Fiscal Fridays: Budgeting, part 1

Well. Thanks to the awesome response on my Survey Monkey budgeting survey (seriously, 50 people, that is so awesome), I have a pretty clear insight to how some of my friends and readers handle their finances. Up until now, I really only knew my way, which is really my dad’s way, which works fairly well because he’s smart, practical and frugal...all good things to be when you’re budgeting.

Anyway. The budgeting/not budgeting camp was split nearly down the middle, with not budgeting taking a slight lead. I’m not really surprised by this, since 65% of the survey takers were in the college/new grad stage, which is probably the hardest age to stick to a budget, but it’s also the most important. What you save (or don’t save) now will affect your quality of living for the rest of your life. My dad always says he and my mom “ate their brown bread” when they were my age, which means they lived meagerly and saved a ton then, so they could live comfortably now. And they do.

In the survey, peoples’ rigidity of budgets varied a lot more than I expected. In this case, structure is good. Structure keeps you from getting evicted or having your car repossessed. I read about budget strategies that were about as specific and regimented as my own, and some that were more or less, “I just hope that there’s enough money in my account.”

Hope does not a budget make, folks.

So over the next few weeks I’m going to share some tips, both based on what I do to budget and on some of the great responses I received from you guys. Since this is such a lengthy and complex topic, we’re looking at multiple consecutive Fiscal Friday posts. Sorry to make you keep coming back here every week (who am I kidding, I want you to come back here every day), but there is no way I’m going to ask you all to sit through 5,000 words on budgeting in one post. Huh uh.

First things first. Let’s go over how you should start a budget if you don’t already have one. My method was echoed pretty closely in the survey by people who have structured budgets, so that’s the method I’ll be discussing. (Have a better one? Email me and I’ll include it as an update to this post or in a future post.)

I keep track of my budget in an Excel spreadsheet. Google Docs works well for that, too. I’ve heard that Mint.com is supposed to be an excellent option, but I’ve never actually used it. Or you could always be old fashioned and write everything down on paper. Whichever way you do it, you need to have your budget set down in hard copy. Believe me, having it down in writing makes things sooo much easier to manage and adhere to. Seriously.

To start, look at your monthly income. Don’t look at the gross (before taxes) pay; look at the net pay, or what you can physically cash/deposit after taxes are taken out.

Next, make a list of all your bills. Start with the recurring bills that you get in the mail, in your email, are automatically deducted from your checking account or are automatically charged to your credit card. (A side note: Never, ever set up recurring bills on your credit card, unless you immediately pay for it with cash. We’ll have a separate post on credit cards and how to use them, but for now, just remember that.)

Recurring bills will vary from person to person, but make sure you include those sneaky little buggers like Netflix. No bill is too small. You can group them by category or by due date. I prefer the latter. (Note that if something is automatically deducted from your paycheck—like health insurance or a 401k—you don’t have to include it here. It’s already paid for.)

Yes, I have a lot of credit cards. To be fair, three of them are store cards that have consistently low balances. My goal is (and yours should be) to pay them down, then pay off any new balances at the end of each month. But I digress.

Anyway, next you list your other necessary expenses. Necessities: groceries, gas for your car, savings, etc. Non-necessities: going out to eat, bar hopping, clothes shopping, going to the movies, etc.

Now we’re going to talk formulae. If you’ve never made a formula in Excel or GDocs, check out this post on it. You could do all your calculations by hand, of course, but I prefer to let my spreadsheet do the work so my dinky calculator (or—gasp—my brain) doesn’t have to.

So make a formula to add all your bills together, and another “balance” formula to subtract your bills from your total income to find out how much of a surplus or deficiency you have.

These aren’t actual numbers for me; I just plugged in some randoms to give you an idea.

Now, make sure your balance is positive. If it’s negative, you need to seriously rework your budget and either increase your income through an additional job, or cut some expenses. Do what works for you. Leftover money? That’s all yours, baby. Spend it however the heck you want.

I go a step farther in my Excel spreadsheet. I use a new tab for each month, with my outlined expenses as a guide and my “working” budget for that month. That way, I can include unexpected expenses like a car repair or medical bill. The formula changes a bit for the working budget side, since it shows me how much I have left after every single bill or payment. If you’re familiar with spreadsheets and want those formulae, email me and I’ll forward them on.

Had to x out all my totals. I don’t really need the whole world looking at my exact financial biznass, haha…just know that none of those numbers are negative :) Currently that there is no “savings” category in this budget. That’s because all the paychecks and tips from my waitressing job are going straight into a savings account. After I quit that job, I’ll have to rework my budget to include savings for both long term and short term. Also? I have really weird naming habits for my bills, I've noticed. Oh well, you get the picture :)

I think that’s about enough info for one post…maybe more than enough. I’m going to stick with this general topic for the whole month of September, so make sure to stop back the next three Fridays for the following topics:

• Multiple checking accounts, cash envelopes and other tricks
• Automatic bill payments and paying bills with credit cards
• Saving money (long-term savings, emergency funds, unplanned expenses/wiggle room)

Until then...stay thrifty, folks :)