How to get my personal budget on track?
December 31, 2009 10:07 AM   Subscribe

How do I manage my daily living expenses better?

Right now, I split my checks into a living expense and a savings account via direct deposit. Unfortuantely after our son was born, my husband takes care of the childcare while I take care of utilities, groceries, mortgage, my bills, etc in full, on my own and it's kiling me.

I have some of my bills come out via autodraft but things like groceries, some other bills, and the mortgage, that is done by crafty wheeling and dealing until it gets so low I have to pull into savings and lately it's been coming close to the wire where I can barely pay the bills.

In short, my financial life is a mess. I noticed that my old bank--LaSalle would take out of my checking sooner than my new Bank of America, where lately my pendings look like I'll be ok then when they go through, I wind up with little money (an issue of balancing my budget).

I was thinking that maybe it's just better to take out $800 a paycheck and put it into another bank/checking account strictly for the mortgage and leave every other bill with Bank of America checking/savings and see where it goes. This way I 100% guarantee the mortgage money is taken care of.

Mortgage is $1,630 a month while utilities, credit cards, and groceries are $1,235 a month. This doesn't mention little things like gas, etc.

I have had personal budget, zero budget, etc. made for me by friends, used, etc and it just doesn't work out. I don't know if I'm just assuming too much and ATMing too much when in reality the pending and finally going through amounts are screwing everything up?

How can I get my personal life on track better? Do everything autodraft, ditch the ATM card and go cash, have multiple checking/bank accounts take care of certain bills and leave one for ultimate savings? Nothing is working so far and I want 2010 to be the year where my budget/expenses go smooth as pie without a worry.
posted by stormpooper to Work & Money (17 answers total) 29 users marked this as a favorite
Well, everyone does things a little differently.

What works for me is to create a budget in Excel and dump my monthly spending in it every month. But I'm sort of an Excel jock and I like doing that kind of thing and slicing and dicing the data different ways.

Other people will think this an awful system: too complex, too time consuming, too whatever.

The key to finding a solution, I think, is to understand where your strengths lie and use them.
posted by dfriedman at 10:15 AM on December 31, 2009

Ditch the autodraft (for now).

Save your receipts. Every single one of them. After a month of saving receipts, look at where your money goes. It will be obvious where you're spending too much money, and where you can cut back.

Then create a budget.

Determine how much money is coming IN to your accounts every month, then determine how much is going OUT via bills you absolutely must pay, like the mortgage, car payments, ultilities, etc. Call these your MUSTS.

Take your total amount of MUSTS per month and subtract that by the amount of money coming in. This is your OVERAGE.

Now, you still have other expenses -- stuff that aren't bills, but you still need to spend money on, like groceries, and gas, and pet food, and your children's clothes, entertainment etc.. Call these FLUIDS, because the amount you spend on them is negotiable. Write down every single one of your FLUIDS.

Take your OVERAGE and determine how much weight to give each of your FLUIDS on a per month basis. Write this stuff down.

Take the groceries FLUID as an example.

If you have $2,000 in overages, figure out how much money you can comfortably spend on groceries. Make a folder and label it GROCERIES and, on a piece of paper in there, write the amount you are giving to that "account" each month. Let's say $300. Every time you buy groceries, save the receipt, put it in the folder, and subtract from $300. If you're starting to get low in your groceries account, cut back.

Do this for each of your FLUIDS.

After a few months, you'll start to figure out how best to weigh (e.g. how much money to give) each FLUID.
posted by nitsuj at 10:22 AM on December 31, 2009 [5 favorites]

Response by poster: It seems that it's more of the unexpected things that come up. For example a friend held on to a $100 check for a month and just cashed it. While I know I should have accounted for that a month ago to today, I didn't because my son needed boots, I needed some repair for my car, etc. So that $100 assumption got eaten up and left me with a $100 negative in the account.

