That’s Swell

I relation to these recent posts, I thought I would share with you how we budget our money. It isn’t rocket science, and everyone has there own ways of doing it, but this is what works for us.

1. Collect Everything You Need
   Some people recommend you track your expenses first, then budget from what you spend already. We didn’t do it quite that way, because we knew we were overspending on things, so we didn’t want to encourage ourselves to continue. I first find out our take home for that pay period (which changes, my hours fluctuate, but David’s stay the same, and there are sometimes unexpected incomes, such as sales on eBay or freelance work).Then I find the bills we have to pay within that time period of 2 weeks (that are constant, like rent, heating, cell phones, internet, etc.). These are all No. 1 Priority Expenses because we HAVE to pay them. We shrunk down our bills by consolidating our student loans (from 5 payments to 1), canceling cable and paying off our credit cards (and canceling them) so no more payments either.

   I keep track of my budget in an Excel Worksheet that I created. Other people use Microsoft Money or Quicken, you can also download free budgeting software here. Or just write it out with good ole pen and paper. Whatever works best for you. Sometimes I ’sketch’ it out on paper first, then go to the computer.

2. Bills First – No. 1 Priorities
   Once I have all my information gathered, I take out our Flex Spending & 401K, (which automatically gets taken out of our check, so don’t really have to worry about it) savings and our tithe. These are automatic Priorities. We use the rule of thumb: give ourselves 10%, our church 10% and see what is left. This leftover money is our “Take-Home” then I start deducting this paycheck’s expenses. First comes the bills or No. 1 Priorities – electric, cell phones, internet, etc. All of these expenses are paid online (most auto withdrawal on due date), or electronically (everything else we pay in cash using the envelope system).

   The one exception is gas. We find paying at the pump is the best option – so I can estimate what it will be, but I don’t know the exact amount. If you have cash for gas – the tendency is to throw a cup of coffee or snacks in on your bill when you go into the store. Avoiding the convenience store is best.

3. Cash Priorities
   Once I have all of the “Electronic” payments or non-cash payments out of the way (usually bills), I move to what is left for cash. We use a cash envelope system. It is much easier to manage your money this way – and much easier to balance the check book (in fact, with online banking now, we don’t balance our checkbook because we can always just look it up online, and when we use cash for the majority of purchases, there isn’t much to monitor).I start with grocery, a No. 1 Priority. Then I look for other necessities, No. 2 Priorities, such as oil changes or haircuts. From there I look for, No. 3 Priorities, such as a new pair of shoes (these are things we need) or gloves. Last is our “Wants” – allowance and thrift store money, amongst other things.We usually keep our allowance at $50 ($20 for each of us, $10 for date night) – but if it is an expensive month or we are saving for something, we will slim this down or cut it out, it is an added perk, not a necessity.And we have date night every week, but we only go out (or spend money) every other. So $10 can get us a pizza or Noodles (we don’t do fancy dates), if we want to go to a more expensive place we use our own allowances.If we still have money left we will start putting it away towards a house payment (in the next 5-10 years) or Christmas gifts. It never hurts to start saving early! OR if something is a priority that month (ex. saving for a new computer), we will move it to a “No. 1 or 2 Priority” and automatically put that money into savings. I am a firm believer you can have anything you want if you budget for it. But wait for it. Don’t fall for “Buy Now, Pay Later” – wait until you have cash.
4. Cash Envelope System
   Once I have all the expenses figured out, I figure out how much I need to take out in cash. So I will go to the bank, and get $300 out (or whatever the amount it). We use the “Envelope System.” This means, we have envelopes labeled for each item (haircut, groceries, oil change, thrift store, etc.). I then keep these in a mini file folder, or coupon holder (the expanding ones that fit in my purse). I also rip the tab off the envelopes so the money is easier to get to.These envelopes get reused all the time – so get used each paycheck (grocery), some are only once in a while (oil change or haircut). This way I can easily see how much money is left in each envelope.In our family, I do all the shopping so I keep the money with me.

   One exception is David’s allowance, I don’t keep his allowance with me, he just puts it in his wallet, but I do keep my allowance in it’s own envelope – since I always have the holder with me.

   I know some people think going back to cash is like going back to the dark ages…but it really is the best option, in my opinion. Think of all the receipts you have to keep track of for every little bit spent. If you buy coffee everyday with your allowance, you must keep track. Using cash is so much easier. It helps streamline the process and make budgeting simpler – and I am all for that! It also helps stop us from overspending – if there isn’t money left in groceries, I don’t buy any more. If there isn’t money left in our “Entertainment/Date Night” envelope, we stay in that night. Give it a try – it is easier than you think.And I never worry about someone stealing my purse. I get asked this a lot – but it’s just as risky when people steal my debit card (which has happened to us) and that is always with me. Plus we never have more than $300 at a time, which to some people is spare change. And usually within the first day of taking the money out of the bank I spend half of it on groceries, etc. so it doesn’t stay in my purse long!

5. Pay All Bills At Once
   Then I pay our bills – most are auto payment, but if they’re not, rather than waiting a week til the due date – I go ahead and send the payment right away. This makes it easier and I don’t miss deadlines. I do all my banking at once, usually while sitting on the couch with my laptop – it is a very seamless process. Rather than trying to remember when due dates are – do it all at once. Being early is never a bad thing.
6. Do it Again!
   Then we just wait until our next paycheck! We sometimes will start a list of items we want to buy with our next paycheck – so we don’t forget. Some people say you should always keep $100 extra in your budget for those misc. expenses you know will come up. But I was finding I would just spend that on frivolous things, because I knew it was there. So we don’t keep extra money in our budget – but have savings if we need something. However, when we have a family, keeping this “cushioning” will probably be necessary.

Sample Alternatives:
Some other ways to do your budget – if you have 2 incomes, try to live on just one income. At this time, we are not able to do this, we are working on doing this. Some friends of ours keep her income as a constant savings, so she has it automatically deposited, and doesn’t even touch it. They live off of his income.

Another alternative – some other good friends of ours do a monthly budget (we do bi-weekly with our pay periods, since we both get paid from the same job). They do this by saving all the paychecks from March (they have multiple incomes and sometimes work misc. part-time jobs) and not even depositing or touching them until they go to do their budget on April 1. So you are always a month ahead. Then they do a monthly budget, and can easily pay all the bills at once and assess what they need, and see what they have. This works well if you and your spouse don’t get paid on the same schedule. When I worked a different job and got paid once a month (always the end of the month), I would use all of that income for rent (the right amount exactly), which was do the first of the month.

There are many ways to do a budget – the one thing in common with our friends is we use cash for everything. This keeps things seamless and helps with overspending.

Good Debt
David and I are to the point where our emergency fund is established ($1000, we need to be working on the 3-6 month emergency fund) and our credit cards are paid off, so we don’t have to be as tight about our money as we used to. But if you have credit card debt, you should be slimming down your budget even more, and really looking for the No. 1 Priorities and Bills, then finding ways to save the rest to pay off the debt. It is not good to be owing money.

Things we categorize as “Good Debt” are Mortgages, Student Loans (though I shouldn’t just use it as a cop out and should still work hard to take out fewer loans) and possibly car loans. BUT we never buy new cars, only used, they depreciate something like 20% when you drive it off the lot – and if we don’t NEED a new car but WANT a new car, then we should save up cash for it – if our car dies and we have no other way to get around, that’s a different story and we’d have to take out a loan (or dip into our emergency fund, it is cheaper to pay yourself back then the credit card company).

Any tips you have? How do you do your budget? Any questions? Let me know!