Tuesday, February 1, 2011

Making a Budget

We just found out yesterday that Tom got a raise at this job! It's not huge, but it's definitely a good thing. We are both very thankful, as it will give us a little breathing room, and hopefully allow us to pay off some debt (car loan, student loans) a little faster. This means that today I will need to sit down with our budget to account for our changed income.

Which leads me to the following piece of strong advice: if you do not have a budget yet, MAKE ONE. It doesn't matter if you're single, engaged, married....I think it's a really smart thing for people to know where their money is going, and to make sure they are paying off debt and saving for the future.

Neither Tom nor I paid attention to how we spent money while we were dating. We both tended to have a general "idea" about roughly how much was in our checking accounts. If it was a number we felt comfortable with, we went and spent it to have fun - we ate meals out, went shopping, saw shows....really, whatever struck our fancy. Looking back at that time now, we are both shocked by the way we lived so carelessly. I wanted an iPod a few years back. So I just went out and dropped $250 like that. My camera broke - I just bought a new one. There were periods where I got a coffee at Starbucks every single day. I went clothes shopping all the time. Occasionally, I might find myself with a little more money than expected. So I would transfer a hundred bucks or so to my savings account. But there was no method to it at all. Just last night, while eating a celebratory dinner at a restaurant (our first time eating out in forever), Tom and I were marveling about how we used to eat meals out all the time - probably five times a week!

I think in some ways, you shouldn't regret your mistakes. Firstly, it just makes you dwell on the past, instead of focusing on the present. Secondly, you did those things. There's no changing it. Without those mistakes you made in the past, you wouldn't be where you are today. You've learned from it, and now you can know better how to avoid them.

So it might have been nice if for all those years before we were married, the two of us had been carefully saving money, and learning moderation in our spending. But if we had done that, we wouldn't be the same people today. We would not have all the fun memories we do of exploring the city, having adventures, or of going out with friends and growing closer to them. It's impossible to say how things would be different in our relationship, but in some ways, they probably would. We learned about each other under many different situations and circumstances that we wouldn't have done otherwise. If we had never spent that money, we wouldn't know what it was like to go on a spontaneous roadtrip to New York City together, or see the Symphony, or play board games for hours while sitting in a smoky booth at a bar. Dumb stuff, really - but they're a part of our history. While I don't consider the money "wasted," I definitely have learned from my past recklessness, and intend to spend more deliberately from now on.

It took us forever to finally buckle down and make a budget. The subject came up from time to time, but we were never motivated enough to actually do anything about it. Our engagement, and especially our marriage, caused us both to become a little more cautious with our spending. We cut down on purchases, and some of our outings. But we still weren't monitoring our money at all. Both of us were working at the time, so we were bringing in enough money that we didn't hit any problems. But then Sly was born, and our income was suddenly dependent on Tom alone. While making a withdrawal from the ATM one day, Tom did a balance check, and called me with the startling news that it was very low. "How much was in there last week?" he asked. And I told him I had no idea. Which is when we realized that we really needed to start following our finances.

I sat down that afternoon to figure out exactly where all our money was going. On the banking website, I was provided with the transaction history of the past two months. I created a big Excel spreadsheet with different categories for the places that money was going, and began entering values into the appropriate ones. I was stunned to see that for the past two months, we'd been spending almost DOUBLE the amount we had earned. And so much of it was going to unnecessay things. I am so grateful we caught that in time!!

So now, we pay close attention to our spending each month. There are many ways to make a budget. If you read Kimberly Hahn's book Beloved and Blessed, she goes into detail about her family's system. They are very strict about where money is allowed to "go." Automatically, 10% of what they earn goes to a tithe to the Churh, and another 10% goes to savings. The rest is divided up into categories, which each receive a set amount per paycheck. It's basically the "envelope" system, where each month you have, say $150 in the envelope to spend on groceries. Once that envelope is empty, you canNOT spend any more on groceries until the next paycheck. I think this system might be good for some people, but I wanted something with more flexibility. Our "budget" is more a way to pay attention to exactly where each penny is going, and to cut back on anything unnecesary.

I have three major categories in my spreadsheet. There's the monthly income, the expenditures that are necessary, and ones that are unnecessary. In the necessary expenditures section, I include: rent, utility bills, loan payments, gas for the car, groceries, public transportation fee for Tom, money to give to the Church, and a "miscellaneous" category to which I allot $200 a month. Miscellaneous, but necessary spending might include an oil change on the car, turnpike tolls when visiting Tom's family, stamps at the Post Office, etc.. Basically, it's just a little buffer where I can throw in extra things that we needed that month. The unnessary categories are: "stuff" (a very catch-all category that includes clothes, thrift store purchases, hardware store supplies, trips to the drug store, etc.), eating out, entertainment, and gift-giving. Obviously, some of the "stuff" or "gift-giving" could be argued to be necessary spending at times (we're all out of soap and don't want to smell bad, or it's Christmas and we can't not give a gift to our parents). But they still stay in the unnecessary category.

The way we manage all this is that for each of those categories, I also assign a budgeted amount. We start with the value of our "expected income." And then I allot a certain amount for all the necessary things: rent, groceries, etc. each month. It's not so strict as Kimberly Hahn's method, where I canNOT go over a certain value, though. I try to keep within my budget, or even spend less, if possible. But say one month, we have a party, and so needed to go over budget on groceries. I'd consider the extra spending to be part of the $200 of "miscellaneous" that I accounted for already. After all the necessaries are accounted for, anything that is leftover each month (from our expected amount) is "allowed" to be spent on unnecessaries.

There is no section of the budget which forces us to put money towards savings each month. Maybe that's not the smartest idea. Right now, we have enough in our savings account to get us through for a little while, if something should happen. So any leftover money we find ourselves with at the end of the month ends up going towards paying down our loans a little faster.

I don't think there's one right way to budget. Different families need different systems. But my recommendation to everyone is that you always know where your money is going, and make sure that unnecessary spendings are not frittering away a significant percentage of your income. It brings such peace of mind to know that you will never be surprised by the state of your checking account. And it definitely helps you to become a better steward over the good things God has given to you.


  1. I've been thinking a lot about how you keep telling me to make a budget. I actually sort of started one a while back, basically just making a spreadsheet of how much I had spent in each category for the previous two months or so, with the intention of going from there. But it just seems like I have SO many "miscellaneous" expenses with the wedding... extra trips home to Toledo here, pay for honeymoon there, etc. And I have such a variable income too, in the winter especially--since I'm hourly, it changes based on how many days are in the pay period (10-12), how many cancelled home visits, how many snow days/delays... And I have to save up for the summer since I'll have 6 weeks without pay. Yikes. I think I'll just stick to my method of trying to save now and be more diligent after the wedding when things hopefully even out more...

  2. Oh hey, have you ever tried mint.com? Chuckie just showed it to me, and as paranoid as he is about giving out his information, if he uses it it must be safe... I just connected it to my bank account, its pretty cool, and so simple!