Definition of Budget according to Yahoo: The total sum of money allocated for a particular purpose or period of time.
Definition of Budget according to Me: Organizing your money so you don't end up without heat and a home.
In August of 2012, I was looking for a different and new way to keep track of our money. Our system at the time just wasn't yielding as much savings as I was hoping for but most of all, I had no idea where our money was going. Sure I knew it was going to the mortgage, electric, water, groceries...blah, blah, blah. BUT, what about the money AFTER the bills? I needed a new system that I could SEE where every last red cent was going. After doing a tinge of research (OK, maybe a little more than that), I found a system I was ready to try. I stumbled across another fellow bloggers system from the book called 'America's Cheapest Family'. I purchased the book for my Kindle, here is the link: http://www.amazon.com/Americas-Cheapest-Family-Right-Money/dp/0307339459/ref=sr_1_1?ie=UTF8&qid=1398125477&sr=8-1&keywords=America%27s+cheapest+family . This book is jam packed with information and great ideas but the only section I was really interested in was the budget chapter.
After reading and re-reading this section, I was ready to get the ball rolling and implement this new system. It took me the better part of 4 hours to get everything arranged, calculated, and organized (duh), but after 1.5 years, I'm very happy with the results and the system. Of course over the 1.5 years of using this system it has needed constant tweaking to fit the needs of our family, but in the end, it all works out. I will be the first to say that you need to dedicate 1 full year to this budget for it to work. It takes getting used to but it's VERY doable!!!
*Before I get into the actual nitty gritty of our budget, I can without a doubt tell you the ONE thing that will make a budget work. THE ONLY thing that will make it work. Can you guess what it is? That's right!!! Have LOTS of money!!! Just kidding. Will power. It truly boils down to having the will power to make the budget work and to keep yourself (and your buckaroos) in check. If you have the will power (and I suppose determination as well), then a budget will work. This may just be one girls opinion, so you can sure take it or leave it.*
The very first thing that I did was got out a sheet of paper and wrote down every last MUST pay bill we had each month/year. YES, you read this right, each YEAR as well. These are just examples of what may or may not be on your list:
-Mortgage - monthly
-City bill (water and sewer) - monthly
-Garbage - every other month
-Cell phone (hate this one - they're all crooks) - monthly
-TV & cable (I'm trying to get hubby to agree to get rid of cable-not happenin') - monthly
-Insurance (home, vehicle) - monthly
-Life Insurance - yearly and twice/year
-Property taxes - twice/year
-Vehicle registration - twice/year (only because one is registered under Hubby and one under mine)
-Daycare - weekly
-Vehicle payment - monthly
-Credit card - monthly
-School loans (um, yuck!) - monthly
-Credit card - monthly
-School loans (um, yuck!) - monthly
Some of these things are MUST to put into our budget. These are bills that MUST be paid. Weather it's weekly, bi-weekly, monthly or annually...bills are bills. They need to be paid. Period.
My ultimate goal was to calculate each category to find out how much money needed to go into that "account" each time we got paid to meet the bill total. We get paid 26 times/year, so I did some number crunching to figure out how much certain "accounts" would need every other week. For example:
Life Insurance = $300/year --> divide that by 26 (number of pay checks/year) = $11.54-->$12/p.c. (pay check)
I round up to the whole dollar amount for each one - makes a little tiny cushion over time. In the Life Insurance account alone, you'd make $11.96/year off of just rounding up to the nearest dollar amount. More on this later. Back at it:
Now, some categories for us simply cannot be calculated the same way. For example, our mortgage is a once/month payment, we get paid at least twice/month so I calculated it this way:
Mortgage = $500/month-->divide that by 2 (number of pay checks/month) = $250/p.c.
Now, you're probably thinking, what about the two other pay checks throughout the year? Well, you can do whatever you see fit for those amounts. We'll use the Mortgage as an example:
With the above calculation, we would only be putting money into the Mortgage account 24 times in a year, but if there are 26 pay checks in a year, that would mean that we would have $500 (the equivalent of 2 pay checks) each year to do what we wish. You could:
1. Put that $500 towards the principal balance of your Mortgage.
2. Save that money in a savings account.
3. Spend it - we all need to have some fun!!!
4. Bulk up some other accounts in your budget (more on that later as well).
5. Pay off or pay down another bill such as vehicle or credit card.
The options are endless...
When I implemented this system quite a few of our "accounts" had to be pro-rated. Meaning, since I wasn't starting fresh with no previous payments or bills paid, I had to calculate a little differently. Perhaps you would have to add a little more each pay check to meet the bill goal, but once you paid that bill and had that "fresh slate" you could re-calculate and "deposit" a little less each pay check to meet the bill goal.
You'll notice that I keep using the words "accounts" and "deposit"...like it's a check register. Well, that's precisely what we use. Allow me to show you our "supplies" for the budget:
Essentially, our budgeting system is a bunch of smaller "accounts" with in the checking account. No, we don't actually have separate accounts at the bank for each "account" listed above, but we DO however have a binder that has each "account" individualized in it.
This is where I'm going to stop for today...I'm actually typing this post in real time. I've written this post twice already-deleted and started over. It's VERY difficult to explain via blog how we do it, so bare with me. I'll continue with all the leg work that goes into this in my next post on Thursday.
*Side note: the monetary estimations above came out of nowhere but my brain. They are not actual numbers that are used in our budget, but for ease of explanation, I used nice round whole numbers.*
Until then, have a most wonderful day!!!