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.
Ways to Save On Organic Food
I will be honest and say that I haven’t gotten on the organic food bandwagon. We do buy our son’s soymilk organic (I simply can’t find non-organic soymilk) and if organic fruit is cheaper than other fruit I will pick that up as well.
I have personal, and financial reasons for not buying a lot of organic but I know that organic food is very important to some people who feel dissuaded by the high prices. Here are some recent posts I’ve found on cutting costs on organic food.
The Affluent Pauper compiled a list of organic coupons and the best ways to get organic for cheap. I signed up for the Silk Soymilk coupons and am excited to use those.
Getrichslowly also had a post on buying organic for less. The blog included multiple links and opinions on the best ways to include organics in your budget.
Right now I’m mainly focusing on stretching our food budget to include plenty of fruits, vegetables and whole grains in our diet without worrying if they’re organic. But for those who have adopted the organic lifestyle hopefully these links will help you out.
America’s Cheapest Family
The book America’s Cheapest Family Gets You Right on the Money: Your Guide to Living Better, Spending Less, and Cashing in on Your Dreams 
This book has great suggestions on cutting auto costs, saving money at the grocery store, buying clothes for less and saving for vacations. The book also addresses the problems with debt and the virtue of savings. Although many of the ideas in the book I have learned other places, I picked up a few tips on saving money on healthcare and entertainment.
The main idea that I was impressed with in this book was how the Economides set up their budget. Their process is a little in-depth, so I’ll do my best to summarize but I would recommend either checking out this book at the library or buying it just to read about their system of budgeting.
Throughout the month the Economides recorded every transaction in their main checkbook and would pencil in a category (food, gas, recreation, etc) next to each entry. Then twice a month when they received their paycheck they would get out their budgeting notebook and do a more in depth budgeting session together.
They set up their notebook so that each category had its own page and was a “subaccount” of the checking account. The total of all of their categories was the amount they had in their checkbook. First they would transfer all of the transactions from the main register into each category and subtract what they had spent. They then would divide their paycheck up into each category and add in how much they had budgeted for each category until everything equalled the amount in their main checking account.
So for example, here’s what their subaccount clothing might look like.
97.00 (starting balance)
-20.00 (garage sales)
77.00
+30.00 (bi-weekly allotment for clothing)
107.00 (ending balance)
The thing that I liked the most about this system was that it’s set up so that you know how much money you have available for clothes, or repairs or other items at any given time. This way, even if it looks like you had $3,500 in your checking account and should have plenty available for entertainment, after you had seen how much was set aside for repairs, insurance, clothing, vacation and other expenses you would see you had much less available than you thought.
Overall, this book was a great read and got me psyched up for our savings goals this year. I also learned more about the different type of emergencies we should be saving for. I have to thank my sister Shaunda for recommending this book to me and I would recommend it to all of my readers regardless of your gift at thrift.
2009 Financial Goals
My husband and I sat together last weekend and after reviewing our expenses and finances from 2008 came up with a budget and goals for 2009.
Since we needed to use some of our savings to pay for a car we have a little less than one month in our emergency fund (which makes me nervous). But, we didn’t go in debt for a car and thanks to Tim’s parents now have a car which will last many years. Also, we should be able to be back up to 1 months savings this month and depending on our tax return back to two months of savings by April.
So our main priority this year is to save, save, save! In addition this is the year where we pay off our student loan. Here are our goals:
1. Pay off student loan by September
2. Have 3 months in our emergency savings by the end of December
3. Save at least $350/month (including FSA)
4. Put every extra penny into savings
5. Make both our websites profitable
6. Pay Tim’s parents at least $500 more for the car
Although these goals may seem easy, they will be stretching us this year as we prepare for large expenses in the summer.
We are also getting involved in some of the incentives Tim’s company offers like 401(k) and an FSA account which will benefit us in the long run but make cash flow a little short for a few months.
So this year we will concentrate even more on tightening our belt and finding small and large ways to save money. If your household hasn’t set up financial goals for the coming years I would strongly encourage you to do so. When you know where you want to be it’s much easier to get there.
Keeping Track of Expenses Electronically
With the holidays coming it’s more important than ever to track your expenses. In our household we use Quicken (one of many financial softwares available) and Excel to keep current on our balances and expenses.
Quicken came with our iMac and so that has been the default program of choice. I feel Quicken has been vital in helping us stay on track financially and make ourselves accountable to our goals. Here are some of the ways that our household uses Quicken:
Balance checkbook
Every time we pay cash or use our debit card I take the receipts and enter in the amount into the register on Quicken. I then enter what category each purchase fits under (i.e. gas, groceries, utilities). I can even break up purchases into more than one category if needed. I also enter deposits on the register and assign those categories as well.
Download bank transactions
I can download activity from all of my checking, savings and credit card accounts to Quicken to reconcile my checkbooks. This is helpful as I find that I forget to enter in a few transactions each month.
Schedule payments
Quicken has a calendar feature that I use for all scheduled deposits, bills, etc. This way I know when each bill is due each month and roughly how much is in each bank account for a certain day. If I know a big payment is coming I can use the “pay it now” feature to deduct the amount from my account so I know what’s left in the account, after the big expense.
Track expenses and categories
Using Quicken I can put together reports of how much I have spent in certain categories. I can customize these reports for the current month, year to date, or other timeline that I need to look at. Quicken also allows you to create categories to personalize your reports.
Forecast cash flow
Using this feature I can choose certain accounts, and based on expenses and deposits listed in my calendar, Quicken will estimate how much money will be in chosen accounts on certain dates.
Obtain overall picture of financial resources
Because we have many different checking, savings, credit and cash accounts it is very helpful to see them all in one place. In the accounts list view I can see how much we have versus how much we owe on our student loan and credit card. Because I am very wary of debt this feature helps ensure that we have enough in our checking account each month to pay off our credit card balance.
Budget
With the importance of budgets this feature should have been listed first but I personally have had some issues with our Quicken and the budget feature. Because of this we use Excel to make our budgets. Perhaps when we create our 2009 budget, we will give Quicken another chance.
As you can see Quicken is a major cornerstone of our financial tracking system. I didn’t use all of Quicken’s features at first but added more features as I grew more comfortable with the program.
There are two areas that I feel Quicken lags behind on and where I utilize Excel:
Budget
Since we cannot use this feature in Quicken very effectively, I have moved our budget over to Excel. If you have never set up a budget before there are some great spreadsheets online to help you accomplish this. However, I would start by keeping it simple. Make a list of all major expenses or categories and then estimate a total for each. After tracking your expenses for a couple of months, modify your budget to be more realistic with your spending.
Basic math for planning unexpected income and expenses
Another way that we utilize Excel is by breaking down unexpected income (like bonuses) or rearranging our budget to fit in unexpected expenses. As an example, my husband received a bonus from work last week and we used Excel to figure out how much was left for savings after tithing, paying down the student loan, purchasing a family gift and paying for new brake pads and another medical bill. As a side note, usually I’m a big fan of putting bonuses into savings first, but this month had unexpected expenses and unfortunately savings got the last end of the deal, but was not forgotten!
