If you’ve been visiting my blog for a while, you know there’s one week every month where two of my posts will include budgets: one for the month that just ended and one for the month ahead. Last week was one of those weeks. I’ve been writing these posts regularly since November 2011, with only the odd month or two missed. Two years later, I finally realized I’ve never actually explained how I come up with the numbers in my budgets. I went to my Facebook page and asked if anyone wanted to read about my budgeting techniques. Your replies inspired today’s post.
The first thing you should know is that I’d never written a budget in my life until November 2011 – months after starting this blog, the name of which stated that I was apparently on one! I knew what a budget should look like but I had absolutely no idea how to write one (or stick to it!). Two years later, I can write a monthly budget in 20 minutes or less. Here’s how:
1. I Track My Spending
It shouldn’t come as a surprise, considering that the “Actual” column in my budget shows how much I spend each month down to the penny, but I’ve been tracking my spending for more than two years now. I have tried all kinds of techniques for this (cash only, the envelope system, etc.) but what works best for me is making the majority of my purchases with a card (usually debit, now sometimes credit). Every Sunday night, I look online at my chequing account and credit card transactions, add up what I’ve spent on each category of my budget and update the totals in the “Actual” column. By subtracting the “Actual” amount from the “Budget” amount, I’m able to see what’s “Leftover” for the rest of the month; this helps me stay on track, especially when I’m in the mood to shop and know how much (or how little) I have left.
2. I Write Realistic Budgets
Here’s where the “Budget” numbers started coming from. When I first started tracking my spending, I did so for 3 months straight – and by hand! At the end of the first month, I looked at everything I had spent my money on and came up with a list of potential categories for my first budget. For the second and third months, I kept a separate piece of paper for each of those categories. At the end of the three months, I added up the three monthly totals for each category (i.e. Gas) and divided the total by 3 – this gave me the average I spent on every category each month. Once I had the averages for each category, my first budget basically wrote itself. For example, if I had spent an average of $145 on gas, I allotted $150 for gas in my budget. Doing this for each category not only made my budget easy to stick to, it gave me a sense of accomplishment every time I was able to finish a month and see that I had stayed on budget.
One important thing I forgot to add before I hit “Publish” on this post is the fact that I don’t practice zero-based budgeting. With zero-based budgeting, the balance at the bottom of your spreadsheet is the exact amount you take home each month. I budget for a little bit less than what I take home each month and I do that for one major reason: it gives me breathing room. Breathing room gives me the opportunity to keep a little bit of money in my chequing account at all times and it also lets me pay for unplanned expenses. What if my car needed an unexpected repair? Or I lost my wallet and needed to replace my IDs? What if, what if, what if – life is full of them, because things happen! By budgeting for a little bit less than what I make, I have room to go over budget if needed – or to just add another category if something unexpected comes up. This type of budgeting doesn’t work for everyone but it works for me.
3. I Plan Ahead and Change My Budget Accordingly
So that’s where my “Budget” amounts came from at first, but the most important part of budgeting is to plan ahead and change your budget accordingly. My budget fluctuates monthly, depending on what my savings goals are and whether or not there are any new categories I may need to add. For example, my October budget needed a new category for moving expenses. If I have a couple birthdays to celebrate, I’ll add a category for gifts. If I want to get my hair cut or highlighted, I’ll allocate more to my Personal Care budget. And whenever I decide to start saving for Christmas or a vacation, I simply add it to the budget. I don’t follow any of those budgeting systems out there that you hear of, like the 50/20/30 rule or the one that says no more than 15% of your budget should be going towards debt repayment. In my eyes, budgets are part of what make personal finance so personal – you have to make yours work for you!
Anyway, that’s how I write my monthly budgets. I could go on to explain how I get paid twice each month and what I do with each paycheque, but that’s probably TMI (too much information). Or maybe not? I’m always happy to talk about the numbers you see here, so let me know if you have any questions.
Do you write a budget each month? If so, how did you start? And if not, what’s stopping you from trying?