Our New Way of Budgeting

After reading “America’s Cheapest Family”, my husband and I decided to alter the way that we budgeted. In essence we do a zero-based budget where every dollar of Tim’s paycheck is accounted for before we spend it. But where our budget gets a little more complex (but essentially easier) is that we divide our bank account into basically sub-accounts such as clothing, groceries, utilities, rent, etc.  The total of all of our sub-accounts is what is in our bank account. It’s similar to the envelope method but instead of using cash we just kept track of our expenses on paper as we spend throughout the month, and always know how much is left in a category to spend.

The advantages of this budget is that I always know how much is in each sub-account for clothing, rent, etc and when the balance is zero, I know I have to wait for the next paycheck. In addition, we have the freedom to carry over any money left in a certain category to the next month or put the money into savings. We usually carry the balance over which is especially helpful for things such as utilities where some months have higher expenses than other months. If we find that there’s too much money left over at the end of the month we’ll either put it into savings or adjust the budget the following month.

The disadvantages of this budget is that it takes a little more time to set up and use than using Quicken did, although it does get easier with practice. Also, you need to make sure you’re not too strict staying in the budget that you can’t plan for unexpected occurrences in each category such as an extra high utility bill or an unexpected extra trip that depletes your gas account. You can get around this by simply transferring money from one sub-account to another, but it is important to only do this when necessary.

The first thing I did to prepare this budget was create an excel spreadsheet that divided each of our expenses and subtracted them from Tim’s paycheck. Each month Tim and I alter the different balances for the month’s needs, but I always make sure each dollar is accounted for.

The second thing I did was to make a budget notebook. I put each expense listed on the spreadsheet on a loose leaf piece of paper and arranged them alphabetically.

Finally, I broke out our checking register. Now I was prepared to start the budget.

Here is the process that I use to budget, starting a few days before Tim’s paid.

1. After talking with Tim, use the excel spreadsheet to decide how much to fund each sub-account for the month. We make sure to fund our tithe and savings first.

2. “Deposit” the money into a main check register and also record each deposit in our main sub-account notebook. For example, I would put the total amount of Tim’s check in the register, but then I would go through page-by-page in the notebook and deposit the alloted amount. For example, if I assigned $50 to utilities for that paycheck then I would add $50 to whatever (if any) balance was left from the last paycheck.

3. Add up the totals from all of the sub-accounts, these should equal the balance in the checkbook.

4. As purchases or extra deposits are made throughout the pay period, record them in the checkbook and the notebook and adjust the balances.

5. Reconcile the account with the balance and purchases listed from my bank online

This process was a little tedious at first, but now the process is a lot more smooth and I end up balancing the checkbook about once a week, and then on paydays. We also set up our budget so that each paycheck funds one-half of our monthly bills and expenses. For example, to pay for our July rent we we will fund half the rent account the second check of June and then fully fund it the first check of July. This way, all of the paychecks are evenly divided and we’re not paying rent out of one check and then catching up later in the month with the other expenses. This also pads our checking account a little to avoid overdraft fees.

I still use the envelope system and cash for a few categories such as garage sales, clothing (which we mainly purchase at garage sales), Tim’s lunches and groceries (because I spend less using cash). I just record a withdrawal and don’t keep a sub-account of cash because I can easily count it in the envelope.

Even though it feels strange going to a mostly paper system, when I had used Quicken for years, this method is really fulfilling our family’s needs right now and keeping us on track. If I ever find a similar computer program we may use that, but for now this system works for us.

Our New Piano

Although I consider myself a SAHM, I do make a little extra money each month teaching my seven piano students. I drive to my student’s houses and then teach lessons while their parents watch my toddler. As I started reflecting on the changes the birth of another child would bring I realized it would be hard to load both kids in the car to take to lessons. So my husband and I decided to accelerate our piano savings so that I could teach piano from home.

We started saving in early January and waited to buy a piano until after we had moved apartments, so that we would only have to move a piano once. While we were waiting I frequented craigslist.com to learn good prices and deals in the area. We quickly saved up the money I earned from teaching lessons and then waited for the move and the right piano to come along.

A week or two after we moved I found a great piano on Craigslist for $50 under our budget. We called them up and (thanks to wonderful friends) we were able to get a trailer and 3 more guys that same day to help move the piano. We felt blessed that we didn’t need to pay for a piano moving service, although we would have if we had bought a baby grand or spent substantially more money than we did. But our friends did a wonderful job carrying the piano to our second story apartment.

We also had set aside a little money for piano tuning, since we knew a trip across town and up a flight of stairs is brutal for a piano. The piano tuner came last month and did a wonderful job, so now my piano is ready for students. I will start teaching students at home about a month after the baby is born.

Sometimes it takes a little money put into a wise investment (like a piano) to boost your money-earning potential. I was fortunate that I could start saving the money I made by teaching and bootstrap my small piano teaching venture and I didn’t have to put down the money at the beginning.

In addition, buying a piano right now was a wise purchase as we had purchased an asset, an item that would retain its value and possibly increase in value, instead of a liability which would just drain the money. I will quickly make back the money spent on the piano and then earn more income from the purchase. In addition, if we needed to move cross-country in the next few years I could most likely sell the piano for close to what I paid for it, as pianos retain their value.

Perhaps the most important thing about purchasing the piano is that it wasn’t only a wise business move, but a purchase that would bring joy to our family for years to come, even if I stopped teaching piano lessons. Many people have a hobby and talents, I’m just blessed that I can make money pursuing mine.