Wednesday, March 6, 2013

Big B's Budget Part I

Big B's Budget Part I
How do you pay for all the things that you do your poor house? Simple, I cashed in a Powerball ticket for $100 million. 












Well.........  Not really.......  Winning large sums of money isn't really something I'm good at.  My luck is pretty good with insignificant things like parking in the food court at the mall on Christmas Eve, but winning money isn't a big strength.  This story begins with a couple trying to save for their first house.  After 2 years of "saving", our household had actually racked up about $2,500 in credit card debt.  After a particularly bad confrontation about not owning a house, I figured out something that most people don't understand.  Unless you're Britney, Oprah, or Donald Trump, you need a budget.

A budget?  Won't that force me into living like a pauper?  It could, but if you do it right, you'll feel wealthier than ever.  How to get started?  First you need Excel.














My journey at budgeting started with Excel 4.0 (man I'm old), no bourbon (too poor), and no Google (it didn't exist yet).  You're lucky today, because you get a head start with the latest and greatest gear.  Microsoft Office Home and Student 2010 runs for about $100 on sale at Best Buy, Staples, or Office Depot.  Pick up a copy even if you're not an IT guy.  You don't even need to start from scratch, because I've included my budget template.  Click right here to open it up: budget_template.xlsx.  Note: The values in the spreadsheet have been changed around a little to simplify the exercise.

Next, separate your expenses into 3 categories: fixed, variable, and non-monthly.  My list goes something like this:

Fixed: House Payment, Gas, Phones, Power, Netflix, Cable TV, Security, Newspaper, Discretionary Money, and Savings
Variable: Sewer/Water, Groceries, Vehicle Maintenance, Gasoline, Pets, Clothing, Kids, Misc, , and Cell Phones
Non-Monthly: Car Insurance, Property Taxes, Homeowners Insurance, Preschool, and Springtime Yard Work











Tip: something that my household does to make the numbers more predictable is allow the utility companies to put us on a "budget" plan.  They check recent usage, and the bill is the same every month.  They'll also have a settle-up month where you get a credit for money not used or a bigger bill for a shortfall.

Monthly Expenses
Open the template and click on the "Bills" tab.  The fixed expense amounts are on the left and variable expenses on the right.  Pull out your last month's bills and fill in the numbers.  Make a good guess on the variable expenses.  They can be fined tuned as you go along.  The "fun+save" tab has a place to keep track of discretionary spend and non-monthly bills.  Let's leave the discretionary money alone for now and head to the non-monthly expenses.











Your Personal Escrow Account (Nonmonthly Bills)
Punch in the non-monthly bills, add up the total, and divide by the number of paychecks you get in a year.  The spreadsheet has a spot to work this equation for you.  People that get paid biweekly have 26 pay periods as a rule.  Some years are 27, but let's not get that complicated.

Now, take a break from Excel and head to the bank.  Open up a savings account that draws interest. We'll call this your personal escrow account.  Take the "Escrow Budget (Pay Period)" number from the spreadsheet and set up an automatic draft from your paycheck or checking account into your personal escrow account.  Each paycheck will deposit money into the escrow account.  My company has a credit union that works well for this task.  This new account separates your monthly budget money from the non-monthly money and also draws interest.  All your non-monthly bills get paid from here. Note: The spreadsheet has a calculation to show deposits into the account.  Depending on where the non-monthly bills fall, you may need to start the account with an initial amount.  That's so you don't go negative during the year.  My example needs an initial $1,100 to keep it running.

Tip:  If you get paid biweekly, try as hard as you can to live on two paychecks a month.  That way you get an extra two paychecks to spend each year.  We take one paycheck to spend on Christmas and apply the other one towards a family vacation. 











Setting Up The Budget
Head back to the main page of the spreadsheet, and let's get started on income.  Add the "net" amount of money you typically get from paychecks and other income (like tips).  This amount is after taxes, insurance, 401K, and pretty much everything else that drains your check.  Next, subtract out the escrow account money from each check.  The template uses $1600 per pay period for budget income ($265 is taken off the initial amount).  This amount is your budget income.  Summarize your fixed and variable expenses and add them up to get the "budget expense" number.  Subtract expense from income.  If the number is positive, that's really good.  You have leftover money.  If the number is negative, it could explain why you're getting deeper into debt.  (Don't feel bad, most of us have been there before.)

Now what?  Punch in your expenses into the "actual" column during the month.  The spreadsheet will calculate your total spend at the bottom.  Monday night is my time to pay bills and type receipts into the spreadsheet.  I use "save as" to make a copy of this spreadsheet for each month.  Printing a copy out in the middle of the month for the wife/husband helps keep the budget on track.  You'll also want to make some adjustments to the budget after getting all the numbers on the computer for a few months.

Hey, what are those other tabs for?????  Click here for the budget blog Part II, which has more details and lessons we learned from living on the budget for over a decade.

Got a question?  For the first time, I'm soliciting feedback on the house blog.   Go ahead and email suggestions, questions, and comments to: houseblog@theroysefamily.com.

Interested in tips to lower your electricity monthly bills?  Click here.
Read this article to see how to lower your phone bill to $25 a year.

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