (considering we ran a surplus). If we ran a deficit, we replenished the amount from our emergency savings for the next month. I make sure I replenish that deficit from my emergency savings as soon as I can.
Depending on a myriad of situations, there will be plenty of options of what we put our extra money toward. When we had student loan debt, we would almost always put 90-100% of our extra income toward that. Now, we are saving for a home, and we put a large percentage to that, sometimes, a percentage goes to our vacation fund, etc.
Regardless of where we are putting our money, we make sure that we are delegating 100% of that extra money to something, we do not leave any money unclaimed to something.
Our budget also automatically calculates 10% of our income toward tithing and at the end of the month we write a check to the church for the amount calculated.
Lastly, I do a quick check to make sure I entered everything correctly. When we send off all the extra income to the designated accounts (whether that’s a savings account, loan payment, etc) and we pay off our credit cards, my checking account SHOULD equal $5,000. If that is the case great, everything checks out. If not, I see if I entered something wrong, or if there is something not paid off. I then consider the month done, and look forward to the following month.
The peace of being able to run a budget like this is amazing. Why? Because I never have to log onto and analyze my checking account. I never have to think, can I pay this credit card balance off without over-drafting? Do I need to save up some money for my rent payment coming up? I never have to be surprised and scramble to gather up cash to pay for isolated costs such as a $500 car insurance bill.
Of course I will periodically check my financial account balances to make sure there nothing fishy going on. But the way we run our budget really allows us to avoid living paycheck to paycheck. We are more hands off our money, all while having a much firmer grip on where our money goes. I never have to look up accounts to see if I can pay a bill, or if my budget will be OK due to everyday expenses.
Starting a budget can be daunting and overwhelming. The thought of taking control of your spending may seem restricting, but really it is the very thing that can set you free.
Once you have control over your spending and you know exactly where your money is going towards, you will no longer have to live with fear of the unknown. You will finally have the financial freedom the you’ve always wanted.