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Today is Babywise Friendly Blog Network Day! I’m posting over at Mama’s Organized Chaos about a discipline method I totally created myself 😉 Cole from Twinning Babywise is blogging here today about something we both love: budgeting! You can see all of my “spending smart” posts here 🙂
I’m sure you’ve all heard the numerous benefits of budgeting. It helps families get and stay out of debt. It helps couples save for emergencies and retirements. It sheds light on negative spending habits. It reduces anxiety.
I’ve used a budget for as long as I can remember. There have certainly been ebbs and flows – times I’ve been more meticulous than others – but for as long as I’ve made money, I’ve budgeted the spending of that money in one way or another. This has been a huge positive in my life and it’s one of the main ways my husband and I are able to stay afloat living on one income in such an expensive area.
HOW OUR FAMILY DOES BUDGETING
What works for my family is not necessarily the same thing that will work for your family. Still, if you’re just getting started, I think it’s helpful to read and see how other people budget.
HOW DOES A BUDGET WORK?
Before the month starts, we pencil out our anticipated income and projected expenses. Online budgeting tools like everydollar.com make this really simple. We start with income, and then move to necessities (groceries, gas, utilities, etc.). If there is any money left over, we budget for non-necessities (date nights, haircuts, etc.) or savings.
In terms of savings, we have an “emergency fund” (6 months of living expenses) and then individual savings “funds” for items we need to save for over time – like a car, a new dishwasher, or replacement flooring.
In this way, all money is allocated before the month even begins.
WHO CREATES THE BUDGET?
I am a numbers person. I actually enjoy working with the numbers and seeing how the month or year is going to play out. I also have more time to spend on creating the budget than my husband does, since he works and I stay home. For these reasons, in I do most of the work in creating and monitoring the budget.
That said, if you’re married, budgeting SHOULD NOT be a one-person job. It’s important that both people are in tune with how the money is budgeted and spent.
How this actually works in our home: Usually I copy over the last month’s budget and make any big changes I’m aware of. When I have a draft ready, we go over the budget for the next month together, making more changes as needed. At the end of the discussion, we both walk away knowing where our money will be going for the month ahead. As we move through the month, my husband pays the bills but I keep track of income and expenses, inputting them into the budget and ensuring we are on track. At the end of the month, we meet again to discuss how the month played out.
DO WE USE ANY BUDGETING TOOLS?
Yes! I have tried many, many products over the years. For a long time I used a complicated excel spreadsheet to budget. It was quite cumbersome, but it got the job done. A few years ago I started using Mint.com, which allows you to budget and import transactions totally free. It was an okay product, but this year we moved to EveryDollar.com and are finding it much simpler and easy to use. There is both a paid and a free version of everydollar.com. We use the free version.
HOW CLOSELY DO WE STICK TO THE BUDGET?
We aim for perfection. This is largely a necessary byproduct of our life situation. Sticking to a tight budget is the only thing that is going to keep us from going into debt. Being disciplined with our finances also frees us up to be able to save for and purchase things for cash that other people might be tempted to finance.
Some things require a level of flexibility. Let’s say, for example, we budget $125 for the utility bill and it turns out to be $150. We pay the full bill. But then we cut back somewhere else to make up for the $25. Other categories, like entertainment or groceries, are more rigid. If I’ve spent all the grocery money by the third week of the month, we spend the last week eating creative concoctions from the freezer.
HOW DO WE BUDGET FOR LARGE EXPENSES?
Some items are too expensive to be budgeted into one single month. These would be things like cars, vacations, or home improvements.
In today’s culture, most people buy the item when they need or want it, finance the item, and then budget in the payments. We do that in reverse. So instead of acquiring the item and paying on it monthly, we put money aside each month until we have enough to buy the item outright. This is the Dave Ramsey way. With exception to a home mortgage, nothing (NOTHING) should be financed.
As an example, let’s say one month our income is $5,000 but our expenses are only $4,500. The extra $500 would go into a savings fund for something specific (which I keep track of on a simple excel spreadsheet). At the time I’m writing this, we are saving for a car, so any money that doesn’t go toward expenses is going toward our car savings fund. When the fund is built up enough to cover the cost, we’ll make the purchase.
WHAT ABOUT IRREGULAR INCOMES?
My husband’s income is irregular. He receives quarterly bonuses in addition to a base salary paid out bi-weekly. This means some months of the year he brings in a lot more than others.
On the months that he brings less in, we budget and spend less. On the months that he brings in more, we budget, spend, and save more. I actually love the way this works out. Because we are used to living on just the two paychecks a month, when a three paycheck month comes around, we’re much wiser in the way we spend it.
Generally speaking, on the higher income months we try to keep the budget for most categories the same and use the extra paycheck to go toward something we are saving for.
WHAT HAPPENS WHEN UNEXPECTED EXPENSES COME UP?
Unexpected expenses do come up, but in most cases the expenses aren’t urgent and can be put off until the next month (when we budget for them). For example, recently my husband lost his sunglasses. New sunglasses is an unexpected expense, but there is no reason that they have to be purchased this month. He’ll just wait until next month and work it into the budget. This is the case for the large majority of unexpected expenses. We can survive a few weeks until the new month starts.
Another option is to modify the budget mid-month. In this case, my husband and I talk it over and figure out what category we can pull from to pay for the unexpected expense. Sometimes we can figure out a way to make some extra money to cover the expense (by working more or selling something). Last month I forgot to budget for something I needed to buy that month. We sat down, reworked things, and ended up taking money from the grocery budget to pay for the item I needed.
The last option – and by far the last resort – is to “borrow” money from our emergency fund (the 6mo of living expenses) to pay for the unexpected expense. This happens when an expense comes up that absolutely MUST be covered that month. For example, if my husband’s car breaks down and he can’t get to work, we can’t wait to get it repaired. It is, in essence, an “emergency.” When that happens, we use some of the emergency fund money to pay for the repair and then next month we have to budget in repayment of the emergency fund. Depending on the extent of the expense, it could take a few months to rebuild the emergency fund back and during this time we would not be saving for anything else.
WHAT’S THE POINT OF BUDGETING?
In our case, the main purpose is just to stay afloat! Budgeting keeps my husband and I on the same page in terms of our financial realities and goals.
On a larger view, I believe it is our responsibility as Christians to be good stewards of any money that should come our way. This means being disciplined in our spending, our saving, and our giving. We trust God to provide for our family and meet all of our needs (including financial), but we are still responsible to do our part. For a family like ours, budgeting is an essential tool to handle our money wisely.
Among other things, Cole is a mom to four mostly happy kids and likes to spend at least some of their naptime recording the things they teach her about motherhood. She blogs at twinning babywise.