Budgeting – An Easier, Smarter Way

This past month, I actually did a full blown budget. On or around January 1st I wrote down exactly where every dollar was going to come from, and where it was going to go. Then, at the end of the month, I checked our bank accounts and pay stubs and compared those previously budgeted numbers to what I had actually spent. We did OK. It took a long time, but it was a fun process (yes, I’m a nerd). It also taught me something new: I don’t need to do full-blown budgets more than once a year; there’s an easier way now that we live below our means.

What’s the Point of Budgeting?

Before I dive into my approach, let’s look at why we even sit down to do a budget. Here’s how I think the motivation for budgeting can be summed up:

budgeting increases your “understanding” of your financial situation; that “understanding” coupled with a few actions brings about “control” over spending; the “control” allows you to live within your means and make room for savings and other goals.

With those points in mind, let’s look at what I’m proposing…

An Easier, Smarter Way to Budget

Most people live off of a pretty steady income and most people’s spending tends to be the same from month to month, like mine. Therefore, after only one month of doing a complete budget, most people will have gained a pretty deep “understanding” of their financial situation. At this point, items on a budget can be put into three categories:

1. Income and expenses that will not change from month to month. Items in this category should be removed from your budget until you do a complete budget again next year. For me this includes things like our paychecks, mortgage payment, and utilities. If you are paranoid about removing these items from your monthly review, then incorporate a monthly expense tracker like I have.
2. Expenses that need to be eliminated. Looking at a full-blown budget will shed some light on some expenses that you can get rid of, especially the expenses that you discover are causing you to spend more than you make. Once you close these accounts and make your final payments, you can remove these items from your budget.
3. Expenses needing “control”. These expenses are the ones left over after you’ve determined your fixed expenses and after you’ve eliminated your unnecessary expenses. These are really the items that need to be kept in your budget and monitored from month to month because they are the ones that determine whether you are living within your means. For us, this has consistently been dining out, clothing, household goods, and entertainment.

Therefore, my point is that any budget should focus on the third item: expenses needing “control”. What are your expenses that need control and do you have the right focus on them?

My New Plan

What I plan on doing going forward is to build a budget based on these four categories that need “control” and utilize my tracker for keeping track of bill payments and account balances. It’s by no means a perfect system, nor is it for everyone. However, it’s sure to keep me focused on the items I can control. And that’s what’s most important when it comes to budgeting.

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Photo: by ansik