Thursday, March 8, 2012

Breaking down the budget

This post is a part of Women's Money Week 2012. For more posts about budgeting, see Budgeting Roundup.

I didn't know much about budgeting when I was growing up. I'm sure my mother had a budget, because she's smart with money and doesn't waste it, but I don't recall ever hearing numbers. If I wanted something, I usually got it unless there was another -- non-monetary -- reason for saying no to the request. And there were certainly items pressed upon me -- mostly clothing -- that I didn't want. I think if I'd heard, "It's time to buy back-to-school clothing. We have $XX to spend on it. What do you think you need?", I might have understood the process better. Instead, I slogged through clothes shopping (NOT my favorite!), offered up anything that seemed like it had a possibility of being accepted by my mom and wasn't a total pain to wear, and then she took it to the counter to pay for it. It was kind of weird how price wasn't mentioned. (This is an example of what my sweetie means when she talks about the differences in our backgrounds.)

So, once I'd secured my first full-time employment after college and made it through the inevitable upswing where I bought everyone way too many Xmas presents, I didn't immediately start budgeting. I just looked to see what money I had, and if there was enough in the account, I bought whatever it was I wanted. Ugh. I still cringe to think of how much cash slipped through my hands, and how much further ahead I'd be today if I'd put it toward retirement or emergency savings instead. Thankfully, I stayed out of debt -- I wasn't interested in having a credit card, and by the time I was, I wasn't the best prospect. My thin credit file worked against me, but that's a story for another time. Today I'm writing about how I budget, and what I get out of it.

I use for my budgeting. It keeps track of my purchases and applies them automatically to the corresponding category. Here's a sample breakdown of my current budget:

First I use Mint's section for Income. I know about what my paychecks will total, after insurance, taxes, 401(k) contributions, HSA contributions, and transportation FSA contributions are taken out; that amount gets a budget line called "Paycheck". There's also one for "Reimbursement", which I use for the repayments I receive on a personal loan. Other income (dividend payments, gift money, credits, etc.) is lumped into another line.

Under the Spending section, I order my expenses from highest to lowest.
Church Pledge
Cash & ATM (which I rarely use, but have as kind of a slush fund to cover any overages in other areas)
Storage Unit Rental (I'd hoped to eliminate this when we were thinking of moving to a larger apartment, but we're still in the 1BR.)
Mobile Phone
Groceries (for the occasions when I do the shopping)
Personal Care (this line has a feature that marks it "every couple of months", so it only shows up as a budget item on alternate months, but every month half the money is held)
Clothing (I set this line to roll over, so a small amount is budgeted for each month, and eventually I have a large chunk to spend on my annual outlet spree.)
Pharmacy (regular costs for medications)
Movies & DVDs (the category I use for Netflix payments)
Books (This one is funny. I set the budget to zero, but all of the transactions for purchasing Read Aloud books collect there. They're reimbursed by the foundation, but in the meantime, I have a deficit of several hundred dollars from the last 6 weeks.)
"Everything Else" puts any other expenses in this category. I usually have a couple transactions in here, in addition to regular transfers to savings accounts. Sweeping this category to see what got put in here usually alerts me to anything having been miscategorized. (My AIDS/LifeCycle donation, for example, was marked "Transfer to 401(k)" by Mint. I changed it back to "Charity".)

Mint also provides a section for Goals. Here all of the monthly payments for my recorded savings goals are listed. These amounts are added to the budget amounts from the Spending category, and then that total is subtracted from total Income.

Left over

If there's anything left over, I have the opportunity to send that amount to savings. (Sometimes I'm in the negative, because of the pending reimbursement.) Mint even tells me how much sooner I'd reach each of my goals if I did that every month.

I don't budget down to the penny. Thankfully, I don't have to. Sometimes I overspend in the Restaurants category, for example, and it rolls over into the next month's budget, so I have less to spend then. Sometimes there are unexpected expenses -- like the new lock on our storage unit to replace the one that the key broke off in last weekend. Knowing a rough outline of where my money needs to be spent before the month starts, though, helps me plan for little splurges and occasional mishaps while still meeting my obligations. Instead of saying to myself, "Oh, there's money left over and it's payday again -- I have lots to spend!", it's more like, "I have leftover money from this month's budget -- where can I add it to savings?" That feeling of "OMG WHERE DID ALL THE MONEY GO" -- at tax time, near the holidays, or any time I'm used to feeling tapped out -- is soooooo much less frequent. That peace of mind and confidence is why I choose to budget.

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