May 20, 2011

What We've Learned About Budgeting

At the beginning of this year, I wrote about the brilliant idea Nathan had to base our budget not on the 12 calendar months but on 13 four-week periods so that our income for each period would be about the same. Now that we're nearing the end of the fifth period, I'm still happy with this system, but it hasn't worked quite the way we thought it would. We've learned a lot about budgeting during these 20 weeks.

Income is never steady
This graph shows what our income has looked like the last five periods. Not so steady, is it? Just to clarify, the markers for the third and fifth period are the "normal" months. It has actually been higher than normal income we've been dealing with, which is a very good issue to have.

Why the high months? 
  • Working on corporate holidays in December meant extra income for Nathan in January.
  • Tuition reimbursement from Nathan's employer came in February.
  • We received a tax refund in April.
Budgeting requires flexibility
The problem we had last year was that we thought of our budget as this rigid guideline that could not be changed in the middle of the month. But guess what? Life isn't predictable! In addition to the unexpected extra income, we've also had some unexpected expenses. You don't know at the beginning of the month that in two weeks you'll need car repairs. You don't know that you'll end up losing the key fob for the laundry room and have to pay $50 to replace it (or that you'll find it later and not be able to get any money back). And really, who can predict how much they'll spend on gas anymore?

Now, when we set our budget before the beginning of each period, we set our amounts for each category based on our normal earned income. If we end up bringing in more money than expected, we then tweak the overall budgeted amount and the amounts for each category. For example, if we expected to make $2,000 during a period and Nathan gets a paycheck with $50 extra overtime pay, we might add $40 to the budgeted amount for the emergency fund and $10 to the amount we budget for miscellaneous spending. Our total budgeted would then be $2,050. And likewise, if an expense comes up that was not originally in the budget, we'll have to lower a few categories to make up for it.

Budgeting requires communication
Extra income is a blessing, but it makes having a budget even more important. If Nathan and I hadn't decided ahead of time how we were going to use our tax refund, we could have ended up going crazy with our spending for that month. Having a budget meeting at the beginning of each period is a starting point, but being in financial harmony with your spouse requires constant communication. We don't consult each other about every purchase we make, but it's nice to know when Nathan plans to spend $100 on computer parts.

Budgeting takes a lot of time to get it right
If you've been using a budget for a long time, it might sound like I'm stating the obvious in this post, but it was incredibly frustrating for us those first few months. We still haven't perfected it, and I don't know that we ever will. If you're just starting out with creating and using a budget, don't give up!

 Do you use a budget? What are your tips for making it work?


  1. Amanda, you don't know me, but I went to college with Nathan. I read your blog whenever you post it on his facebook, and I enjoy it very much. This post intrigued me, and I'm not sure why, but I thought I'd share my thoughts on budgeting.

    My paychecks come in on the 15th and 30th of every month. I am a salaried teacher, so my paycheck is always exactly the same. My husband gets paid every two weeks and is paid by the hour, so his paycheck can fluctuate a little every time. We do our monthly budget based on my salary and two paychecks for him. However, there are usually 26 pay periods in a year (27 this year). That means that at least twice each year, we have an "extra" paycheck that has not been budgeted. This usually goes toward paying down debt or into our emergency fund.

    The most interesting thing to me about writing the budget down and seeing our money come and go, is seeing how God works in every area of our lives. The last two times that we needed major car repairs were last October, and just this week (a total of $1400 that we couldn't foresee) These also just happened to be the months that we had that "extra" paycheck from Tim's job that we set aside for emergencies.

    I believe there are three key principles in managing your money wisely:
    1. Make more that you spend, and spend less than you make. Too bad most young married couples don't do this.
    2. Communication (as you already stated) and accountability to each other. we both check the bank account online regularly to see where the money is going. I know that he doesn't mind if I stop at McDonald's every once in a while for lunch. However, if he sees a charge on there every day for 2 weeks, he's probably going to be upset. :)
    3. Knowing your financial weaknesses. My husband knows that if he is carrying cash, he will spend it; so he doesn't carry cash. This helps him spend less on "little" things (a soda at the gas station, a milkshake on his lunch break, etc, because the little things add up.

    We didn't always budget, and we had a rough few years because of it. We have learned from those mistakes though. We have much less debt than the average couple in their 20s, but it is still more than we would like to have, so we are working on paying it down.

    Thanks for sharing your experiences. I enjoy reading about them.
    Sarah Joy

  2. Thanks, Sarah! Knowing your financial weaknesses is a good one.


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