YOU EITHER LOVE THEM OR HATE THEM
Fifteen years ago you could not have twisted my arm enough to make a budget. It wasn’t going to happen.
My wife had tried several times making a budget but I hadn’t given any input and I certainly didn’t think one was necessary.
It’s safe to say I hated them.
Budgets were for “those people” who were in massive debt or who wanted to control an overspending spouse. They weren’t for normal people like us who lived off our paycheck from week to week and could afford pretty much everything we needed.
Some months we’d have some money left over at the end of the month to put into our savings account. Other months we wouldn’t. Things seemed fine to me so I didn’t see the big deal.
Then came the first kid. Suddenly spending patterns changed. No longer was it just my wife and I. We had another person to account for, one who would have some very expensive habits. Can anyone say 10 diapers and 6 meals a day?
So we set out again to tackle the monthly budget. We actually managed to make a budget that we thought would work. But it turned out to be a colossal failure.
4 Reasons We Failed in Making Our Budget
In the moment all those years ago, I couldn’t figure out why we kept failing at our budget. It seemed like every month there was something that kept it from balancing just right.
In reality the issues with the budget were pretty obvious. I just wasn’t trained to see them.
For starters, and as I already mentioned, I wasn’t involved with the process. My wife was doing the budget planning without any input from me.
That’s a recipe for disaster when one person (my wife) is a natural saver and the other (me) is a natural spender. She was naturally seeing the budget planning process through her saver-eyes and that caused her to prepare it in a certain way. If I had done it, the numbers in each category would have been much different.
Our second issue is that we did not have or know how to build an emergency savings fund. An emergency savings fund is an amount you’ve saved (most likely in a savings account at your local bank) that you can draw on in times of emergency.
It is not a go-out-on-a-date-night-with-friends fund or a buy-that-new-sectional-couch fund. It’s money kept aside in a traditional savings account that is only to be use in emergencies.
So when our car would break or the washing machine would quit working we’d have nothing to pull from except our monthly income to pay for the repair.
If we couldn’t move some money around in the budget categories we’d go into debt by using our credit card to pay for it. That put us further behind because we were just pushing that payment down the road in hopes we could pay it off in our next income cycle. Usually we could so that simply perpetuated our bad behavior.
We also failed to include certain items when making our budget. We concentrated on the big-ticket items like housing, utilities, food, clothing, and gas. We left out some of the smaller things such as entertainment, haircuts, birthday gifts and pet care. Guess what? All those smaller items add up after awhile and can greatly impact how the budget works.
The final issue in making our budget was that we (and by “we” I mostly mean “I”) simply didn’t live on it. If we had budgeted $500 a month for groceries, we’d spend $550. If we said that Christmas gifts would cost $300, we’d end up spending $400. There was simply no desire to institute the type of discipline necessary to make it work.
I’d like to say we realized our problems quickly and found success with our budgets right away. The truth is it took some personal soul searching and multiple steps to right the ship. Like it does with most big ships it took awhile for us to turn ours around.
Learning to Love Making a Budget
Our first and biggest realization was that neither of us could do this on our own. My wife had beaten her head against the wall trying to manage our monthly finances minus any input from me. She didn’t badger me into getting involved. I simply – finally – had the light go off in my head.
It takes teamwork to excel in any endeavor and we clearly needed a big dose of that. So we began to communicate. Yes…actually talk together about the budget. But imbedded in our conversations about money was something far deeper than just the surface numbers.
We began to communicate goals, our dreams and what we valued.
When my wife wanted to put “X” amount in savings she was telling me she valued security and being prepared. When I wanted to put less of “X” in savings and more in the vacation fund I was telling her I valued fun, family togetherness and building memories.
Our communication helped us understand our differing perspectives on money and over time we began to influence one another. I realized we did need to save more while she realized we did need more fun in our lives.
The communication over our budget brought our marriage closer together and helped each of us appreciate the unique nature of the other.
During our many talks we came across another important flaw that was proving fatal to our budget. We were making one budget for the whole year. We’d look at our projected income and expense totals for the year, divide by twelve and plug that number into each month. Simple enough, right?
