“A budget is more than just a series of numbers on a page; it is an embodiment of our values.” Barack Obama
Photo by Campaign Creators on Unsplash
The last time I connected with you regarding budgeting, we split our money into three categories and began the arduous task of allocating and tracking. Before this, we had already made a list of the yearly expenses and worked out our annual income.
I thought I would be a little more transparent in this article and discuss how we make it work, sharing suggestions on making it easier for you to implement. There are so many other little avenues and deviations that all connect with budgeting and finances that I want to explore, so I will be focusing on different ways to help you save money over the next few weeks.
Like I said in the 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 along the bottom, then along the top columns, write the subcategories and amounts allocated, and the dates down the side as per the example below:
AND NOW TRACK EVERY CENT YOU SPEND…
You may 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 once you set your budget in 'stone', you can decide whether you want to continue doing this or whether it will justify overspending too much, and you need to let it go.
At the end of each pay cycle, total each subcategory and see how you did against the amount you initially allocated; at this stage, I am not suggesting you stick to these amounts like concrete; you're just in the learning process. It takes a few pay cycles to work out where all your money is going, so don't be too hard on yourself if you appear to be consistently overspending in certain areas. If you get concerned, adjust your allocations next pay cycle, take a little away from somewhere else and put it into your 'overspent' category for the coming week/fortnight, and see how you do.
If you are reasonably 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. Remember, 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 creep 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 six or more months, just in case we had a big month or two in winter, but this never happened, thankfully.
Once you have done this three to four 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 your total grocery spend, divide it by the number of pay cycles you tracked (whether 2, 3 or 4), and use this figure to base your budgeted grocery amount. Do this for all your variable expenses; this will 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 – 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 choose to do this, keep in mind money works for you and not the other way around. Part of budgeting is being aware that 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 leave 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. Sometimes you will overspend, but that's okay as the next pay cycle is a fresh start, and when the 'variable' becomes a regular subcategory, 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 accounts — not three, so this is how we split our budget up:
Category 1 (Cheque Account):
Our day to day running expenses:
Groceries
Petrol
Pocket Money
Family Money
We run on a fortnightly pay cycle, so all my budgeting is set accordingly, and my pay is split between accounts as it comes into our bank. I highly recommend this; it saves time and helps keep your budget on track. We budget $500 a fortnight on groceries, and the Thursday evening after payday, I do a big grocery shop online to pick up after work on Friday. I try to leave between $60-100 in the budget for small runs to the shop for extras 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 $80 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 $20 p/fortnight for the kids, so $5 per week goes directly into their bank accounts, I have control of these still at this stage in their lives, but they ask me regularly to check their balance! I also have a jar hidden away in the cupboard where I pop spare cash each pay; this is an excellent bribery method for getting extra jobs done! During a recent holiday, the kids went up to Auckland with my husband, and I gave them both cash 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/week 'pocket money', and for us, our pocket money is our coffee and treat money and anything extra we want. This won't work for some couples, so I suggest you have a 'slush' fund set aside each pay specifically for coffees and cafe treats, but always have a limit on it, and agree 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 my pocket money that I had saved up.
We also have $40 per fortnight set aside as 'family money', which we use for 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 get cash out each pay for all the family money and put it aside (also a little extra for bribery). We saved up enough family money to take the kids to the circus when it came to town one year, and they still talk about this. When hubby took the kids to Auckland previously, 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, have some fun, and not stress about whether I would slap him around the ears when he got back for overspending!
Category Two (Bills Account):
This is where we slightly deviate from what I have written previously, and if you think this will work better for you, 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 brief description of them both:
Bill Blaster:
It is this account that all our APs and Direct Debits go out, so for each pay, I make sure enough goes in to cover all our fortnightly payments — this includes mortgage, bank loans, and insurance. I have allocated a few dollars over the exact amount we need to make sure the account never entirely goes 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 rejig the budget.
Utilities:
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, and giving to charity. I get to watch the amount go up each payday 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 accruing fees (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).
Category Three (Savings):
And then there is our Savings Account; we can transfer money between all these accounts without paying fees, but I can't pay directly out of the savings without being hit with fees. Our 'Working For Families' goes straight into here and then gets allocated between categories such as birthday gifts, Christmas, car repairs, medical, clothing & hair, family holidays, new appliances etc. And while we seem always to be spending the clothing and medical categories at the moment, the overall balance is going up regularly, which is nice to see.
A few regular payments come out of our credit card automatically every month – but this is covered in our budget, and every fortnight 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 decide 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 according to what we bought; most of the time, it evens itself out, but 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 helped you along your journey — please feel free to comment, and ask questions or leave feedback. I will love to hear if this has been useful to you.
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