I used to get easily frustrated when I tried my hand at a family budget. I’d never be able to predict the right amounts for the right line items, and out of sheer frustration, I’d quit before we’d even give the poor budget a decent shot.
It wasn’t until several years of failed budgeting attempts later that I discovered that the reason my method wasn’t working was because I was trying to create a perfect, master budget. I was hoping for some pie in the sky, magical budget that represented what I wished reflected family finances, instead of it being a tool that actually worked for us.
In short, I wasn’t creating a new budget each month. I was creating a random master budget for an entire year.
The Basics Behind a Budget that Works
What is a Budget?
A budget is simply telling your money where to go. It isn’t restricting you from having fun, nor is it sentencing you to spend money where you’d rather not. Your money will already be going somewhere. Planning ahead with a budget is taking charge of your finances, not letting your finances be in charge of you.
Why a Monthly Budget?
A monthly budget — or bi-monthly, if that works better with your family’s pay schedule — is so important because your financial needs and goals change all the time. This was true in our life back when I was shooting for a master budget, but I wasn’t admitting it. I was unintentionally thinking that the eventual goal was to have a whole year of predictable months, with the same needs, the same amounts for each bill, and with no unexpected expenses.
But what about those months when the quarterly insurance premium is due?
Or when the electric bill is higher in the summer because of air conditioning?
Or in February, when we have a lot of family birthdays?
A monthly budget addresses these things, and it allows you the flexibility to shift your money around as needed. I prefer using a zero-based budget method, where our income minus expenses always equals zero. Every dollar has a name.
Breaking it Down
A budget should more or less have the same categories each month, even if you don’t always fill those categories with money. The main types of categories you should have are:
- Regular expenses, and
- Irregular expenses
Make sure and account for any type of income, not just your paycheck. As an example, our family’s categories under “income” are:
- book advance
- gift received
- surplus from previous month
- work advance, and
- work reimbursements
Again, very rarely are these all filled, but it helps jog my memory as I plan each month.
Your regular expenses are pretty much what you think of as expenses — utilities, rent or mortgage, groceries, entertainment, and the like. If you’re following Dave Ramsey’s plan, like us, you’d also include your allotment for whatever step you’re on — your debt snowball if you’re on step 2; contribution to savings if you’re on step 3.
And don’t forget free spending money. My husband and I intentionally give ourselves a set amount of cash we each get to keep in our wallets and spend on whatever we choose. It’s not much money, but it’s enough for a coffee here and there, a magazine when we see one, or whatever. It curbs your appetite for random spending, and it helps you keep to the budget.
It’s important to plan for irregular expenses as well — these are funds that you don’t need each month, but you want to set aside for them regularly so that you have enough cash when you need it. These are also called sinking funds. Some of our family’s sinking funds are:
- gifts and holidays
- medical (insurance deductible)
- work expenses
In a sense, these become regular expenses because we set aside the same amount each month for these items. At the beginning of the year, we decided how much we’d spend for Christmas, and simply divided that number by 12. Each month, we have our checking account at ING Direct
automatically withdraw money into separate savings accounts for these different items. Once it’s set up, it’s a no-brainer — we save each month for Christmas without thinking about it.
A Word About Giving
We take off funds for giving from the top. It’s not even in our budget, because we don’t budget it at all — it’s gone before we allot the remaining money into different categories. We don’t see it as our money, we see it as God’s, so for us, we automatically take a set percent off our income and put it into a savings account called “giving.” From this, we tithe to our church, and we give according to needs and desires that arise.
Planning Your Budget
If you don’t work from a budget, I encourage you to do so. In a way, you already are, you just may not be aware of it. Your money’s going somewhere; writing it down into a budget form simply allows you to premeditate where it should go. A few tips as you prepare:
• Use a tool that works with your style. I use Pear Budget, and I like it so much because it doesn’t have things I don’t need. It’s simple. A pen and paper might be more your style — it doesn’t really matter.
• Don’t expect it to work perfectly the first time, or at any time. This is an easy mistake, and one that can cause you to think you’re doing something wrong. You’re not. It takes awhile to get the hang of knowing how much money to allot for different line items, and there are plenty of times when your needs change mid-month. Stay flexible.
• Work with your pay periods. If you get paid more than once a month, perhaps it’s easier if you create a different budget for each paycheck, setting aside a percentage for those monthly bills. Do what works for you, so that you’ll do it.
• Don’t be under-specific, but don’t be too specific. It’s easy to have a subcategory for every single need. It’s also easy to generalize. Find a happy medium.
• Account for everything you’re spending, and give it a name. Don’t have a category called “miscellaneous.”
Have you drafted your July budget yet? What budgeting system works for you and your family?