In the midst of this last recession it was understandable when every once in a while my husband and I would run a personal deficit. We didn’t owe the credit card companies, thank goodness, but if we were short a month here and there between paychecks we borrowed from our savings with the understanding we would pay ourselves back. The thing was, it wasn’t happening. The savings account got a little smaller each time we hit an “off month.” At first we were in denial. Our mantra? Oh, it’s the recession, it will get better. However, after moving through the borrow-and-no-payback cycle a few times, it was clear we needed to do something about our situation. It was time to make a budget — and stick to it.
Take Inventory Of Expenses And Income
Our first step was to make a simple spreadsheet of our sources of monthly expected income and expenses. We save our receipts each month, but had we not saved these documents this step could have easily taken place over the course of a month by documenting all of our expenses and income. Once we organized our documents, we categorized our receipted expenses as utilities, mortgage, entertainment, food, shopping, car maintenance, home improvement, and health and fitness. Annual expenses, such as property taxes, we broke into 12 pieces, assigning a portion of the total bill to each month. We also included savings goals in our expenses section, hoping to set aside general savings, retirement savings, and savings to be later used toward our toddler daughter’s education.
Add & Subtract For A Balanced Household
Once we had all of our expenses and income accounted for we were able to subtract our total monthly expenses from our total monthly income to see where we financially stood. At this point it became clear where our household’s money was headed, and thankfully with the help of a calculator and our budget worksheet, we were able to see opportunities for more discipline. We slimmed down on some entertainment and shopping expenses to make room for more savings.
Take Advantage Of Online Budgeting Tools
In the process of developing our budget we found Mint.com to be a great planning tool. The free online personal finance tracking system pulls information together from existing checking, savings, retirement, and other investment accounts to give a true picture of a household’s net worth at any point in time. The program also categorizes individual bank account transactions to match up with the categories selected for a home budget. In short, it was just what we needed to be more disciplined.
Be Accountable For Your Own Actions
My husband and I soon learned of our financial strengths and weaknesses through the course of setting up a budget and by more precisely tracking our finances. Prior to this budgeting process, our cash expenses were entirely hidden, except as cash withdrawals from our bank. Now, we were each more accountable for how we spent our money, whether it be for haircuts, coffee and snacks, or other odds and ends. By the end of our first month our accountability had already cut back on our household’s cash expenses, which meant more money going to our savings.
Adjust As Necessary
No budget is perfect and we knew that going into this budgeting process. To accommodate for ebbs and flows in income and expenses we plan to review and adjust our budget as needed throughout the year. In the meantime, we are celebrating our so-far success.