Feasting on Debt: Bringing Budgeting Back

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On the shelf behind our bed sits a gallon water jug with the label haphazardly torn off, the words still somewhat visible where the glue was too strong. Our loose change goes there, a jumble of shiny coins that were otherwise destined to find homes under the couch cushions or in the car tray.

Not many coins go into that jar, so this miniature nest egg is hardly feathered. Still, the reminder of it there every morning and night helps keep my eyes on the long-term prize. A prize of a life where that collection of coins represents all that we’ve worked for: one that is debt-free.

A few years ago, I wrote about how we were working on paying down debt. I’m a little embarrassed linking to that, because if we had been diligent, all our debts would be paid off.

Of course, since then we paid for a kitchen remodel with cash and brought a new family member into the mix (and the bills that go with that), so it isn’t as though the pennies were frittered away. Still, looking back at that post has me more determined to finish what we started.

Budgeting is thought of as a dirty word. Any sort of money matters are considered private, gauche to talk about, and because of this many of us are deposited into the world with no real understanding of how to handle our paychecks or the free-T-shirt credit cards we signed up for in college. With all the supposed focus on math in schools, it seems that simple household financial management would be a requisite. And yet, I still meet people my age and older who have never set a budget, instead careening between paydays.

Why Budget?

Aside from the obvious (i.e., not running out of money before payday), budgeting provides an incredible piece of mind. Yes, it can be stressful and even scary to see the numbers splayed out in front of you. But just like the fire ants that are taking over your my yard, ignoring it won’t make it go away.

By most accounts, we make a good amount of money for where we live. And yet, if we don’t budget, we’re dipping into our savings here or using a credit card there. Now that the U.S. is a plastic-based, rather than cash-based, society, it’s all too easy to fritter away your dollars.

Get Started

All you really need is a pen, paper, and access to last month’s transactions. There are worksheets available online to help; my favorite is Dave Ramsey’s Monthly Cash Flow worksheet (PDF link). Suze Orman also has a budget calculator on Oprah’s site.

First, write down your projected income for the month. This is easier if you’re salaried, of course, but it’s possible with freelancing as well if you know what projects will be paying you. Now write down all your expenses. Don’t forget invisible spending, like trips to the coffee shop or the random gift you have to contribute to at work. Include any savings as well. Assign an amount to each, basing it on last month’s transactions as well as what you predict for this month.

Your goal is to end up with zero at the bottom of the page. I know that might sound weird, but trust me — knowing exactly where all your money is heading, even the fun money for a random new book or outing, helps in the long run.

The average breakdown of categories is:

• Housing: 25-35%
• Car payment, gas, etc: 10-15%
• Utilities: 10%
• Medical & insurance: 10-15%
• Food: 15%
• Savings: 10-15%
• Clothing, entertainment, child care, etc: 20%

Keep in mind that your own percentages might be different depending on your location and size of household.

Now What?

As the month goes on, write down what you actually spent on each expense right next to your projection. Then when you go to do the next month’s budget, you’ll have a good reference and can tweak accordingly.

You can download apps to help track, or simply use the pen-and-paper method. We use iBank, but I’ve found that if we haven’t budgeted in a while (or if you’re new to it), writing everything down by hand helps you better understand where your money is going.

If you slip up, it’s OK. No one is perfect, and unexpected expenses sometimes crop up. However, staying in control of your recurring expenses will be a benefit when those surprises occur.

In a few weeks, I’ll be talking about grocery budgeting and issue a spending challenge for February.

Do you budget every month, or is the idea scary? I’d love to hear your tips!