For a while now I have been trying to get a decent budget up and running. This is much harder than I had hoped and I feel like I am constantly having to make adjustments to allow for some kind of expense I hadn’t previously thought of or for the simple fact that what I had budgeted wasn’t enough.
A budget is very important to us at the moment as my income isn’t what it used to be right now but I promised Shirley that I wouldn’t let my decision to leave the 9–5 behind me affect our lifestyle too drastically. With the lower income we have had to make a few minor cutbacks but to be honest I think we were spending beyond our means anyway so I feel this was inevitable.
After months of trial and error I think we may have finally come up with a working budget. Now the trick is to stick to it…
Setting Up Our Budget
I have kept track of my income and spending via some sort of personal finance software for about 15 years. This seemed manageable when it was just me, but looking back I’m not sure I ever really had a good grip on my finances. I knew roughly how much money I had left in my accounts to spend and where my credit cards were at but that was about it.
Since I now take care of both of our finances things have gone from bad to worse. I think there was just too many accounts and credit cards for me to keep track of. One day I would look at a particular account and think we had done alright this month, which would probably be followed by a few treats. Then a couple of days later I would notice that the reason one account looked good is that the money was supposed to be used to cover something else…
Then I came across Unautomate Your Finances by Adam Baker, who writes one of the few blogs that I still read regularly, Man vs Debt. Anyway the book made me really think about my relationship with our finances. It takes you through a process to help you really understand where your money goes and gets you to create a simple budget along the way. This budget then helps you save for any luxury purchases you may want rather than just chucking it on a credit card or some other form of credit and worry about paying it off later.
Luckily the only debt we currently have is the mortgage and our credit card bill gets paid in full each month. So we are not creating this budget to get ourselves out of debt. We just need a little help to control where the money goes.
The book suggests using cash only for a while which forces you to keep track of how much you spend and what you spend it on. The added bonus with this is that as long as you restrict the amount of cash for a category, say groceries, and then there is no way to go over your budget.
We tried this for a month but it got very confusing working out which pot to take the cash from… Shirley says that I tend to overcomplicate things and I can’t really disagree here…
Anyway this exercise did make it quite clear that money was going out in more directions than we realised. This did, however, help improve the budget to make it more realistic.
The only thing about Baker’s budget that caught me out was what he calls the Irregular Fund. This allows you to cater for any bills that come in throughout the year by sharing the yearly cost out over each month. That works great, the issue is that when the bill comes in he suggests that you also take it out of that months income, only using money from the Irregular Fund if you haven’t got enough to cover the expense. For expenses that you can easily cover it basically means that you take the value out of your income twice. His reasoning is that he wants to build up a years worth of irregular expenses as a savings buffer but I had set up a decent Emergency Fund for my buffer.
Anyway after a few months of using the budget from this book things are starting to come together. The only thing left to do is to keep actively tracking the different categories to help stay within our budget.
Staying Within The Budget
Trying to keep track of all the areas of the budget at once can be a bit too much and so I started by focussing on specific small areas of expense. When I came to check at the end of the month I would always find that some of the areas that I wasn’t actively checking had gone over budget.
I currently use GnuCash as my personal finance program. There are a few quirks with it but it basically works and it can keep control of as much or as little as you want to. As I mentioned earlier I do have a tendency to overcomplicate things so I think I go into far too much detail and this seems to take up more of my time than it should. To make things worse the categories aren’t really set up to match the budget properly and so even with the finest of detail being stored it doesn’t help me actively track things against our budget very easily.
…IDEA… I think this should be my first project…
I need a simple program to keep track of our budget. It will need to allow entry of the details from Baker’s style of budget and allow us to allocate any excess into different savings pots. As an added little hook I want to see visually where we are with each category and savings pot rather than just have to look at the numbers…
To start with I think a Windows application would be best as that is what I can do right now. I can then look at expanding on this to create an online app or maybe an iPhone app down the line but I just want to get something created for now.
Image: Pete O’Shea