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.
Similar Posts:
- Our New Way of Budgeting
- America’s Cheapest Family
- Keeping Track of Expenses Electronically
- 2009 Financial Goals
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