Budgeting 101 - Part Two
Good evening again,
So last time I connected with you in regard to budgeting we split our money into three categories and began the hard task of allocating and tracking... this was after we had already made a list of the yearly expenses in the introduction, and had worked out our yearly income.
Tonight I thought I would make this a little bit more real, by discussing with you how we make it work; and sharing suggestions on how to make it easier for you to implement. Following this there are so many other little avenues and deviations that all connect up with budgeting and finances along the way that I want to explore, but aren't necessarily specific to setting up a budget... and I want to make this as user-friendly as possible, so welcome feedback and questions.
Like I said last post - the hard part is now setting it in motion, and tracking your spending between pay cycles. I would recommend using the computer; and if you're even vaguely familiar with excel, setting up a tab per Bank Account / Category, then in each tab write the subcategories across the top, and the dates down the side e.g.
Groceries - $350 Petrol - $140 Family - $50
17/10 $35.76 $89
AND THEN TRACK EVERY CENT YOU SPEND...
You may find you have spent money that doesn't fit any of the subcategories you wrote up last time, just add in a 'Miscellaneous' Category or a 'Slush Fund' for now in your general spending account (or cheque account), to cover those little-unexpected things. Later on, once you set your budget in 'stone', you can decide whether you want to continue doing this, or whether it justify's over-spending to much, and you need let it go.
At the end of each pay cycle, sum up each subcategory and see how you did against the amount you originally allocated... at this stage, I am not suggesting you stick to these amounts like concrete, you're just in the learning process, as you figure this out. It takes a few pay cycles to really work out where all your money is going, so don't be too hard on yourself if you appear to be always over-spending in certain areas. If you get concerned - then adjust your allocations next pay cycle, take a little bit away from somewhere else and put it into your 'overspent' category for the coming week/fortnight, and see how you do.
If you are fairly comfortable with excel - then it is probably worth setting up a template; but if you aren't, then entering them each day manually is fine, just a little more time-consuming. Take into account I am suggesting you put money aside every payday for the bigger / yearly bills so you will need to transfer the old balances over each pay and add the new amount in and watch it crept up (I'm such a nerd - this is the bit I love)! It is very tempting, as you see some of those balances build up - to 'borrow' money from one of these categories to fund another, but I seriously urge you not to until you have a real grasp on your budget and a realistic view of your expenses. I didn't change the amount we put aside for power for a good 6 or more months, just in case we had a big month or two in winter, but with a fire, this never happened thankfully.
Once you have done this 3-4 times, you will have a good handle on where your money is going; and it will be at this point that I suggest you sit down and grind out your working budget - one you will try very hard to stick to as close as possible. Tally up all your total grocery spend, and then divide it by the amount of pay cycles you tracked (whether it be 2, 3 or 4), and use this figure as the base for your budgeted grocery amount; and do this for all your variable expenses, that will quite likely include petrol/travel money (e.g. bus or train if you live in the city & use public transport). In terms of pocket money/family money, if you have the room for this in your budget - make a decision and stick with it, don't make this a variable expense; and tell your kids/partner, that once it has gone, it has gone until next payday.
However you chose to do this - keep in mind, money works for you and not the other way around. Part of budgeting is being aware the life is fluid; it continually changes and moves, and so must your budget to accommodate this. A new baby is added to the mix, school holidays are suddenly upon you, your partner is sick and doesn't have enough sick days to cover the week off work, your parents come to visit for a week and there are two extra mouths to feed... life is full of variables, and this has to show up in the finances. That means sometimes you will over-spend, but that's okay as the next pay cycle is a fresh start; and when the 'variable' becomes a regular subcategory, then it's time to sit down and adjust the budget accordingly.
So I promised to show you how this works in real life for us; as explained at the beginning we use four categories - not three, so this is how we split our budget up:
Category 1 (Cheque Account):
Our day to day running expenses:
* Pocket Money
* Family Money
We run on a fortnightly pay cycle, so all my budgeting is set accordingly; and my pay is split when it comes in (both Kiwi Bank and Westpac do this - I assume the other banks do as well, and I highly recommend it; as it means all the transferring is done before you even see it). So we budget $440 a fortnight on groceries, and the Saturday after payday I do a big grocery shop. I try to leave between $60-100 in the budget for small runs to the shop for extra's and things we run out of, but it doesn't always work that way!
