Tuesday, April 11, 2017

The Paperless Way I Set (and Stick To) Our Household Budget

Budgeting Tips || Budget for Beginners || Paperless Budget System || Household Budget Template || Online Budget Organization || Paperless Ideas



If you get the Lamberts Lately Newsletter in your email each week, you probably know that I like to feature a few older posts at the bottom that kind of line up with the time of year.  Last week, I thought about featuring my old How I Make Our Household Budget post...but, upon quickly reading through it, I realized it was incredibly out of date!  So how about we update that today?


For the past couple of years, I've had a pretty consistent way I both set and manage our budget each month.  It has totally changed the way we manage our daily spending (for the better)!  I feel like this method has really helped me gain a grasp on a) how much we really spend every month and b) how I can minimize our spending.  There's really no telling how much we've saved by using this management method.

Let's get to it!  And one note - every place in the graphics with a gray box is an area that's been edited out for privacy reasons.  No, sorry guys, I'm not putting anything that private on the internet. :) Any numbers used in this post are just for demonstration purposes and don't really reflect on how much we spend/earn.

Step 1: Sign up over at Mint.com.

Using Mint is an absolute essential to this budget management method.  This is a site that allows you to put in pretty much any bank account, loan, or credit card...once those are linked, everything you spend shows up in one place. My statistics nerd self loves all of the graphics and numbers data it can give you.  And it's absolutely free! (No, they aren't sponsoring this post, I just absolutely love this website and want to sing it from the rooftops.)

Budgeting Tips || Budget for Beginners || Paperless Budget System || Household Budget Template || Online Budget Organization || Paperless Ideas

Once you sign up, you'll see a screen that allows you to put in any way you spend money.  There are options to link your cell phone accounts, cable bill, credit cards, bank accounts, etc.  I personally just have any credit cards and checking/savings accounts we have linked, since that's where all money either arrives or leaves.

Budgeting Tips || Budget for Beginners || Paperless Budget System || Household Budget Template || Online Budget Organization || Paperless Ideas

And one note on security...Noah didn't let me do this with our accounts for the longest time because he was concerned about the security of putting basically all of your financial information into one place.  And I get it...you're putting a lot of trust into one website with this one.  But in the two+ years we've used this site, I've never once heard of a security breach.  

Step 2: Figure out your overall budget number for the month.

Now, if you are salaried or have an otherwise consistent monthly income, this step would be easy.  Just look back at the last couple of months of income to determine your overall starting number...and that means what actually arrives in your bank account, not what you make.  We're working with what you can spend after taxes/insurance/etc. are taken out.

If you're like us and live off of completely variable income every month, this is a little bit more tricky.  Once you put in all of your checking/savings accounts into Mint, the easiest way to do this is to go back and average the past 6 months of all income (unless you have an outlier number, like a larger paycheck around the holidays).  If you've never really kept a budget before, it can sometimes take a month or two to really figure out how much you're actually making!

Once you have your number, you have the "big picture" how much you can spend each month.  Now, let's break it down into smaller parts!

Step 3: Determine your recurring monthly expenses.

You can start breaking that down is by sitting down and listing out every recurring charge you have every month.  These are budget categories that you know will happen each month and you won't be able to scale back if you begin to run low on funds at the end of the month.  You'll want to make a list of a) the bill and b) the amount (if it varies, just get in the general ballpark).

On my recurring monthly expenses list, I have categories for...

Auto Insurance (same amount every month)
Auto Payment (same amount every month)
Mobile Phone (same amount every month)
Power Bill (varies by the month)
Television (same amount every month...I include internet service in this category because my plan is bundled)
Life Insurance (same amount every month)
Homebuilding (varies, but we're able to know in advance how much we'll owe each month)
Mortgage & Rent (varies by the month)
Daycare (same amount every month...Emmie's MDO program)
College Savings (same amount every month)
Kids' Activities (same amount every month...Emmie's dance class)

Everybody's list will be unique, but I bet you'll find a few of these categories in your recurring list as well!  Once you figure all of these out, go to the "budgets" tab in Mint and input all of your categories.

One important note: if you have a credit card bill, you will not include it in this list.  When making your budget this way, a credit card payment is considered a transfer, since you're technically just transferring money from one asset to cancel out a debt.  It's kind of hard to switch to this way of thinking, but if you count a credit card payment, you're really counting expenses that you put on your credit card twice.

Step 4: Determine your variable and one-time expenses.

Next, you'll want to start adding in categories that you can control if money gets tight towards the end of the month.  I also include one-time expenses you know you'll have coming up in this category.  On my list this month, I have...

