how i budget

January 17th, 2008

How I Budget

I talk a lot about budgeting, and at Sense To Save this week Kacie asks for people to explain the nuts and bolts of how they budget and how it works for them. I feel like the process of budgeting has had a really positive effect on my financial state of mind, as well as our progress towards our financial goals, so I jumped on the chance to expound on that. In my Budgeting for Dummies Series I have discussed methods of conceptualizing and creating a budget, but I’ve never really delved into my own preferred way of budgeting in any detail.

First off, I am a spreadsheet kind of budgeter through and through. Even before I started a more formalized budget where I tracked all of my income and expenses, I budgeted with a chart of my bills on a piece of paper. That’s what is comfortable to me. I don’t use a program that automatically uploads anything, because I feel like the process of entering the data myself helps give me insight on where my money went and how I spent it.

For my budgeting needs, I use PearBudget – but I am still using the old version that was spreadsheet-based. I have not tried the new version, and I know it is different. So I can’t yet recommend a specific program to use, with starting my tutoring job I honestly haven’t had time to play around with anything new and just recopied my old PearBudget spreadsheet to use for now. Basically what it is is a spreadsheet system but set up so it does a lot of the addition and other calculations for you. Again, I am a spreadsheet budgeter – I love to play around with numbers and crunch them.

A budget works for me in three ways:

  • it shows me if my ideas about how much we need to spend in a month is realistic based on the amount of income we have coming in
  • it causes me to track my spending in categories so I can see where my money really goes
  • it allows me to have a plan to save up for irregular or emergency expenses

The basis of my budgeting method is that I have an overall plan for how much I need per month for a variety of categories via a list of categories and a dollar amount assigned to them, and then each month I do fine tuning to adjust for the variations that happen throughout the year in cash flow and expenses. I have a dollar amount every month for how much I think I will spend in certain categories. This is not how much I *aim* to spend, it is the maximum I am willing to spend, and I *aim* to spend as much less than the budgeted amount as possible. Once I have determined how much money I have coming in, and I assign it to categories, I know how much I should have left to put towards paying down our debt. And with a budget, if we have $3000 coming in each month, I can’t set up expenses like I have $4000. I need to make choices about my priorities and learn to be realistic about what I have. This is a key concept to successful budgeting.

I do have an overall “generic” budget per month based on our average monthly income. For example, I budget $130/month for gasoline. But every month at the beginning of the month, I go into that month’s spreadsheet and tweak the numbers if I need to. If I know we’ll be taking a long trip, I can up the gasoline budget and lower the utility budget. If I know we’ll be having company that I need to cook for, I can raise the grocery budget. The key is, with a tracking system, I can tweak but keep my eye on the fact that my overall spending does not go over the prescribed limit of what is coming in that month.

To save for irregular expenses such as annual bills or car maintenance, I budget a specific amount each month for these categories, and any money not spent each month gets carried over into next month’s budget, not snowflaked. So if I have $150/month budgeted for car maintenance and I spend $50, I carry over the $100 left and the next month, the amount available is $250. I do this both on paper and in my actual checking account. A budget is useless if it doesn’t reflect reality. In fact, I frequently check the value on my budget sheet for how much money I have left unspent against my bank balance to make sure they match. A budget grounds me in reality and that is a very good thing.

I aim to always increase the number available to snowflake to debt, and to do this, I need to find ways to spend less than I’ve budgeted in every recurring monthly category I can. As I come in under budget in categories, that money is now available for debt reduction and that is what it gets used for. No losing track of the small savings that happen month to month because I wasn’t paying enough attention. No more.

Without a budget, I never really knew how much money we still had available from what we spent, and a lot of my money got frittered away. The biggest revelation for me about a budget was the tracking of spending part. Once I started meticulously tracking my spending, it revealed to me places I could make changes and cut down what we had going out each month, as well as places I was losing track of savings and not putting them to good use.

Whatever the method is that works for you, be it automatic downloads and a web-based system, or a on your computer only spreadsheet-based one, I completely and truly recommend giving it a try. Understanding exactly how much money comes in and goes out has given me a feeling of power and control over my financial health I have quite honestly never had before. I can’t see myself ever going back to spending blindly and estimating in my head.

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24 Responses to “How I Budget”

  1. That’s about as ideal a budget as I’ve ever read! I think the part about saving each month for unpredictable expenses like car repairs (or even a new car) is key to any budget. We all know these expenses are coming, we just don’t know when so it’s worth saving for just like any other category.

    Good work — I’ll have to see if I can implement some of these ideas to improve my own budget.

