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.

My New Daily Routine

Here is my attempt at my new daily routine. I have had a hard time getting things done lately and I think I just need a written routine and plan, that is still flexible enough for my day. The trickiest part of this routine will be getting up at 6:30 and trying to pack Tim’s lunch the night before. In addition I want to make a hot breakfast 2-3 mornings/week which will be a big stretch for me. Here is the rough draft of my new schedule.

6:30 Rise and Shine and shower

7:00 Breakfast and get Tim out door

8:00 Pick up and start laundry

8:30 Morning project (baking, cleaning, etc)

9:30 Play time with my son with at least 1 learning activity

11:00 Lunch and clean up

12:00 Nap time and quiet time

2:00 Afternoon project (shopping, budgeting, etc)

4:00 Start dinner

5:00 Eat dinner and clean up

6:00 Story time with Zach

7:00 Bed time

8:00 Prepare for breakfast and make Tim’s lunch

9:30 Bedtime

Being Flexible With Your Goals

No matter how you try to prepare, life happens and sometimes you fall behind on your goals. This month we had many unplanned expenses including a quick trip to New York and buying new tires for the trip instead of waiting until next month to buy them.

In the midst of some of these unplanned expenses, we have had to dip into savings and fallen a little behind in our 2009 financial goals. Sometimes it’s hard not to get discouraged when you’re doing your best to save and live within your means and you fall behind in your timetable. But the key is to keep your eye on the big picture. Even with all of these expenses we didn’t go into debt, we continued to pay on our student loan and we know next month will be a little better. And the truth is, we have savings for months like these.

So for the rest of the month I’ll pass up grocery and CVS deals and live off of our cupboards and supplies. We’ll still have plenty to eat, a roof over our heads and each other. But don’t be surprised if I jump into ultra-thrift mode these next few months, especially because…. we’re preparing for baby #2 in August. But that’s for another post.

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.

New Site Look

One of the Christmas presents I received from my husband was that he’d help me with the site for ten hours/month. As you can tell he’s already been busy and the site has a great new look. It’s still not completely finished but we’ve got a good head start.

Since Tim is an SEO specialist and has created successful websites on the side his experience will be a great help. His talent working with the internet is one reason I believe this site can be successful at helping others live on one income.

His gift means a lot to me  because he’s taking the time and using his talents to help me accomplish my dreams. And that’s hard to put a price tag on.

Starting Off

Our family is just starting off. We have been married almost three years. Within the last year we graduated from college last year and had our son. We have never carried credit card debt and–thanks to a car Tim’s parents gave him when he was in school–we have no auto debt. The only debt we carry is a small school loan that will be paid off within the next ten months. We also have two months worth of savings for emergencies which we are continually adding upon until we have six month’s of savings.

We track our expenses with Quicken and keep to a budget. We share one car. We rarely go out to eat and instead eat nutritious, home-cooked meals. We employ other frugal methods to help us keep saving and paying off our school loan. We have made sacrifices to live this lifestyle and it has been worth it.

Yet we know that we could do better in organizing our finances and reaching our goals more quickly. We need to finish obtaining life insurance and create a will. We also need to have a more solid cash flow. Over the next month we will look at our finances from this year and come up with our financial goals for 2009. I’m excited to have a game plan for the next year.