Creating the Budget

 In part one of a three-part blog series, we shared how to have a good budget meeting. We mentioned some of the things we have learned, such as schedule the meeting, meet offsite or away from all distractions, use budgeting tools to help you budget, come up with your plan, and execute. And of course, be ready for the unexpected.

In this post, we want to share some of the budgeting tools and how-tos that have worked well for us. Most of what we have found to work comes right out of Dave Ramsey's Financial Peace University teachings.

One key to good budgeting is creating a zero-based budget, meaning you budget and account for every single dollar that comes in and goes back out. What this means is after you have accounted for all your expenses, whatever is remaining is used towards debt, thus your bottom line is zero. Sounds great, right? It is, except this requires you to predict how much money is going to be spent before your budget month or week has even started!

For me, the EveryDollar app has been a great tool for creating this budget. Like any other budgeting tool, you enter your income and you enter in expenses. While entering in your expenses is easy, knowing what those expenses will be ahead of time can be tricky. Because we have been faithfully budgeting for a while now, we know electricity and water consumption will go up in the summer. We know those will both go down in the winter but that we will see a spike in natural gas. We know our grocery bill will increase over school breaks, holidays, and anytime we may host guests such as birthday parties and such. We know our fuel costs will increase anytime we have expected travel, and that same travel will increase our “restaurant” budget as well. These are all things we have learned to expect AND talk about before the money starts flowing out. One thing I particularly like about the EveryDollar app, is that I can enter in expenses as they occur and then I know exactly how much I have left for that budget item. 

While the tool can help us track, it is up to us to be accurate with our expected expenses. I think one of the hard parts for us is admitting how much we want to spend on any particular category. For example, if one of our kids is having a birthday that month, we have to be up front about how much we expect to spend for that birthday. If we know we want to be a little more extravagant, we have to decide that up front and account for it. If we know we want to be a little more lean, we have to decide that up front and make careful choices not to go over. One particular expense that continued to creep up and could really blow our budget was kid expenses: field day t-shirt, school pictures, choir dues, band banquet, etc. This was particularly hard in August and May. We have learned, in August and May, add a budget line and enter in what we expect the cost to be. I’m telling you, it’s no fun admitting on August 1 how much you will pay in unexpected kid expenses, but it does hurt less than coming up short before the budget’s end. 

Something else that was a struggle for us was how to account for recurring expenses. Not monthly expenses like a utility bill, but things like haircuts and car maintenance. For years, Brandon wanted to create our zero-based budget by accounting for those expenses every single month. Meaning, if family haircuts cost $500 per year, then we will deduct $42 every month to account for that expense. I struggled with this because I knew if we had a month with no haircuts, we were probably going to need an oil change in one of the cars. I will not say there is a wrong or right way to budget for these things, but I will say you should be on the same page and follow through with whichever way you decide will work for you.  We have decided to budget for expenses as they occur rather than having a sinking fund. 

While I have learned to be better about the monthly budget, Brandon really likes the big picture, get-out-of-debt numbers and timeline. He likes to figure out when we will have a loan paid off, how much we can then put towards our next loan, and when all of the loans will be paid off. I’m talking down to the exact month and dollar. This does not interest me as much, but I am happy to sit next to him while he plugs numbers into his Excel spreadsheet. I do like knowing there is light at the end of the tunnel.

The final part of having the right budgeting tools is using them. I’ve had the EveryDollar app on my phone for years. I have used it faithfully for months now. Turns out, it only works when I do.

You may know that Financial Peace University teaches using cash envelopes for expenses. We have done this in the past, but we have decided, together, to use the budgeting app to track expenses and to not use the cash envelopes for every single expense. Using cash envelopes is a great method to use to get one’s expenses and spending on track. We have gone back to using them exclusively when we are tightening up and getting back into the routine of following our budget. We have found that once we are calibrated again, we can successfully use the EveryDollar app and not use the cash envelopes for every expense. We do still use cash envelopes for things like birthdays. We gift our kids with experiences for their birthdays, such as concert tickets, a weekend out of town, or a one-on-one special shopping day. We budget the money during their birthday month, place the birthday budget in a cash envelope, and then hold it until the specific event occurs. This has been a great way to follow our budget and to make sure the birthday fund doesn’t “disappear.” Ultimately, what’s most important is that you find the way that works best for you.

Lastly, you are your best chance at taking hold of your finances! Really, if you set your mind to do it, you can and will do it. For years, Brandon and I sat back allowing month after month to dictate when and how our dollars were being spent. We would “look at our budget” at month’s end, which really meant we would try to figure out where all the money went. We know now that we can take control before the money is spent, we can tell our dollars where to go, and we can reach our goals—even when the unexpected happens, because we expect it to happen. 

We would love to hear your questions and comments! Please, let us know your favorite budgeting tools, tips, and tricks. Feel free to ask us whatever is on your mind about this process. We are happy to share what we have learned!