More on budgeting

I want to write some more about budgeting because I feel like there is so much more to say. In my last post I talked about budget tools and the importance of creating a budget together.  I want to talk some more about how having a budget has helped us and some of the day to day things we do.

Right now we are pretty much living off of savings so we have to be really strict to make sure we don't plow through that money too fast. We sit down together on the Sunday before the beginning of each month and plan out how much we have to spend and what we will spend it on. Usually your total income will be the same each month, but it can vary due to extra jobs, commissions, bonus, etc. Our "income" varies a little right now because we are using savings and so we can go up and down as we determine our needs for the month. For example, last month we determined that we could pay for all our expenses with $1900 from our savings and so budgeted for that amount. This month, however, our rent increased and we planned to get some work done on our car so our expenses are a bit higher. We budgeted for $2100.

Sometimes determining expenses can be a little tricky, especially if its the first time you have used a budget. We have been using mint.com to track our expenses for a while, so we have a pretty good idea of how much we will spend on most categories. Once you start tracking expenses it can be shocking to find out how much you actually spend on some things. I think one of the biggest culprits is eating out. You don't think much about $10 or $20 here and there, until you get to the end of the month and realize you spend $300! (or more!) And I'm not exaggerating. We have lots of friends that eat out for the majority of their meals (especially for lunch and on weekends) and don't even realize how much it all adds up to.

A few things we have learned to help us with our budget are:

1. Assign every dollar to a category. Even if the category is your savings account, every dollar should be accounted for, otherwise its easy to spend it somewhere else (and likely go over your budget).
2. You must live within your means. There were lots of months where I would set up our "budget" but then we would just go out and still buy whatever we wanted and not actually stay within the budgeted amount. For most people, budgeting not only means organizing your money, but also learning to go without a few things. Phil and I have had to cut back on lots of things we would like to do or buy, but the end goal makes it all worth it.
3. Be realistic. We like to eat out. We (I) like to shop. We have hobbies. Its ok to set aside money for those things. We still want to have a life, but we also want to get out of debt, so we have to find a happy medium. We agree that its ok to eat out once or twice a month, but no more than that; and its ok to buy a few new items of clothing, but not if it goes over a predetermined amount (usually around $50).
4. Be flexible. This month we knew we would have expenses for Mother's Day and Birthday gifts, but somehow we forgot to budget additional money for Phil and Luke to get me a Mother's Day gift. They still got me something, but then we went back to our budget and saw where we could move some money around so that we didn't go over our total monthly amount (specifically, I decided to wait a little longer to dye my hair again, and our printer that we thought we would have to pay to fix magically fixed itself, so we took money from those budgets and applied it to our "gift" budget).
5. Review your budget often and together. I look at our budget almost every day (I might be a bit obsessed); I like to view our recent transactions and make sure we are where we are supposed to be. Also, reviewing frequently allows you to make changes if needed, adjust categories (like we did for Mother's Day) or slow down on spending if you went a little over board during your last trip at the grocery store. Doing it together keeps everyone on the same page and keeps you happy as a couple. There are no secret or surprise expenses that one or the other might not agree with or be upset about.

All of that being said, there are probably lots of other tips when it comes to budgeting, more of which I'm sure we will learn as we go along. But for now, we feel good knowing that we tell our money where to go, not the other way around.