Or say wow, now the whole house has a horrific cold, etc. I need to buy medicine, prescritpions, etc. Again, the unexpected builds up and it dips into the on track budget.
posted by stormpooper at 10:26 AM on December 31, 2009

It seems that it's more of the unexpected things that come up

The key to this is budget for everything so that nothing is unexpected. Medical should be one of your FLUIDS. Children's clothing, car repair -- everything. Anything you spend money on should have a budget. You don't have to be rediculously granual, like have a budget for "Children's boots" -- but you should have one for "Children's clothing." Any category of Things you spend money on semi-regularly should be budgeted for, so that when you need it, the money is there. To be safe, have a "Misc" category as well, for any Super Weird stuff that slips through the cracks.
posted by nitsuj at 10:30 AM on December 31, 2009

Response by poster: So beyond the budget, is it best to have separate accounts as a safety net to say one direct deposit strictly for mortgage, one strictly for utilities/etc and one for savings?
posted by stormpooper at 10:32 AM on December 31, 2009

It sounds as if part of the problem is that you're relying on your ATM or bank teller to tell you how much money you have. This is simply wrong. Much of the money that's in your account at any given moment is already spent -- like that $100 check that got cashed a month after you wrote it. That money ceased to be yours the moment you wrote the check; the fact that your friend hadn't taken possession of his/her money yet is meaningless.

Learn to keep basic accounting records and balance a checkbook. When you want to know how much money is available, look at YOUR OWN RECORDS. Reconcile your records with the bank statement every month, but stop depending on financial institutions to tell you how much money you have; the financial institutions don't really know.
posted by jon1270 at 10:39 AM on December 31, 2009 [3 favorites]

I have a savings account that is strictly for emergencies - I keep $1000.00 and transfer money to my checking account as needed. It gets replenished as I get paid.

I also keep a $300.00 "cushion" that I pretend is not there in my checking account. That way if something unexpected happens I don't have to sweat it. I know it's a lot, and I could be using it for something else, but the peace of mind I get from having it there is worth it to me.
posted by lootie777 at 10:41 AM on December 31, 2009

There isn't a right answer. You have to play with options, and find what works for you.

Consider tracking your spending with something like Mint?

Also check out Get Rich Slowly, which deals extensively with these issues. (And the author is MF's own J.D. Roth.)
posted by semacd at 10:43 AM on December 31, 2009

Multiple accounts makes things more complicated. Complicating your finances will not simplify your life, but having the right kind of accounts will.

I think everyone should have three types of accounts:

• checking (to pay for things),
• savings (to minimize the amount lost to inflation on savings),
• and a retirement account of some kind (401k, IRA, etc.).

In your case, expenses are the troublesome part, so this relates to your checking account. You want to think about the function your checking account plays. Many of my married friends have 3 checking accounts. Each partner has their own account for their own daily expenses. They also have a joint account for bills and other expenses they incur together (like eating out together, but not eating out without the other partner). The trick is to figure out how much each partner contributes to that joint account, since partners rarely make the same amount. One couple I know contributes to their joint account in exact proportion to their salary. (He makes 60% of their joint income, so he contributes 60% of their joint account deposit.)

Your son is a joint expense, I would think about having his costs come out of the joint account. But it's not necessary, just something to think about. However, your bills should definitely come out of that account.

I suggest you skip a month or so of deposits into your savings account until you have a full month's worth of expenses in your joint checking account (or your checking account if you don't want to open a joint one). This is your first month in your emergency fund. (You should have an emergency fund that covers 3-6 months of expenses.) With this first month of expenses saved up, the checks you earn that month don't have to come in on certain dates for you pay your bills. The money is right there ready for you, and you won't live paycheck to paycheck.

Another part of the expense problem relates to your budget. A budget consists of two parts: a spending plan and a means of tracking your spending. A simple spreadsheet is enough for your spending plan. A simple memo pad is enough to track your spending.

