Following the popular “re-evaluate your life” thing that everyone does at the new year, I have decided to develop a budget.
Blech.
I’ve never really had a budget before. My general method of dealing with our money has been Pay the Bills, Don’t Spend Too Much at the Grocery Store, and Put All Extra Money Toward Debt & Maybe a Little In Savings. But I’ve never planned out where EVERY dollar should go. Frankly, it seemed kind of pointless. I mean, aren’t all budgets pretty much about spending as little as possible while saving as much as possible? Plus also I’m not trying to enter every dollar I spend into an excel spreadsheet. I’m busy. Those Tivo’d Real Housewives episodes aren’t just going to watch themselves, you know.
However.
We are now at a new point in our life. At this exact moment, we have only three bills. Of course, we’re also technically homeless, so there’s that. We are going to be making a lot of decisions in a few weeks, and are going to have a ton of control over future expenditures. The Adventure was stupid expensive, so Priority Number One is getting the credit cards paid off and the savings built up so in a year or so when we figure out exactly where we want to live and find the energy to house-hunt, we’ll be ready to go.
I was talking about this with my friend Tressa, and she told me about this concept where instead of randomly assigning dollar amounts to the categories in your budget, you assign percentages. And then I was like, okay, where do you get the percentages from? Because I am five years old, apparently. Turns out, if you google “budgeting with percentages” you’ll get plenty of results to choose from.
Since we have a slightly different lifestyle than other people (we homeschool and my husband works from home), we don’t need much money for things like gasoline and school clothes, and we need more for groceries and toilet paper.
Here is what I’ve come up with, to start:
Housing – 33%
Utilities – 9%
Insurance – 2%
Debt – 10%
Long-Term Savings – 5%
Short-Term Savings – 5%
Groceries – 24%
Household – 2%
Entertainment/Recreation – 10%
Housing seems high to me, but that’s how much a house costs. Because of our weirdo lifestyle (see above), we need a lot of things from a house – an office for Jim, a place for school (a dining room table is fine, I just need to have a dedicated surface that won’t get splattered with milk or spaghetti sauce), and a kitchen decent enough for me to prepare three meals a day in. Long Term Savings is where we’ll work toward a reserve of living expenses, and Short Term Savings is where I will stick money for clothes, the life insurance bill, homeschooling supplies, car maintenance, and small unforeseen expenses like new tires or whatever.
The grocery budget is HIGH, I know. But have you SEEN how much cheese costs these days? And even at 24%, the actual dollar amount is going to pinch. I’ve been consistently working toward feeding everyone the best food I can, and I would rather do without other things than go backwards in that department.
Household is a category because HAI, I don’t own any towels. Entertainment is high because that’s where I will budget for the kids’ activities – swimming lessons, gymnastics lessons, piano lessons, etc. It will also cover Starbucks and haircuts and those miscellaneous things we spend cash on throughout the week. Theoretically it would also cover yarn, but I doubt there will be any money left over.
I have a lot of feelings about this budget. On one hand I feel like a dumbass for not doing this sooner. On the other hand, I feel a little sad that I won’t be able to make impulse yarn purchases or Amazon orders. But mostly I feel empowered.
In just the last few weeks since I’ve been thinking about this, my perspective has changed. That annoying 2% Social Security tax hike in our first paycheck really illustrated how much a whole percent IS. It’s a pretty small chunk of money, and we only get 100 of them to spend every month. Realizing that it only takes a couple of little impulse purchases to gobble up an entire percent of our income has opened my eyes to all the places we can cut back. It’s not the big expenses that have been our undoing, it’s all the little ones adding up.
I’m sure I will have to adjust things here and there, and it’s a huge incentive for trying to find a less expensive house, but I’m optimistic that with this plan Mr. Visa and Mr. Other Visa will eventually disappear and I can go back to buying yarn and using paper plates.
How about you guys? Do you budget? Have you always budgeted? Have you accomplished great things with a budget? Did you look at my budget and think something like “wow, she totally forgot about *insert giant line item*” ??
January 9th, 2013 at 3:13 am
Deb, if you want more ideas about budgeting, try Crystal Paine’s website (moneysavingmom.com) and her book is excellent. I’m a financial planner and I’ve read a zillion books about budgeting over the years, and hers is a recent fave of mine to recommend. Also, try viewing the process as a spending study versus a “budget” which (like “diet”) sounds punitive.
I think it is super important to understand where your money is going, so track it for a few months when your situation settles down. Only then can you determine if you are over or under spending in a category. Good luck!
January 9th, 2013 at 3:24 am
Great plan. Where do you budget health related costs?
We had a budget a long time ago before buying our house, just to see what we could afford. But we are both naturally thrifty so we never ran out of money. Now that our house is almost paid for and my husband’s paycheck is more than enough, we are loosing up a little bit and I’m slowly becoming an avid Amazon customer.
