Monday, February 06, 2006
How I budget
Everybody has a different way of keeping track of their money. Of course, there are pros and cons to each method, but what someone should choose is the method that works for them. Some people use a computer program like Quicken, some people balance their checkbook using the little paper registers.
However, keeping track of the money you have is only one piece to the puzzle of financial stability. What is more important, and often overlooked, is having a plan for how you are going to part with your money. Some people call these plans budgets, others call them spending plans. I call it my spreadsheet.
When I thought about creating my spreadsheet, I thought about how I go about spending money as it is. As it happened, I had some bills that I allocated to one paycheck, and other bills that I allocated to the other paycheck (we get paid bi-weekly). After I subtract those bills from our bi-weekly take home, there are the commonly occuring expenses that are not regular bills, like food, gas, dry-cleaning. Then there is the money that we take from the ATM for cash on hand and our miscellaneous expenditures. Notice that my miscellaneous category is expenditures not expenses. I consider these related words very different things. Expenses are things that you have to spend money on. Expenditures are things that you do spend money on because you want to, like books or clothes or movies.
I decided that the easiest way for me to see what I spend and then control how I spent, was to break it up by paycheck (every two weeks). So, I listed all of my regular bills, and assigned them to a paycheck, paycheck 1 or paycheck 2. I listed next to each bill the amount I would normally expect to pay. This is easy for something like my heating bill, which is budgeted, and therefore exactly the same every month. Same goes for my mortgage and my car loans. My electric bill changes every month, so I entered an average.
I was able to see how much of every paycheck goes to bills that I have to pay. Then I could see what was left. I talked to my wife who said she never spends more that $50 per week at the gorcery store. So I added that to each paycheck. Finally, I added 3 other line items to each paycheck: Eating out, Cash Withdrawals, and Miscellaneous.
Since I have really just started this, and going back in time to assign expenses to paychecks would be very time consuming, difficult and frustrating, I will be using the next 3 paychecks to gauge what i should be budgeting for those last three.
Once I get those budget numbers, it will be time to see how much I can save before I start to spend each paycheck.
However, keeping track of the money you have is only one piece to the puzzle of financial stability. What is more important, and often overlooked, is having a plan for how you are going to part with your money. Some people call these plans budgets, others call them spending plans. I call it my spreadsheet.
When I thought about creating my spreadsheet, I thought about how I go about spending money as it is. As it happened, I had some bills that I allocated to one paycheck, and other bills that I allocated to the other paycheck (we get paid bi-weekly). After I subtract those bills from our bi-weekly take home, there are the commonly occuring expenses that are not regular bills, like food, gas, dry-cleaning. Then there is the money that we take from the ATM for cash on hand and our miscellaneous expenditures. Notice that my miscellaneous category is expenditures not expenses. I consider these related words very different things. Expenses are things that you have to spend money on. Expenditures are things that you do spend money on because you want to, like books or clothes or movies.
I decided that the easiest way for me to see what I spend and then control how I spent, was to break it up by paycheck (every two weeks). So, I listed all of my regular bills, and assigned them to a paycheck, paycheck 1 or paycheck 2. I listed next to each bill the amount I would normally expect to pay. This is easy for something like my heating bill, which is budgeted, and therefore exactly the same every month. Same goes for my mortgage and my car loans. My electric bill changes every month, so I entered an average.
I was able to see how much of every paycheck goes to bills that I have to pay. Then I could see what was left. I talked to my wife who said she never spends more that $50 per week at the gorcery store. So I added that to each paycheck. Finally, I added 3 other line items to each paycheck: Eating out, Cash Withdrawals, and Miscellaneous.
Since I have really just started this, and going back in time to assign expenses to paychecks would be very time consuming, difficult and frustrating, I will be using the next 3 paychecks to gauge what i should be budgeting for those last three.
Once I get those budget numbers, it will be time to see how much I can save before I start to spend each paycheck.
// posted by Finder @ 11:15 AM 