Gas & Fuel
Car Service & Parts
Entertainment
Alcohol & Bars
Groceries
Restaurants
Charity
Doctor
Baby Supplies
Clothing
Cash & ATM

There are a few categories that might not be listed here because they're just not needed this month.  I have a more thorough list of budget categories over in this post!

Put the areas you determine into your "budget" page of Mint, making the limit on each one the lowest you think you can realistically spend.

Step 5: Put in your slush fund.

This is something I've really just been doing for the past 6 months or so, but it has made a massive difference in how effective my budgeting is.

Budgeting Tips || Budget for Beginners || Paperless Budget System || Household Budget Template || Online Budget Organization || Paperless Ideas

On my Mint budget page, you'll see a category called "Misc Expenses." In the past, I really just put things that didn't have any other place there.  But, I like to have everything as categorized as possible so I can see trends in our spending.  So, in the past few months, I've started using this section as my slush fund.

Here's how I do it: once I set my estimates for recurring and variable expenses every month, I look at how much is left in the budget.  I determine how much I want to try to save that month, and the rest goes into the "Misc Expenses" category.  So, for example, let's say I have $1,000 left over after all of my categories are set.  If I want to save $600, I set my Misc Expenses category to $400.

I try my best to not put anything in this category when labeling each transaction (more info on that below).  You can see above that, out of everything I've spent this month, only $13 was truly random and belonged there so far this month.  Instead, if needed, I make a new budget category to fit that transaction.  When I make that new category, I take the amount of money needed for it out of my Misc Expenses category.  So let's say I had a transaction that was $30 and required a new budget category.  I would make a category for that expenditure and lower my Misc Expenses would go from $400 to $370.

I also use this category to account for needed additions/subtractions to existing categories.  This is necessary...you're not always going to spend the minimum you possibly can in that category (and, every once in awhile, you'll have a little left over).  So, if I get to the end of the month and realize I'm going to go $50 over budget on groceries, I just "borrow" that money for the Grocery category from the Misc Category.  That would make my Misc Expenses category go from $370 to $320.  But, I might see that I'm going to have $20 left over in the entertainment category that isn't needed.  I'll take that out of Entertainment and put it into Misc Expenses, making it go from $320 to $340.  Still following me? 😉

The Misc Expenses category makes sure your overall budget changes as little as possible during the month but still tracks your spending accurately.  Now, you can't cheat with the Misc Expenses category...you can't add money into it that isn't there!  Once you set your overall budget for the month, try to stick to it.  There's no point in making a budget if you're just going to aimlessly add to it.

Step 6: Track your spending!

Now, you can really see that budget at work!  Each time you open Mint, all of your accounts will update with the latest transactions.  You can see every thing that has been spent/earned in one place!

Budgeting Tips || Budget for Beginners || Paperless Budget System || Household Budget Template || Online Budget Organization || Paperless Ideas

This is just an example of what my "Transactions" page in Mint looks like.  As those transactions come in, I make sure they're labeled in the right category (Mint makes its best guess, but they are often mislabeled).  I usually do this once or twice a week.  If a single transaction needs to go in two different categories (like that Walmart trip that goes under groceries and gifts, for example), that's easy to do: just click on the transaction, click "split," and put in what categories are included and how much goes into each one.

Budgeting Tips || Budget for Beginners || Paperless Budget System || Household Budget Template || Online Budget Organization || Paperless Ideas

Then, you'll be able to switch over to your "Budget" page to see how much of your monthly budget is used.  You can see your total income and expenses all in one place, as well as how much of each individual category is left (gray means no money is used, green means you have money left, yellow means you're getting close to being over budget, red means you are over budget).  Today is only the 11th, so thankfully, nothing is over budget yet! 😁

Whenever something is red, I deduct the overage from the Misc Expenses account and add to the red category until it is yellow.  This is also something to pay attention to - if you see that you're consistently going over budget in a category month after month, it might be time to reevaluate that area and either reduce spending or up your amount.

Finally, on the last day of the month, I sit down and take a good long look at what went well and what didn't go so well in the budget that month.  If I need to adjust budget amounts for next month, this is when I determine it.  I also look at what expenses we might have coming up (and any extra income) and add those in as I do the budget at the end of the month.  The last day of the month is always my reflection day for the next month's budget.  That way, I can start fresh the next day!

And there you have it!  It might take a few trial run months to really nail down the best way to manage your monthly budget through Mint, but I promise...if we can do it with our crazy variable income and expenses, you can do it too!  It maybe takes me 30-45 minutes of work a week to really manage our monthly income and expenses.  Plus, this method comes in so handy around tax time...it's so nice to have everything neatly labeled in one place!  Enjoy your budgeting...if that's possible! 😆

(And stay tuned...I have a post coming Thursday that works perfectly with this system!)