If you open the joint account, you need to communicate with your partner what you spent so you know your balance. For your regular bills, your spending plan is probably sufficient for tracking those expenses. But for your variable spending, you might want to give yourself a weekly allowance. (This would work for your husband too, for example, all child related expenses should come to $200 a week or something.) With your weekly allowance, use the memo pad to track what you're spending against your allowance. This way you will stay on budget (because your spending plan gives you an allowance, and you track it to make sure you don't go over).
posted by ifandonlyif at 10:46 AM on December 31, 2009 [1 favorite]

I, too, use a spreadsheet to keep track of my finances. I enter all utilities, credit card payments, loan repayments, and everything else that has a regular occurrence, and I estimate the amounts on the high end if they're very fluid. For example, I'll look at the most I had spent on an electricity bill, and use that number for all future payments.

My income is direct-deposited solely into my checking account, and in my household I am responsible for all bills and utilities. If I have extra, I'll transfer that money to a savings account with higher interest, but only if I am absolutely sure I won't need that income anytime soon. My budget spreadsheet is projected out through the entire year and the next, and it helps me prepare for large lump-sum payments such as car or homeowner's insurance.

Even if a spreadsheet is not for you, one suggestion I have addresses this:
- ...where lately my pendings look like I'll be ok then when they go through, I wind up with little money...
- ...that $100 assumption got eaten up...

Perhaps any time you write a check, you consider that money gone. It's no longer in your account, you no longer have access to it, it's just vanished. Even for projected expenses, try to think of that money as being untouchable. Timing your expenditures based on when you think checks will clear or credit cards will rollover is an exercise in futility, and it's not worth the headaches.

This will also help you when it comes to the ATM. Do you know exactly how much money you have, again considering that pending payments are basically cashed out? If you don't, or are not sure, really think about whether you need that money from the machine. Same with credit cards. Will you be able to make the payment? Aren't sure?

It will be rough for the first couple of months. You'll probably have to sacrifice a few pleasantries like eating out, or toys, or nice clothes, while you build a bit of savings to easily handle those unexpected or spontaneous things. However, consider that currently you're living paycheck to paycheck, so "starting from scratch" is a good way to establish responsible spending habits.
posted by CancerMan at 11:08 AM on December 31, 2009

I found an overly detailed budget did not work for me, but YMMV. What I found was I would budget $100 for, say, clothing, and then one month I would not need clothing but I would need something else and my budget was not sufficiently flexible. So what I did was made a new budget where I started with what comes in, then began deducting the mandatory expenses (rent, bus pass, cell phone bill etc.) Then whatever I was left with went to 'everything else.' Some months, that would be clothes. Some months, it could be something else.

You also should check with your husband how much he is spending. If his share of the household expenses is less than yours you should redistribute things. Is child-care really costing him as much as mortgage and ALL bills is costing you?
posted by JoannaC at 11:13 AM on December 31, 2009

As jon1270 says, don't rely on the bank to keep track of your money. They do a good job of knowing exactly how much is in the account right now, but they don't know about the outstanding checks or the autopay that's coming out tomorrow. Once you've committed the money to something, it's no longer available to you anymore, regardless of what the balance at the ATM shows.

Disable the autodrafts for now (the only thing I have on autopay is house/car insurance, because I get a discount for that). Learn how to balance a checkbook. Write a check or authorise payment separately for every bill. Write those down in the checkbook immediately, then subtract them from your balance. Do the same with every single transaction -- $20 from the ATM? Write it in the checkbook. $5 at the coffeeshop? Write it down (on the cash sheet if you paid cash, in the checkbook if you used a card). Reconcile the checkbook with the bank statement every month.

Be prepared -- buy cold meds at the grocer in September when they're on sale; rather than getting them in December at the corner drugstore. Buy kids' boots in September when they're on sale -- even a 12 yo won't outgrow boots by spring. (how can winter boots be an unexpected expense, anyway? you know he's going to need boots this winter, right? If you don't know that, why didn't you know?) I've done my share of paycheck-to-paycheck, and planning ahead and being prepared was even more important then.

