Budgeting 101

When Stephanie and I were planning our respective weddings in the summer of 2008, we both were dealing with tight budgets. We compared notes about wedding spending, what money to put where, and how to shave pennies off the bottom line.

After that, we both got a little obsessed.
Can I get it cheaper? Can I save a buck or twelve? Can I actually cut out the debt that existed before we got married?

We tried many ways to keep track of our money. We discovered it's much harder to do when two people are using the same checking account, same debit card, and they're not always communicating about every penny.

Also, as anyone who has ever been married knows, people don't always share the same financial values. One person might see nothing wrong with getting a $10 lunch every day, where the other one is miserly and would prefer to do a sack lunch that cost under a buck fifty.

So we had some hurdles in our quest. We wanted to find the frills in our budgets, and carve them out. We wanted savings accounts with REAL money in them. We wanted bigger houses someday, better cars, stability for our (unborn) children. RETIREMENT.

Stephanie is a lot smarter than I am. She is in her 20's, and started young on this road. I was a little late to the game. But, as Kalli's header on this blog suggests, "It's never too late to revise the story." Revise, I did.

It was a painful process, and resulted in more than one shouting match with my husband, who was then working on the road and had few creature comforts besides eating out or the occasional beer in a hotel bar.

I started making spreadsheets. I wanted to know where our money was.

At first, I used a pre-fab template that was supposed to help you first project your spending in about one hundred categories, and then you were to go back in and put in your actual spending, and see how you did. This didn't work that well for me. It was too labor-intensive, and also too depressing because even when I thought I was allowing more than enough in a certain area, I was always wrong. It was too detailed, and not tailored to my needs.

Later, I created my own spreadsheet, and a few rules of thumb for myself.

Rule #1) Pay bills FIRST. Pay as many as possible.

Rule #2) Plan meals in advance, and budget for the necessary groceries and trips out to eat, and nothing more.

Rule #3) Be disciplined. Even if it seems like something is a "great deal" you don't buy it unless you've specifically budgeted for it.

Rule #4) Get a "zero balance." This means that from every paycheck, you pay the requisite bills, allow for groceries, gas, spending money, etc., and then anything that is left over (if, indeed, there is anything left over) on the spreadsheet gets moved to savings.

For example: My husband and I both get paid bi monthly, and we're on opposite weeks, so we get four paychecks a month. So I have divided up our major bills into four hunks - Utilities, mortgage, loans (cars, student loans), daycare.

I have changed all the values to try to sort of protect our financial privacy, but you can get the idea from what you see below.

Check 1, August - this check is devoted to "utilities" but also takes into account things we'll have to pay later, like a big daycare bill and groceries, etc.

Income - 2000


Nat Gas 40
Electric 183
1/2 daycare 300
Dish Network 95
Security 45
fuel 50
groceries 200
home repair 150
Trash/Water 60
Internet 40
cell phones 100

Total outgoing: 1263

So there is 737 leftover for this check.

Here I determine what we'll each need for spending that week. Do I plan to buy diapers for the baby? Do I need a new jacket for an interview? Will my husband go golfing? Will we need to eat out for a friend's birthday? From all those questions, I plan our spending. Once that planning is done and a number is arrived upon, it is set in stone. If I didn't plan for a new outfit this week, I don't get to have a new outfit this week.

So, let's say I think we need 100 apiece this particular week (which is VERY high, and I never give us that much). What is leftover from the paycheck is $537. That $537 goes directly into savings.

On the day the paycheck arrives, I pay every bill on that list. I have found it's dangerous to leave money "earmarked" but sitting in the account. We end up thinking we have more money than we really do, and forget to subtract out what is still meant to be paid. Better to pay up and then deal with what's left. After I pay everything, I leave the money I've budgetd for gas, spending, groceries, etc. in the account, and move everything else (the $537, in this fake scenario) to savings.

This way, we can see what we have to spend, and nothing more, and we don't feel more "flush" than we really are.

I think this is enough for one day, don't you? Much more to come...