So How Do You Balance a Budget?
Aug 05 '00
The most difficult part about managing a family budget is not creating the budget, but living within the means of the budget. Since Julie and I have been married (eight years), we have had a budget and talked about the budget and tried to live within the budget. Over those years, we always failed to some degree for various reasons. The primary reason for failure to stick to a budget is unrealistic goals in the budget. You must face the fact that you really do need clothes every now and then and your car really does break down from time to time. These unforeseen items MUST be included in the family budget in some way if you are to succeed. What we found most difficult was tracking where we were within the budget during the month.
We finally found something that works for us and we hope that it (or a variation of it) will also work for you. I get paid twice a month, so we actually budget semi-monthly rather than monthly. I recommend that you take your pay-period and budget based on that, whether it is monthly, semi-monthly, weekly, or bi-weekly. We found that this simple step helped us to get a handle on the budget. We sit down about every six months and review our budget for the next year or so. This way, we always have at least six months of budget in a spreadsheet for the future. This six-month planning focuses on evaluating any changes in “fixed” bills such as electricity, water, mortgage, salary, etc. I created a set of spreadsheets on the computer to help us in tracking our progress.
Every week, I sit down to pay bills that have arrived and evaluate our progress for the current pay period so that I will know early if there are any surprises that have come that would cause us to make adjustments in other areas. The sections below provide an overview of each of the spreadsheets that we use.
Income Summary
This sheet is very simple. It contains a row for each type of income that we include in the budget, total of all outstanding budgeted expenses, resulting net income, current checking account balance (before budgeted income and expense), and projected account balance after budgeted income and expense. There is a column in this sheet for each month. The future months carry the project balance from one month into the “current” balance for the next month. This allows an overview of the unbudgeted money that should be accumulating in the account over the next six to twelve months. As bills are paid, the budget for the current pay-period (in the expense sheet) is set to zero so that the budget is always showing the outstanding budget for the period. As I zero the expenses (in the expense sheet), I also modify the current checking account balance so that the projected balance always reflects what the end of the pay period should look like based on the latest knowledge of the outstanding bills.
Expense Summary
This is the main budget sheet. The first column for the sheet is a description of the budget category. The second column is a total of all of the remaining columns for that category. Each of the remaining columns represents a pay period for a twelve-month period. I have three general sections of categories. The first general section is “Cash”. We use the cash “envelope” system for items such as groceries, entertainment, clothing, and “blow” money (each of us gets money to use however we want). Whenever I get paid, this money is withheld from my deposit and placed into the appropriate envelope for Julie to manage in those areas. When the money is gone from the envelope, there is no more spend for that category until next pay period. The next general section in the budget is Savings. I have one savings account, but we break it down into several types of savings. The categories included here would be items that come due less frequently than monthly or are not easily predictable. For example, we have vacation, auto maintenance, Christmas gifts, medical expenses, home maintenance, etc. in this section. When I deposit my paycheck, I automatically deposit the total of these amounts into my savings account and track the total in each “sub-account” in another sheet. All other normal expenses are included in the third general section. The third section includes a single row for “Detailed Expenses”. We learned that it was fairly useless to budget a fixed miscellaneous amount each period. The “Detailed Expenses” approach works much better for us. This will be explained better in the next section, but for now you should simply know that it contains a total from the detailed expenses sheet for the appropriate pay period.
Detailed Expenses
We all have unusual expenses that tend to blow our budgets wide open. For example, it is almost impossible to budget for birthday parties for friends, baby showers, etc. The way that we handle this is that every time I sit down to pay bills (about once a week or so), we discuss these unusual expenses that we know about for the next two pay periods. Basically, we only try to budget these one month in advance. When we know if farther in advance we put it in, but we generally don’t know until a month or so. One example of something that I put here was my speeding ticket. You know as soon as you get it how much it is and when it is due. You simply go to this sheet and put in that amount in the appropriate column. This sheet is arranged with the pay periods as columns just as before. The first column is simply a description of whatever is being budgeted across the other columns. All of the items in any one columns is totaled and carried into the “Detailed Expenses” account in the Expense Summary sheet.
Savings
This sheet is where we keep track of the balances in our savings account. The first column contains the date of activity. The remaining columns each represent a savings “sub-account”. I have the total of each column on the first row and the total of each row on the last column. Therefore, the top-right column is the actual balance in the bank account. We do allow a temporary negative amount in a sub-account as long as we know that another sub-account will not be needed before it is “paid back.” One of our sub-accounts is “General Savings” which is simply savings that can be used for any of the other areas that may go over.
Debt Reduction
If you have credit cards and other debt, you should set up a spreadsheet to track your progress towards paying off those debts. This sheet can calculate the minimum payment for each and carry your budgeted payment from the Expense summary sheet. The purpose of this sheet is to give you a high-level overview of your debt situation and allow you to plan efficiently to eliminate it.
It takes a lot of trial and error, but if you stick to it, you will eventually find a budget and a budget tracking system that works for you. Now that we have found one, we have been able to increase our savings and reduce our debt. Neither of these goals can be accomplished without a family budget and a commitment to find a way to stick to it. Good luck as you create yours!
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Member: Ben Agee
Location: Fort Worth, TX
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