The Finance Fiend

Getting Financial Freedom by 35!

Budgets: Part 2 How to balance it! March 27, 2009

Filed under: Uncategorized — Rebecca @ 1:00 am
Tags: , ,

Anyone can sit down and write out how much they should be spending on everything, but most people rarely follow their budget.

Why?  Maybe its because they were to tight on the purse strings. Budgets aren’t a one in a lifetime occurrence. Things change every month and sometimes every day.

The easiest way to stick with it is to sit down and balance your budget.  Its similar to balancing a checkbook, not that many people do that anymore.

Now take my utility portion of my budget for the month:

Water/Trash $55.00 52.96 bill pay 3/25
Internet/Phone $20.00 19.95 bill pay 3/18
Gas (Black Hills) $60.00 116.04 bill pay 3/27 inc. feb
Electricity/WeStar $45.00 46.39 bill pay 3/09

Column one is the utility, two is the amount allotted to it, three is the actual cost, and 4 is notes.  As you can see I have estimated values for each of the utilities, but none of them are the same. Some are a bit lower, one is much higher because smart me scheduled the bill pay for March instead of February. What I do in Excel (you can do it in your choice of spreadsheet or software) is keep a running total at the bottom of the page.

In that total, if that total is positive its black, and negative its red.  (I like the visual reminder that I am not doing well.)

In next month’s budget (April) I will go to my income cell and enter the equation “=[cell number at bottom of budget]+incoming funds” So in my case it would be “=C26+850.64+106.23+…” So the 850.64 was a made up amount for a paycheck, the 106.23 was other outside income, etc.  That way if I have $26.54 extra at the end of the month, I can carry it over to the following month’s budget.

Now, just because I moved the amount into April’s column doesn’t mean I have an extra $25 to whatever I want with.  It means I need to figure out where I want to put that $25.  We are paying extra toward our mortgage so I would go to the cell for the amout paid to the mortgage and enter the $26.54 (in effect removing the extra income from the budget).

At the end of April, if I am in the red $2.54 (that means I spent $2.54 more than I made) I will actually subtract that amount from my income for May, and take $2.54 from the extra money paid to the mortgage.

My goal is to keep my budget balanced enough that I never have a variance of more than $5.

This does mean that some things I will mark as being paid, even if they are currently in the bank account.  Take our car for example.  April is the month we renew our tags and pay taxes on the car.  But, coming up with a couple of hundred dollars for this from April’s budget would make things tight.  Also, this is not an emergency, so I can’t justify using my emergency fund.  So how can I write the check for $250? Easy. Last year I know I paid $264 to renew my tags.  I can assume my car has lost value this year, but tax rates might increase, so I will budget money towards renewing the tags based on the amount I spent last year. So every month I will put down $22 in the car tags category, even though no money for it is coming out of my bank account.  Then come April I can find out that yes my car has dropped in value since its a year older, and the amount I need to pay is only $245. I can write the check without wondering if I have the money, and take the difference between the two and take it out of April’s budget.  This means that for the month of April I will effectively pay $3 towards my tags.  The surplus $19 will carry into next month and be redistributed as needed. {This also means that my new amount budgeted toward car tags will be $20.41/month.}

Did I lose anyone?

I know that I always had problems following word problems in grade school.  So if you want more explanation I can try and give it.  Maybe with pictures. If possible.

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