Budgeting

I'm sort of obsessed with my personal finances. But truth be told, we didn't have a household budget until last year. I'm very lucky in that my husband is as frugal as I am. We both obsess over every little purchase, so our expenses never exceeded our income, even when we were first starting out and made very little money. Over the last few years, as we grew in our careers and started to earn a little more money, some of that feeling of panic over every little purchase started to dissipate a little. Then came our first child and a need to move, which forced us to really step back and evaluate where our money goes and how we need to monitor our spending to ensure we stay in the black each and every month.

Starting a budget isn't as easy as you'd think. Even to this day, I make changes to our allotments and how we stay organized at least once a month. But I offer the following tips to help you on your budgeting journey:

• Make a budget even if you don't think you need one. It's worth your time for a few reasons. First, you might be surprised to see where your money goes once you start bucketing it. Those weekly trips out to eat don't feel like much until you aggregate that cost across the month and year. Second, you never know when a life event might force the need of a budget, and having one already created will make it much easier. It took me three months to get my budget prepared. You may not have the luxury of that much time when the need for a budget suddenly arises.
• Start by just focusing on the facts. It's tempting to use the creation of a budget to make drastic changes to your spending habits. Avoid that at all costs. Instead, think of the initial creation of your budget as just a way to get organized. Make the focus simply the creation of your budgeting system using your current balance sheet rather than making changes. Only once you've established your system should you start to focus on gradual changes to your spending habits. The changes should feel natural, not painful.
• Integrate your budget into your current household financial management system. For me, I used a spreadsheet to track my checking, savings, and other investment accounts. To create my budget, a created a new worksheet in my workbook with a column for budget items, budget amount, annual average, then a column to track each month. Every transaction that occurred was documented in my budget worksheet for the month. Having everything in once place makes it very easy to keep things organized.
• Touch your budget at least once a week. If you wait until your bank statement comes at the end of the month, it will be easy to get overwhelmed at the amount of work it takes to keep your budget updated. Instead, dedicate a little time each week to documenting the income and expenses that occurred that week. Further, this check in will help you evaluate your progress for each budgeted item and can shape your spending habits for the following week. In addition, if changes in your life require budget changes (e.g., an increase in a utility expense), you can capture that change in your budget right away to determine where you need to make adjustments to get your budget balanced.
• Be specific. Break out your expenses in detail. For example, rather than having a bucket for Utilities, break out the cost for each of your utilities. Rather than having a bucket for food, separate groceries from dining out. The more specific, the better. It's much easier to aggregate than to break apart.
• Balance. It should go without saying that your income less your expenses should never be negative. If it is, you need to change your budget. If the number is positive, consider the best investment of that overage and build that into your budget to get the balance to zero.
• Expect the unexpected. Auto repairs, appliance breakdowns, medical expenses. There are a lot of expenses that will come up that you can't anticipate. What you can do is predict that these unexpected expenses will always arise and build them into your budget. Each month that you don't use these funds should go to your emergency fund.
• Document your goals. If you want to start saving to build up a retirement, college savings, or emergency fund, build that into your budget. That's the beauty of having a budget - it makes it clear where you need to make adjustments in your spending in order to achieve your goals.