  2. Great post. I think I can do it your way. My biggest problem is that my income has risen dramatically over the past few years and our sense of watching every penny has fallen by the wayside. I’m making more money than I’ve ever made, but have less to show for it than when I made half as much. Weird how that happens.

    I have to set aside some time to organize my financial life like you have.

    Thanks for a great article!

  3. Since I graduated univeristy and started working, I had very few expenses until last year. So basically when my cheque came in, I would pay the very few bills I had and the rest was spent whereever whenever. It was a great way to live, I went through a ton of money but I couldn’t tell you where hardly any of it went. Then I got married, had a child and bought a house all with in about a year. And it didn’t take long to realize that this way of spending wasn’t very sustainable! Fortunatly, my wife and I make good money so we didn’t go to terribly far into debt for day to day stuff, but we did pretty good racking up a line of credit doing some house renovations and paying for our part of a wedding and honeymoon.

    I started off tracking things in a spreadsheet I created, which basically helped me know which cheque paid for which bills but it didn’t really do much for keeping track of the spending we were doing on entertainment, eating out, etc etc. That was until I found this site which suggested Pear Budget. I downloaded it and at first it looked quite overwhelming and maybe a bit over kill for what I was looking for.

    But I set it up for December to track one month of spending and I found it quite interesting to track what was spent everywheres, and where we could make serious improvements to our spending. I showed this to my wife and we agreed to set it up for the 2008 year and follow it the best we could. It has only been a few weeks into the year, but the biggest change so far is we haven’t yet gone into our overdraft, which was sonmething we did every week before. It has been quite different opening our online banking and seeing extra money in the account.

    We have also put ourselves on a debt repayment plan, and whatever is left over from any of our categories each month, we are just going to throw in our debt repayment category and with any luck get rid of that debt in a couple years. We made ourselves a debt category in the variable exepense section, and I have set amount that I want to pay into it each month, but once we get over that amount or when we get unexpected moeny, I increase the budgetted amount so that I don’t just let that extra money just pay for part of the debt repayment that I would have done without it.

    Anyways, thanks very much for writing this site, it along with a few other PF sites have inspired me to get things on track. And the suggestion to check out Pear Budget has been the biggest help to us.

    I would recommend Pear Budget to anyone. It does take a few minutes to get your head around it, but it gives you a very good look at where things are going each month, plus it has a very nice analysis page to let you know how you are doing overall for the year.

  4. I’m a fan of Excel. I prefer to build my own spreadsheets. I agree that you have to realistic about how much money will come in. I also think a lot of people don’t really sit down and figure out how much money they spend every month in certain categories. I know that when I first started creating my budget, I was shocked by how much money I spent on food!

  5. @ Ryan – I also have a debt repayment category – I have the “snowball” ones (minimums on everything) and then the “snowflake” category where I put all my extra money to pay towards debt. Good call! :)

  6. I haven’t used spreadsheets much yet but may plan on doing so when my personal finances get more complicated in the near future. Thanks for the tips!

  7. I heart excel.

  8. It’s scary sometimes to see how much money goes out on necessary stuff (even like food and rent) but I also love that feeling of control you describe.I think you’re spot-on with your goal of spending less than you’ve budgeted.

  9. WOW! I just checked out PearBudget and I think I am going to really like it. It is also a great time to check out the new format because it is *FREE* until they are done with all the changes. I am really excited to start my new year out with such a neat tool!

  10. Really succinct article there.

    You struck a cord with me when you said you used to do it in your head and now you’d never go back.

    Well I do it in my head and have been for so long, but I couldn’t recall where its gone if you asked me.

    You are going to force me to think about changing my bad habits. That’s a good thing.


  11. I took a page from my Dad’s budget. He has a bills account where he puts in the same amnount each month to cover all his regular bills. I reversed it and have “my” acocunt where all our cash spenidng goes. Gas shopping eating out etc The kind of money that you tend to spend cash. I set aside the same amount each month (unless it’s a 5 week month) and than I work hard to stetch that money as far as possible. Any left over gets sit aside first for debt reduction and shortly for savings. I could reduce the amount I put in there but it’s fun seeing money left over each week.

    I also keep an overview budget (payments etc in excel)

  12. Those interested in a quick path to good personal/home budgeting may be interested to know about OOTD. “Out Of The Dark” OOTD is a powerful yet simple and easy to use online personal budgeting utility that is free to use and completely anonymous from the user perspective. I have used it for over two months now and it is too good to be free, it really helps seeing how a simple thing like good budgeting can make the difference between financial imprisonment and financial freedom.

    OOTD can be found at:

    Happy budgeting.


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