January 9th, 2013 at 5:19 am
I think it looks pretty good, but even though you don’t need a car much I would still have some line for auto expenses. Even if you only spend $50 on gas a month it is still $50 that has to come out of something else. I would also suggest that you do leave a little for yarn purchases because if you don’t allow yourself any purchases, one day you will break and spend your whole entertainment budget at one place. Ask me how I know.
We haven’t seen our first paycheck since the tax hike the middle class would never see took place.
Tressa´s last [type] ..Let’s talk about All-Purpose Flour
January 9th, 2013 at 7:20 am
My husband is an accountant so yes, we do have a budget. I need to submit it for approval every January. Just kidding about that last part!
Budgeting and using a cash basis have been a part of my life for a long, long time. I wrote a blog post (which is public) about it in 2009. You might find it helpful: http://mnkristy.wordpress.com/2009/03/31/the-cash-system/
January 9th, 2013 at 8:56 am
Yessss. I’ve always taken the “watch spending all the time” approach you talk about. I’ve eyeballed the “make a specific budget” approach and shuddered. I like the percentage thing, but, like you, I am five and it all seems too complicated. (Except for you grew up and I haven’t yet.)
At the beginning of each new year I find myself tempted to change/improve too much stuff at once, so I’m not jumping on the bandwagon yet. This has been great food for thought, however.
January 9th, 2013 at 10:11 am
Seconding Tressa’s auto expenses suggestion.
I would also consider setting up a separate account where any unexpected money goes (tax refund, inheritance, side job cash), so that when you’re ready to buy there’ll be a nice chunk of cash waiting for the down payment.
ING, in case you didn’t know, lets you have a no-fee checking account plus a ridiculous number of savings accounts, so it’s painless to have auto-transfers set up for your various categories. O
ne of those could be an account where you dump a few bucks a month for yarn and other essential impulse buys. I’m just saying.
Eddie – The Usual Mayhem´s last [type] ..Polar Animals, Week 2 – the field trip, salt dough fun, and more!
January 9th, 2013 at 10:31 am
A budget is the only way we’ve managed to survive our 13+ years of marriage on a low income. (I guess I should mention that we are blessed to have no debt other than our mortgage.)
Our health care costs are high – our high deductible insurance is still almost as high as our mortgage payment. Can’t see that changing any time soon, alas. Even with insurance, we have to be sure to set aside money every month for eye dr, dentist, & medicine (things that are not covered by insurance, are not needed every month but ARE needs when they happen).
The best thing I can say about a budget – it’s a tool, not a master. If your family decides to spend $500 a month going to the movies, that is none of my business if it works for you (even though it would never work for us). Our family has decided to have more than the usual number of kids. We pay for them. We feed them. We don’t take any government handouts. So I guess that’s my luxury item, or rather, my five luxury items.
Karen@Candid Diversions´s last [type] ..Random Monday
January 9th, 2013 at 1:05 pm
I will say that, while I never liked having a (not super strict by any means, but still) budget, I definitely love having no debt right now. Seriously – I pay rent, and at this point my hubby and I have our spending under control and do put it on the credit card (we get 1.5% cashback every January on the total purchases we made the previous year, and we pay it off in full every month), we have NO DEBT. We have enough saved up to pay for at least half of a home (not including our Emergency Savings, which is separate) and, by the time we move this summer, will have enough saved up to be able to pay for hubby’s next car in cash (including the probable amount we’ll get for his trade-in crap car).
It’s a glorious feeling to have paid off both of our loans in half the time we needed to, and to know that all the money we make goes to us.
I totally second the notion that you should each get a little “play money” for whatever you want. Even if it’s just $20 a month that you can spend on ANYTHING you want, or save up until you’ve saved enough for your more-than-$20 item you’ve been dreaming of. Hubby and I have also expanded that money to be how we buy each others’ gifts too, but if that’s too much for you, then don’t.
Budgeting is about finding what works for YOU. Not me, not anybody else. Once hubby and I realized that, it was pretty easy to double down (literally) on our loans and watch them melt away.
We’re big fans of Dave Ramsey’s approach, even if it isn’t necessarily the one that makes the most sense math-wise. Pay off the smallest debt you have first, so you get the psychological gain of one being gone. Then put all of that money against the next-smallest debt (all of this regardless of what the interest rates are). Watching them fall like flies gives you a HUGE boost, and seeing how much more you’re putting against each debt as each one disappears…it’s great. I’m not just saying that!
Emma´s last [type] ..Is this my home?
January 9th, 2013 at 1:32 pm
I’m embarrassed at the percent of our budget that is allocated to debt.
I just got a raise from Keith for our household expenses and I’m sure he’s going to have to take it away…unless we cut other expenses. Like cable. BUT I have two words for that.
Real Housewives!
Connie Weiss´s last [type] ..Interviewing The Kids
January 16th, 2013 at 10:04 pm
Your budget looks more or less like ours, although we do amounts rather than percentages. But housing and groceries are huge for us too. Yes, I have noticed the price of cheese, and also the price of milk…