Have only one bank account. You just need to manage it. It doesn't sound like you're actually managing anything -- you're reacting. Learn to manage your money. Know where it's going and when, and how much is left. Do not rely on the bank to do that. (If you want, set up another account for savings, but don't have separate accounts for mortgage/utilities/groceries -- it's easier to lose track of what you're actually spending when you have more than one account to spend from.)
posted by jlkr at 11:15 AM on December 31, 2009

Check out this page on the GRS blog: good-bye-microsoft-money-16-powerful-personal-finance-programs.
posted by semacd at 11:34 AM on December 31, 2009 [1 favorite]

I am seconding using
posted by xammerboy at 12:39 PM on December 31, 2009

One cause of unexpected stuff is that many people budget looking at a typical month or two. Wrong. Work your budget out after crunching spending for at least one year. It's really, really worth doing the work of itemising a year's spending as well as you can -- you will be surprised where your money goes.

Lots of expenses are predictable, but either infrequent or irregular: for example insurance premiums, car repairs, birthday presents. They won't show up if you do a monthly budget based on a random month and you will constantly come up short if you don't allow for them.

Now, having worked out annual budgets, you know how much to put aside each month simply by dividing by 12. Important: if you underspend one month, that unspent money is not free. It is a reserve for future months that may have higher expenditure.

Another tip: if a lot of your spending is cash that you can't account for, then for one month, keep a little notebook and record each purchase. EVERY GODDAMN ONE. I guarantee that you will be surprised where the money goes. Also, the mere act of recording will make you more mindful of your spending and help to reduce it.
posted by i_am_joe's_spleen at 4:05 PM on December 31, 2009

One thing I find helpful when I'm using my ATM/debit card a lot and losing or not keeping up with receipts is to limit myself to $100 (or $50 or whatever works for you) withdrawals. You can take out $100 and stick it in your wallet and use it for picking up bread and milk or the dry cleaning, or having lunch out at work, or whatever your miscellaneous expenses are. It's a lot easier to keep up with and keep aware of your bank balance when you are making two $100 dollar withdrawals per month than 20-25 individual transactions.
posted by SweetTeaAndABiscuit at 4:46 PM on December 31, 2009

When I was on a limited fixed income, I got on top of my budget and spendings the following way.

1. All money went into one account on a regular day/date (eg: every second Wednesday).

2. Automatic regular payments (mortgage/rent, health insurance etc, ) all came out on the day after the regular income deposit. As did the allocations for items in #4 (but not literally, they stayed in the one account).

3. Every time I spent or allocated money, yes every time, every cent (including the automatic regular payments, ATM withdrawls, proportional savings for quarterly bills etc) I wrote it down in a little (credit card sized) note book that I kept with my cards in my wallet. I often did this at the cash register so I wouldn't forget. Only takes a few seconds. If I was in a real hurry, I would pocket the receipt for entry later in the day.

4. Portions were budgeted and allocated fortnightly to pay for quarterly or annual bills. (ie: $10 for the power bill each fortnight, even though it was only paid each quarter).

5. I added up my outgoings and recalculated my balance each day. This kept me on top of how much money I actually owned and was available for spending (ie: not owed or pre-allocated).

6. I had a credit card with a low limit ($400) and a two week total pay off rule (set by the card provider). This was my overdraft. If it was used, it was paid off every fortnight in total. Anything put on the credit card was also listed in my spendings notebook with a mark indicating it was on credit. Each night's balance recalculation took this credit balance into account.

7. The credit card was only used occasionally and only to pay predetermined bills - power etc. on time. Because of my portion control through allocations (point #4) I usually had 90% of the money saved for the bill already. By the time the next fortnight rolled around and the card balance was due in full, I had the full amount in my account.

8. I would reconcile my notebook with my bank statement monthly. I would always trust my balance in my notebook above that of my bank, until they were reconciled. Fortunately, any balance discrepancies were usually in my favour as they were things like interest. I wrote down any bank fees in my daily spending book as I became aware of them.

The trick is to realise that the Bank is not a benevolent or magic pudding parent who will top up your account if you overspend.

If you are on a limited income but you don't know how much money you actually have to spend that is yours, then you are heading downhill. You must have your fixed expenses covered and know your real (not the bank's) balance at all times before you spend your next cent.
posted by Kerasia at 11:11 PM on December 31, 2009

« Older Quicken and the internet   |   Comic-Con-A-Like Newer »
This thread is closed to new comments.