Except it’s impossible to make an accurate budget that way. There are expenses that occur in August for back to school that you don’t have in May. There are Christmas presents to buy in December but not in March. Once very six months an insurance bill comes due. You’ll need extra in budget categories some months and less in others to accommodate these irregular expenses.
This issue seems obvious but it was a revelation to us. So we began to make a different budget for each month and have that prepared and ready to go before the next month began.
When the first of the month hit, we wanted to know within reasonable projections what the financial situation looked like for that month. Doing this allowed us to be more aware of those “trap months” when extra expenses would be coming. We actually began to save money ahead of time in preparation for those months.
Along this same time we ran into a budget method known as zero-based budgeting. The essence of zero-based budgeting is this: give every dollar that will be flowing through the house during the course of the month a name. In other words, put it into a specific category in either the income or expense columns of your budget. Don’t let any money be floating around “out there” without a destination.
Then, as you are making the budget, you check to see that the total income minus total expenses for the month equals zero. There should be no money left over at the bottom line of the budget. That number should be “0” (zero).
Here is why that’s important: If you don’t tell your money what to go do with itself, it will find it’s own home.
Believe it or not money is active. It finds places to be spent. If you have $200 left over after you subtract expenses from income, you don’t really know what is happening to that money. It could be going to investments or savings but it also might find its way to eating dinner out twice a week.
The point is you don’t want any loose ends in the budget with money not allocated to a category. We really started to gain traction with running a proper budget when we took this step.
The final and perhaps most controversial step in the whole process occurred when we changed our method of payment for goods and services.
Until this point we had always used a credit card. We had three in fact – all active and being used, with our preference going to Discover (for the cash back) and Visa (for the reward points we were earning towards Royal Caribbean cruises). While we were getting some rewards, there was a big issue that finally came to a head in one of our budget meetings.
We were overspending each month. So consequently some months our budget was still a train wreck.
It’s possible to develop the discipline to use credit cards properly. At this stage of our life we didn’t have it. So we did what so many others have done when having overspending issues with credit cards. We cut them up and moved to a debit card or cash for all transactions.
With a debit card we could only spend what was available in our bank account. That creates an inherent barrier to spending. You can’t spend what you don’t have. Credit cards do not have that limitation.
The difference in our budget was immediate. Our spending decreased instantly and consequently our savings rate skyrocketed. We were so worried about overdrawing our account that our spending literally ground to a halt.
Making Our Budget Years Later
Those early days of budgeting were filled with some bumps and bruises as we tiptoed our way through the budget process. Once we got rolling though there was no looking back.
Now budgets are easy. And fun! They serve as the cornerstone of our financial lives and only take minutes each week to prepare. (Really that’s true…because we have so many years of historical records to look at the numbers come easier each month. We take about 20 minutes max to talk through our budget for the month.)
Plus having a successful budget has impacted other areas of our life and finances. Because of our increased savings rate, we’ve been able to invest more, buy some rental properties and pay off our own mortgage early, way ahead of schedule. It’s even allowed me to finally become a stay at home dad and full-time personal finance writer, something both my wife and I have wanted to happen for years.
If you hate budgets, I get it. I’ve completely been there. I’m proof though that you don’t need to go on carrying that attitude. Budgets aren’t straight jackets designed to deprive you of pleasure. They are freedom to a better life. That’s a reason to start loving them.
If you need help getting started I have some free budget forms that are available here in .pdf, .doc and .xls formats. I like the Excel document the best because the formulas are already coded in the file and you can see the numbers change in real-time as you adjust them. If you have any questions about them or preparing a budget in general you can reach me by clicking on the “Contact” link on my homepage at Luke1428.com
Are you on a written monthly budget? How has putting one in place changed your life? Has budgeting impacted your relationship with your spouse for good or for bad? For those without budgets, what’s holding you back?
About the author: Brian Fourman is a former private school personal finance and Bible teacher now turned stay at home dad and blogger. He helps individuals and families navigate the challenges of managing their money so that they can grow wealth and live with greater peace of mind. In his down time, he loves hanging out with his four kids and hearing his wife talk about all the cool things CPAs do at work. You can check him out providing encouragement and inspiration on his blog at Luke1428.com.
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