We run two cars, but we live in a small town - so running costs aren't massive, and we can get away with $60 for petrol per car each fortnight.
I know some of you were asking about pocket money and family money - this is how we do it:
I budget $10 p/fortnight for the kids, so $5 each approximately. Taking into account we only have two children, and they're both quite young - so this is massive for them. However, they don't just get handed $2.50 p/week, they need to earn it and can do chores each week (I don't think they have ever earned their maximum yet). I have a jar hidden away in the cupboard where the money goes each pay, and it's a great bribery method I can assure you! These holidays they went up to Auckland and spent a few days with their cousins, and because they hadn't been doing chores lately (we all got a bit slack at enforcing it), I was able to give them both $10 to spend in Auckland as a treat, and I didn't have to 'take' it from another category - win/win I think!
Hubby and I get $20 p/fortnight 'pocket money'; and for us, our pocket money is our coffee and treat money, as well as anything extra we want. For some couples, this won't work, so I then suggest you have a 'slush' find set aside each pay specifically for coffees and cafe treats, but always have a limit on it, and agree together that once it has gone, that is it! We don't buy clothes or anything like this - we have a clothing category, but for example, I bought a couple of books recently, and that was with the pocket money that I had saved up.
We also have $40 fortnight set aside as 'family money', and this is for things like takeaways, fun activities, school holidays etc. We try not to buy takeaways a lot, but when we do we know we only have what is available in the 'family money' - we always get cash out each pay for all the pocket money and family money and put it aside. We saved up enough family money to take the kids to the circus when it came to town recently, and they had an amazing time; and when hubby took the kids to Auckland this past week, we cleared out the family money for him to be able to take them out and do some fun activities up there. It just meant that he could relax and have some fun, and not stress about whether I would slap him around the ears when he got back for over-spending 😂!
I won't be giving specifics for any other categories - but I know it can be useful sometimes to see what others spend on certain area's, and also how they spend it; what the boundaries are around it.
Our Category Two (Bills Account):
This is actually where we slightly deviate from what I have written previously... and if you think this will work better for you, then feel free to adopt our system!
We have split this into TWO accounts - we have our Bill Blaster Account and our Utilities Account, and below I will give you a quick description of them both:
It is from this account that we have all our AP's and Direct Debits go out of; so each pay I have enough go in to cover all our fortnightly payments - this includes mortgage, bank loans, some insurances, tithe to our church, and money for our sponsor child. I have allocated a few dollars over the exact amount we need to make sure the account never quite gets to $0, and basically, this account looks after itself. When the excess dollars get up a little bit, I transfer it over to the Savings account - but it takes a while for that to happen! It is also handy when I get letters explaining that my insurances are going up slightly, it means I don't have to re-jig the budget as it should still be covered!
This is where the longer term bills get paid from - so I have a set amount go into here every pay, and it covers rates / power / mobile phones / internet / some charity giving / some insurances; and I get to watch the amount go up each pay day with great delight. It is also a relief knowing that if we get an unexpectedly high power bill, the money will be there to cover it. It is set up similar to a cheque account, in that we can pay bills from it without fee's (through direct credit), but we can't access it from our debit card - we have to transfer the money across to the cheque account first (our Bill Blaster Account is set up the same way).
And then there is our Savings Account - we can transfer money between all these accounts without fees, but I can't pay directly out of the savings without being hit with fees. Our 'Working For Families' goes direct into here, and then gets allocated between categories such as Birthdays / Christmas / Car Repairs / Medical / Clothing & Hair / Holidays / New Appliances etc. And while we seem to always be spending the clothing and medical categories at the moment, the overall balance is going up regularly, which is nice to see.
We have some payments come out of our credit card automatically every month - but this is covered in our budget, and every pay I put a certain amount directly on our credit card to cover these.
The idea is we don't spend unless we have the money - so for example, when we go out of town and know we'll be needing to buy the kids some new clothes, I will check our clothing category and see how much is set aside specifically for this... we then try not to go over it 😉! We always pay initially by credit card, and then transfer the money over from the different categories as we bought... Most of the time it evens itself out, but every now and then we'll do a splurge, and end up owing the credit card for a few weeks! I just have to remind myself on those occasions that no one is perfect!
I hope this has encouraged and helped you along your own journey - please feel free to comment, and ask questions or leave feedback. I would love to hear if this has been useful to you, and if my blog posts are simple enough to follow...