Budgeting was a nasty 9 letter word for me and my wife for about the first 20 years of our marriage. Did we budget early in our married life, sure, but not very well. Let me tell you how I came to realize that we really needed to get serious about budgeting. This happened over a period of time, but there were three specific situations that ultimately led to my realization.
Event 1 – Bought a new Truck
We thought we needed a new vehicle since our daughter was getting a little bigger and she was able to reach the back of the front seats with her feet. At least that was how we justified it in our minds. So, we struck out to find a new truck. We did not want a car payment again as we had worked very hard to pay off the last one and wanted to pay cash for the difference. Maybe not the best idea, but that is what we wanted to do. On the way to the dealership, I asked my wife how much money we had in our checking account. She told me and it should have been plenty to pay for the difference in the new truck along with our trade-in. So, we found a truck that my wife liked and made the deal. She had to like it since it was going to be her truck. Fast forward a few days and an unexpected bill, our credit card bill, came in. The credit card bill was larger than normal due to some other spending, furniture as I recall. Well, the checking account was depleted and we had to make some serious adjustments in our spending for the next few months to get back above water. It was not a good feeling at all when the credit card bill came in and we had not planned for it and the purchase of the new truck. My wife and I agreed that we had to get serious about a budget. We did for a week or so, then went right back to what we did before.
Event 2 – Moved and started new job
We decided to move from East Tennessee to South Georgia since we were both from South Georgia and wanted to be closer to our families. I took a new job in S. Ga. in the fall of 2008. We had a house to sell and it was not a good time to sell a house, not a good time at all! So, I moved to S. Ga. and started work and my wife and daughter stayed in Tennessee so they could watch the house and my daughter could finish the school year. I traveled back and forth about 3 weekends a month for about 6 months and it was a big stretch on us financially. If it would not have been for family allowing me to stay in spare bedroom for that duration, I might have tried to sell a kidney to pay for everything. During this time period, we did a fair job at watching our spending and we made it through, but then our house sold and relaxed again, budget wise.
Event 3 – Where has all of our savings gone?
January of 2014 was when we finally got serious about budgeting. Based upon the previous 2 events, we kept up with our spending very well. We even reviewed it a couple of times a year and said we need to do better here or there. My wife diligently kept up with every receipt and entered them into a tracking tool that we used. We had pretty charts, graphs and trends, but not a real budget. We were reviewing our finances and realized that we were not really gaining much ground in our savings. The balance from year to year was essentially flat. That was hard to believe since were putting $800 per month into a savings account and had been doing this for several years. Since we kept up with our spending in a tracking tool, we had historical data to do some forensic accounting on ourselves. So, what we were doing was making our spending decisions based upon our checking account balance and then when an unexpected bill would come in, we would pull from savings to cover it. The big realization was when we saw that we had all the data, none of these things should have been a big surprise to us. We had to pay it last year, we just did not plan for it very well this year and etc. On one hand you could say that we did a good job since we had the money to pay for it. I think you are being to easy on us, and maybe yourself, if you feel that way. The way I felt was that I was letting my family and myself down by not handling my money in a more responsible manner. It was time to make a change!
Why do I need a budget?
Watch this video You Need A Budget – Epiphany. It explains why and how very well.
The Change – Getting serious about our budget
My wife and I had attended multiple budgeting classes at church, read books and even bought some software. We had the knowledge on how to budget and knowledge of a couple of budgeting systems. Why had we not done it before? We had made attempts to budget, but never stuck to it. This time was gonna be different, and since February 2014, it has. What a relief!
How did we make it work this time? I’m really not 100% sure. Part of it was the system we chose and part of it was just dedicating ourselves to it for 2-3 months until it became habit. Now we are kinda on autopilot with minor adjustments every now and then. We use YNAB as our budgeting tool. It works well for us, and I am sure there are many other ways of being successful. For us, we felt it was important to be able to have it available to us anytime anywhere, so that is why we chose YNAB. You can accomplish the same thing with pencil and paper, envelope method, spreadsheet and many other available apps and software. The key is to figure out what you want to get out of this process. For us, we wanted less money related stress by planning better and spending more wisely while building up a cushion for those unplanned events that life tends to bring. Major car repair, roof leak on the house and, and, and.
