Welcome back. I'm assuming since you are reading this post, I didn't entirely scare you away with my intense How To Create A Budget post. I'm still recovering from that one myself. Now we are moving on to Part 2 of Budget Basics and talking about how to maintain the beautiful budget that you have made:
HOW TO MAINTAIN A BUDGET
Step 1: Forecast
One of the glorious things about this budget template is that it allows you to forecast cash flow for as far into the future as you wish to see. The example above tracks this pretend budget all the way through June and provides an at-a-glance summary of where money needs to go, how short one budget period may be, carryovers needed, how much extra you have available for savings or debt reduction, etc.
The first step in maintaining this budget is to actually fill it out. Forecast things at least a couple months out so you have a good grasp of the big picture here. This will help you no longer live paycheck to paycheck or play the dreaded Twelve Dollars Till Tuesday game because you can see that everything has a place and will work. If the numbers are really not shaking out and there doesn't seem to be enough income to cover your expenses, then you need to consider cutting back and reducing your expenses to make it work.
Please remember, a forecast is an estimate. Don't stress about getting it down to the exact dollar, because honestly, none of us have any idea what specific expenses will need to be covered in the budget period beginning June 11. But we can at least come up with a good estimate, based on previous trends.
Step 2: Fill In Actual
The next step is to fill in the actual income and expense amounts as you get to each budget period, if they are different from your forecast. Remember from my last post my suggestion about using color coding to mark expenses that are truly estimates? I use blue. A cell that is blue means it is an estimated amount for things that are not the same amount each month, like utilities.
As soon as you get the actual electric bill or water bill, plunk that actual amount into the appropriate spot and remove the color coding. That is your signal that this is now an actual amount due and no longer a guess.
A few days before each budget period begins (a few days before payday), take a few minutes to evaluate the upcoming period. Make sure everything is entered correctly, input any differences that you know about, like extra gas needed for an unexpected trip or a big ticket item that you suddenly find yourself needing. Tweak your net and carryovers as needed to get to your final planned actual budget for that pay period.
Step 3: Send Every Dollar Where It Needs To GoRight Away
The rest is simple. You have given every dollar a name, you have planned where every single dollar of the paycheck is supposed to go. So send them there. Immediately.
Now let me throw in here that I realize there are folks out there who prefer to hold onto their money in their bank account and pay their bills on the last possible day they can because they have an interest earning checking account or something of the sort. I understand that strategy but let me just say that if you are intent on taking control of your money and controlling spending, you need to send every single dollar to its designated category as soon as possible. It is much easier to avoid spending money on eating out that was supposed to go to gas if you have already filled up your tank with gas and taken care of that category altogether.
So, what does this look like? Here is what I try to do with our own personal budget. Our budget periods begin every other Tuesday. Ideally (it doesn't always go down this way), on every payday Tuesday we:
a) fill up our cars with gas,
b) donate online,
c) transfer via online banking to our savings account,
d) get groceries so we have food at home and don't eat out as much,
e) set up bills to pay that do not auto-draft from our account,
f) pull out cash from the bank for eating out money and coffee money so that when it is gone, it's gone and
g) transfer carryover money to our Holding Account if needed for the next period.
Basically we send every dollar where it belongs either on payday Tuesday or shortly thereafter. What's left in our Operating Account then? Only the money from the Net cushion I leave each period and the Blow Money which is present in case of unforeseen expenses or messing up and simply blowing the budget. All the other dollars are either spent or sitting in our Bills Account, set up to pay and waiting to be pulled out.
Like I said above, if the money is already GONE and has all gone to the right place, it's quite impossible to spend too much on one category. It is a great feeling to know that bills are set to pay, gas tanks are full, fridge is full and I don't have to worry about cash flow.
Step 4: Color Coding
Here is where my budget keeping gets a wee bit OCD. You can use this color coding technique if you want to. Or you can just look at me and shake your head at my nerdiness.
When I am in the trenches of the current budget period, I have a color coding system that helps me track which expenses are not touched yet, which are set up to pay and which have physically come out of our account and are done with.
No color = not set up to pay yet
Yellow = action has been taken to set it up to pay or there is enough money to cover the auto-draft but the dollars have not actually come out of our bank account yet
Green = this chunk of dollars have physically come out of our bank account, meaning the transfer to Savings or Holding has been made, the cash has been pulled out for eating out, the bill has been set to pay and has been withdrawn.
In this example, once we filled up on gas, we'd turn the gas amount green. Same for when we make a grocery trip. Once the health insurance payment actually comes out of our account on the day it is auto-drafted, that can be turned from yellow to green. I know this sounds tedious, but if you are serious about controlling your money, you will find yourself becoming serious about details.
Step 5: Removing Old Budget Period Columns
When a budget period has passed, there's not much need for the numbers in that column anymore. If you want, you can just delete it altogether and move on to the next one. I tend to at least leave 2 or 3 past periods visible to see the full picture of expense trends, a few weeks backwards and a few months forward. So I just gray it out:
And then, because I'm a nostalgic person I suppose, I still don't delete them. I have a separate tab in our budget spreadsheet called "Historical" and I simple cut old columns out of the actual Budget tab and paste them into the Historical tab in chronological order. I know, OCD, nerd, shake your head. This allows us to see where we've come from, what our expenses were a year ago, how we've gotten a handle on some things or let others get out of control. It gets the old stuff out of the way but doesn't totally trash it.
So there you have it! Part 1 and 2 of Budget Basics. I hope this has been insightful and helpful. Or at least just a glimpse into the fact that I am obsessed with our budget spreadsheet... Either way, if you've got comments or questions, need clarification or have a suggestion for how some part of this could be done better, leave your comment below.
Happy budgeting!
