Since we mommy-bloggers are all about the personal finance these days, I'd thought I'd share a little more about how I'm trying to get our house in order. You may recall that I decided this January to really understand and overhaul our thoughtless ways with money. I've made a lot of progress on this front (though there's still a long way to go!) and I'd credit a big percentage of that to finally (for the first time in my life) creating and sticking to a budget.
Where we started
I specifically want to clarify this part, because I used to think the budgets were only necessary for people with "money problems", i.e. not us. We have no debt except our mortgage. We save in our employee provided retirement plans and (before our salaries went over the limit for tax it being tax deductible) put the maximum into a Roth or standard IRA each year. We have a hefty emergency fund in a savings account.
However. It was happening more and more frequently that we had to actually pull money out of savings to pay our monthly bills. We were, by definition, living above our means. This had been going on for at least 3 years, if not longer. I was burying my head in the sand about the details (the major credit cards we use are in G's name, and he has the log-on to our online banking) but had this vague idea that we were "spending too much". Every now and then I'd freak out and "try to spend less" for a month or so and then I'd loosen up again.
I also had clearly developed a mild shopping addiction. I was buying loads of clothes and shoes and even make-up (I don't even wear make-up, but thought I "should" learn) on-line, everything was "worth it" and on sale and "reasonable" (see Noemi's EXCELLENT post about this). I had stopped buying books a couple of years ago when I figured out how to use Overdrive (which is awesome! you need to figure out how to download books from your library ASAP if you haven't and you read). I was also in the habit or ordering random things off Amazon whenever they came into my head. Just...stuff I thought we needed or would be helpful around the house or for the kids or for me. Many things I rarely used. The buying was definitely a symptom of 1) boredom/dissatisfaction with my life and 2) (for the clothes/makeup in particular) insecurity about my changing and aging body. I craved some kind of "excitement" in my life and snagging a good deal and then seeing the package appear and getting to open it and then wear/use the shiny new items provided a tiny frission of it back.
What I Did
First of all, I instituted a shopping ban for any clothes/shoes/accessories for myself until the end of 2015. Then I made a budget. I got the log-on information for all our accounts from G, I set up a Mint account and linked them all, and I combed through everything, finding and documenting the amount of each recurrent payment and estimating the monthly costs for food/transportation/etc... I set the budget up on YNAB. I chose YNAB because it allows you to work with it on your smartphone, with a really easy app for entering spending and checking your budget, which sinks to all desktop/mobile accounts (so G can enter something and I can see it 2 minutes later). My initial budget was terrible.
My current one is still not ideal. Its a work in progress.
YNAB has default categories and I mostly used those, tweaking where I needed. For all recurring expenses (mortgage, utilities, insurance, daycare, phone), I set them to the amounts I found in our records. For "everyday expenses" I used estimates from what I could piece together or just, frankly, pulled numbers out of my hat. Same for "rainy day expenses"---those I set at numbers that sounded good. I also added a savings goal for retirement savings and for vacations, since those get paid in lump sums, not monthly, and we could save up now for expenses coming up later. I had to remember to budget for annual expenses---like the nearly $1K gym membership that came every May, or other annual fees. I split that cost over the year, so that there was surplus in the "fitness" budget from Jan-April, and then a deficit in May that would be zeroes out by December. I padded the "vet" budget similarly, dividing the cost of a physical/shots/ "senior dog" blood work over the year. I also gave both G and I small "allowances" to spend as we wish.
Then I put in our paychecks as "inflow" and we go from there, adding any amount we spend as "outflow" and assigning it to a category. Ideally you should enter the spending at the moment of purchase, but honestly, neither of us have been consistent with that, so every other week I spend an hour combing through Mint and adding purchases in.
How It Helped
One unexpected benefit to this exercise is how much my anxiety was reduced when I could see and add up everything we spent. Instead of this "vague feeling that we were overspending", I could know exactly how much we were or weren't overspending on any category, and take concrete steps to remedy that. If we spent all our restaurant budget by the 2nd week of the month, well we just won't go out any more and it'll be OK (easier said then done, and didn't always happen, but knowing what we need to do is still helpful). So much better than just trying to "spend less" without having any specific plan in mind.
Decision making on whether or not to make a purchase is simplified. Is there money in that category? yes/no. If no, try to figure out alternative or cheaper option or go without. If yes, look ahead to the whole year and think about whether you'll need that for something else before you buy it.
Because we are staring at them every time we log into YNAB, we are motivated to reduce the "fixed" expenses. It was looking at everything all laid out that spurred G to work on refinancing our mortgage, which we
did this spring and is saving us a lot! We tried (and failed) to lower
our internet. We are working on cutting our grocery budget (and in fact its down $100 from where we were in January). We have to tackle the alcohol and transportation budget next (this is where G overspends, so will be harder to do...)
I am much, MUCH less likely to buy anything. I put small amounts in our "clothes" and "household goods" budgets. Really small. And my "allowance" is also tiny. I consider every purchase very very carefully and I'm loathe to buy anything, even if it seems like a need. I lost my umbrella last month and haven't replaced it, because I don't want to spend $20 of my "allowance" on that---so I just wear my hooded rain jacket. I didn't buy the boys sandals this summer---they have water shoes and sneakers, and its working out fine. Its amazing how many "needs" turn out to be not so necessary when you look at the big picture!
I paid ourselves first. Since $x automatically went into the "savings goals" that money was not there to work with and could not be touched. I mostly dealt with overspending by taking that money out of next months budget for that category (i.e., we have $200/month for restaurants and I spent $250 in July so August has only $150), or I could move things around if they were similar enough to justify it, and I didn't think we'd need it later (I took some money out of groceries for July to cover restaurants since we were traveling and spent way less on groceries that month). At the end of the month I actually move that amount from our checking account into investments.
We are saving for vacations and bigger items. In the past, this is where we'd have to pull from our savings. Now I'm adding $x/month to our "vacation" fund. Its currently in the negative but should be built back up in time for holiday travel. I just started a new savings category for "home maintenance" since I foolishly didn't have one before. Sure, anything major would come from the emergency fund, but I wanted to be able to handle the little projects that just pop up.
Overall, the act of creating a budget is the best (maybe only!) way to really understand what is happening with your money. And the exercise of sticking to a budget is a great way to start thinking of spending in the context of the big picture, instead of an isolated event that can always be justified. It forces you to consider your goals and your priorities so that you can spend more intentionally (that word!) in line with your values. If you are worried/concerned/unsure/stressed about money, I would strongly recommend it.