The Concept – Zero Based Budget
Here is a good definition of a Zero Based Budget.There were 3 things that really made a difference for us . Give every dollar a job, keep spending within the budget category limits and living on last months income.
I think YNAB does a very good job of explaining this, so here is the link to YNAB. Dave Ramsey has FPU, Every Dollar Budgeting Tool, and forms to download. When we chose an app, we chose YNAB for our needs. YNAB has great customer support, online training and online support. YNAB4 has been rock solid for us, synchronizes well between all of our devices and is simple and effective for our use. I’m sure Dave’s products work well also, maybe I will post a review in the future.
Check out the YNAB website method section for a rundown on their complete concept. The 4 basic YNAB methodology is: 1) Give Every Dollar A Job (2) Embrace Your True Expenses (3) Roll With The Punches (4) Age Your Money or Live off of last months income.
For us, there were 3 keys to success.
- Giving every dollar a job. This part took some thought. How detailed should we get with this? How many categories? My recommendation is that you take your best shot and adjust from there. It really is not that hard to add and subtract categories in YNAB. It takes a little effort, but don’t overthink this part. We broke our categories down into the following:
- Everyday Expenses
- Groceries, cleaning, gas, restaurants and anything else they you spend money on multiple times per month.
- Monthly Bills
- House payment, cell phone, utilities, life insurance and anything else that is monthly.
- Rainy Day
- Car repair, home repair, buffer and other things that might catch you by surprise.
- Christmas, birthdays, vacation, emergency fund and other things that you want to save for.
- Everyday Expenses
- Checking the category balance before making a purchase and not going over. (I’m kinda combining YNABs step 2 and 3 into one) This went against my nature of looking for a good deal sometimes. I like to get the most for the least. Sometimes this is not a good idea from a budgeting standpoint. A good example is the grocery category. We lump groceries and household cleaning supplies into the same category since we usually buy them at the same time. We started off with a grocery/cleaning budget of $300/month. Needless to say, we did not eat steak for a long while. Our target price on meat was $2.00 or less per pound. We ate a lot of hot dogs until we got caught up in a few categories like buffer and emergency fund. I remember one time when my wife texted me to stop by the grocery store on the way home for a couple of items to get us through the last few days of the month. Mayonnaise was on the list. She noted that we only had a few dollars left in the category, so get the lowest priced items I could. Buying this little container of mayo was not normal for me, but we needed to have discipline to stay within our budget category. After a few months, we were able to get our buffer category funded and then reassigned that money to groceries/cleaning, so we are now at a whopping $400/month in groceries/cleaning. That is a huge % increase going from $300 to $400, but it is still only $400, so we shop sales, coupon, garden and can some of our own vegetables. Set up your categories, assign reasonable amounts of money to each one and then stick to your budget. Simple, but it takes some amount of sacrifice (maybe) and diligence.
- Living off last months income. This took us around 9 months to get to a place where we thought we could make the jump to living off last months income instead of this months income. We had grown a savings category with this specifically in mind. Once we saved enough to cover one months spending (we did not cover the savings categories when we made the jump), we just banked my entire paycheck and used the money in the specific savings category to live off of that month. To a certain extent, this was swapping dollars from one category to the next, but it was a challenge we had set for ourselves, so seeing the entire check set aside showed us we had been successful. The next time I got a paycheck, I was able to select income available for next month instead of income available for this month. A month ahead, it felt super good!
YNAB Update 1/25/2016
Update on our budget progress using YNAB4.
I have a lot of things I want to discuss, please check my
Budgeting Update 1/25/2016 – Using YNAB
Thanks for reading, I hope this helps you with your budgeting!