(Note: This blog is intended to be read from the first post to the last post. You can find the first post here.)
Introduction
When I tackle a complex problem, I choose one activity as a point of expansion and work outward from that point. The action starts to solve the problem and detonates more ideas about how to solve the problem. If it's a logical challenge like budgeting, I make a spreadsheet to track the activities. The end goal in the next series of posts is to help you gather data which will be entered in the spreadsheet. Tomorrow, I'll provide a link to the spreadsheet.
Let's start with listing all your expected monthly expenses, and I do mean
all of them. This is uncomfortable for most people as listing the expenses will reveal areas that can be improved. Try to do it without judgement. Once you have listed the expenses, you will start discovering new monthly expenses. Add these to your list.
Expense Categories
The spreadsheet allows for eight spending categories. Two of these are mandatory: Food and Savings. The others are optional and you can combine categories or change them. Here are the categories I used.
1. Food
I include all food expenses in this category including eating out. This category is difficult to plan individual expenses, but a person can set a monthly limit on expenses. For now, set a daily food budget and try to stick to it. My budget is $10.00 a day per person which is sufficient to eat well every day. The number isn't as important as having a number to help control spending urges during the month.
These are my expenses for the first 10 days of this month. I shop for groceries almost every day because it prevents waste.
My monthly budget is $630 for two people, or $10/day for one person. (If you work in other currencies, the spreadsheet will work in other currencies.)
Your action step is to start making a log of every food expense you make. Initially, you can use a piece of paper to get in the habit. I like to save all my receipts until I can get home and enter the data in the spreadsheet.
The blue column designates which account the money comes from. The program will balance your bank accounts if you enter the data properly, but check your balance frequently. You will learn to use this column later after the planning phase is completed.
2. Utilities
This category is for obvious utilities and you can also add any recurring subscription services such as Kindle Unlimited, Internet subscriptions, etc. When you enter the item and the amount, it will increase the spent amount. After you have entered all your expected utility bills, enter the red number in the spent cell into the Budget cell. When the bill is actually paid, enter the account number in the blue cell.
If your utilities have a budget plan, I recommend using the budget plan or at least paying ahead during low cost months so your account has a credit balance when the big bills come. The concept here is to smooth your budget so it is the same each month.
3. Rent or Mortgage
Insert your rent/mortgage payment and any home equity loans you may have.
4. Household Supplies
Household supplies aren't expensive in the sense that they are a big percentage of the budget. However, if a couple of the larger expenses occur at the end of a pay period, they can lead to using a credit card.
Take a mental walk around your house and list everything you buy that can be considered a household supply. Then put a price next to the ones you plan to buy during the next month. When you actually buy something, insert the price as a comment so you have a reference for next time.
The total will appear in the Spent cell. Enter this amount in the yellow budget cell. This is a good place to add a little extra for things you didn't think of.
When you go to the checkout counter, put the household supplies at the end and note the subtotal before the cashier starts ringing them up. This will make it easier to log the cost. Don't forget to add the tax.
Enter the account number in the blue cells when you actually spend the money.
5. Loan Payments
List all loans other than car payments. Car payments will go under transportation.
Budget as much extra as possible for credit card debt.
Be careful about budgeting extra on other types of loans as they may apply it to a future payment instead of to principal.
6. Savings/Envelopes
Many people end up using their credit cards for infrequent expenses. A better way is to start saving for them before they occur. It's an expensive category, so do what you can and cross your fingers for the rest.
Some situation will eventually threaten financial disaster if there is not an emergency fund. Lost jobs, long illnesses, car repairs, and computer breakdowns are all examples of unexpected expenses that often cause a person to go into debt. If a person can afford the credit card payment after the event, why can't they afford to save before the event. If it's not possible, do the best you can. If it is possible, don't wish you had saved before the event occurred.
Some bills come once a quarter or once a year. Others come several years apart. The idea is to plan a monthly payment that will reach your goals. Put this money in a separate bank account and transfer it when you need it.
For example, this month, I funded only a few of the items so far. At the end of the month, I'll fund my Emergency payment if possible.
Tracking the cash reserve account is not yet a part of the spreadsheet, so it will have to be done manually. Resist the temptation to dip into this account for wants.
7. Transportation
Cars are more expensive than many people think. Some expenses are foreseeable, and others aren't. This month, I have car registration, so it's more expensive. I don't have a car loan, but sometime, I'll have to start saving for my next car.
I like to buy gas $10.00 at a time as it makes it easier to budget. Enter the account number in the blue column when you actually pay the expense.
For a person in financial difficulties, they should seriously consider not owning a car. This creates its own problems, but sometimes there is no other choice.
8. Other
Everything that didn't fit well into another category goes in this category. The bold print items are those that occur every month. The others are unplanned expenses during the month. If you exceed your budget, then increase the value in the yellow cell so it will help plan future months.
Notice, I have an expensive book budget. I have Kindle Unlimited and plan for four books a month costing $9.99. If I pay less, I enter the actual value.
Again, insert the account number as the expense is made.
Conclusion
This step is a ton of work if you do it conscientiously. It can take a few hours if done all at once, or it can be spread over several days. In the next post, I'll provide a link to a spreadsheet so you can get started with the serious work. Don't worry, once you have done the spreadsheet for a week or two, it only takes a few minutes a day to update it.
