Back to a Monthly Budget and Other Budget Changes

 
One of my most popular blog posts and the oldest one still currently in the top ten most read is No More Monthly Budget. I'm sure we scared a lot of people with that title. What? No budget? If you haven't read the post, what we did for 2011 was track our budget in periods based not on calendar months but on thirteen periods of four weeks. Since I'm paid weekly and Nathan is paid every two weeks, there can be quite a variation in income from month to month. With four week periods we would have consistent income (two of Nathan's paychecks, four of mine). It sounded good in theory, but it only took a few months to realize how inconsistent income really is. Although we kept with it for all of 2011, for 2012 we're going back to monthly budget periods. We've also made a few other changes to the way we budget that should work better for us.

A monthly allowance

A new budget category is an allowance for each of us. For the first year and a half of our marriage, we basically had to discuss every purchase with each other. And if one of us made a big purchase, that meant the other had to curb his/her spending for that budget period. To help eliminate some of this, we've now budgeted a small amount of money for each of us to spend each month however we choose. If Nathan wants to eat out for lunch, I can still buy shoes. We still have a "General Spending" category for purchases that we agree to make.

A dates category
Last year, we lumped all eating out (lunches during work and dates) into one category. We also had a separate entertainment category. We've now eliminated "Eating Out" as a separate budget category and made it a sub-category under our allowances and under a new "Dates" category. We've also made "Entertainment" a sub-category under "Dates."

Adding "rollover" money
What we did last year if we had money left over in different categories, was put the leftover money into paying off debt or our emergency fund. Now, if we have $7 left in the date category at the end of the month, for example, that's money we can still use for dates next month.

A new budget system
We track all of our spending, income, and bank accounts in an Excel program Nathan made. Last year we had a separate spreadsheet for each budget period, but this year Nathan made one Excel file that we can use for all our financial tracking for the entire year. If anyone would like to know more about our system and how Nathan programmed it, I'm sure he'd be happy to explain it.

Here's what the big picture looks like for February. That big chunk we're putting towards student loan payments still isn't enough to keep us on track with our goal of paying them off in two years, but it's close and there's not much else we can cut. I said it was an ambitous goal!

What changes have you made to your budget to make it work better for you?



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?

Some Days

Budgets are wonderful things. Menu plans are too. They allow you to save money and have some order and control in life. But some days, not everything goes according to plan. Some days work is a little rough. Some days when you finally leave work, it's snowing, and it takes an extra 20 minutes to get home. Some days this isn't a problem because you planned on your husband cooking dinner that night. However, some days, your husband's car won't start during his lunch break, and although he gets a ride back to work, no one is able to take him home. Some days he has to stay at work for almost an extra hour while he waits for you to pick him up. Some days by the time you get home and get settled, it's already 6:30. Some days you decide that, despite the fact that you've already gone $2 over your eating out budget, you just want to have Arby's for dinner. Some days, you do. And some days, you don't really regret it.

Budgets and menu plans are wonderful things, but having a little flexibility in life is pretty nice too.

No More Monthly Budget

Nathan and I made our first monthly budget for July of last year. Since neither of us used a budget while we were single, a lot of guesswork went into creating it. After a lot of work, we finally decided how to spend every dollar of income we would make that month. Little did we know that Nathan would lose his job a little later that month and not get a paycheck for two months. So, our first few months of budgeting were a little weird, and we've only had three "normal" months to really figure it out.

One thing we have figured out? Making a budget based on the calendar month doesn't work for us. With Nathan getting paid every other Friday and me getting paid every Thursday, our income varies quite a bit each month. For example, in October Nathan got 3 paychecks and I got 4, and in December he got 2 and I got 5. That's a huge difference! We originally based our budget on our average monthly pay by taking our annual net pay and dividing it by twelve, but this meant we were technically spending more than we made some months. This might work for some people, but it bothered us.

The solution Nathan came up with is to base our budget not on the 12 calendar months but on 13 four-week periods. This way, our income for each budget period will be roughly the same. This also means that our expenses will vary each period - we will not pay rent in one period, won't pay electric in another, etc. - but we prefer it this way. Before the start of each four-week period, we will look at what bills we need to pay that period and then decide how to allocate the rest of our income.

Our first budget period began January 2, so it's too early to tell whether or not this will really work better for us. I think it's worth a try though.


Do you use any unconventional budgeting methods?

The Nerd and the Free Spirit

When it comes to the budget, Dave Ramsey says one spouse is the Nerd and the other is the Free Spirit. The nerd enjoys numbers and coming up with the budget, while the free spirit doesn't care about it and feels controlled by it.

It isn't so black and white with Nathan and I. We're both nerds in some ways, but we can also be free spirits. While Nathan may seem like the nerd at first glance since he loves accounting and is working on an MBA, I have kept records of my earnings and spending since I was 11 years old and engage in what Nathan refers to as "stalking" our bank accounts online ("Did you enjoy that Arby's you had for lunch?").

When it comes to creating the budget, Nathan is the nerd. He sets the amounts for each category each month, and he was the one who planned out our debt snowball. Although I offer some input, I remain the "whatever you want" free spirit for the most part. Being the Excel guru that he is, he set up an amazing budget tracking spreadsheet for us with all kinds of drop down menus and formulas.

However, in terms of actually tracking the budget and trying to ensure that we stick with it, I become the nerd. I'm the one who records all the transactions in our Excel spreadsheet and makes sure bills get paid on time. I will give Nathan reports and observations on how we're doing with the budget.

The important thing is that we both know where we want to be financially and we're working together to get there. If we agree on the budget, we shouldn't have any major disagreements over money.

When Budget Doesn't Matter

Picking out our wedding bands was actually fairly easy. Since Nathan bought my engagement ring from Jared, that was our first stop in the search and ended up being the only place we went. The sales associate found a ring that worked perfectly with my engagement ring almost instantly, and that was that. Nathan spent a lot more time making his decision, but he found one he really liked as well. Rather than buying them that same day, we decided to come back a few weeks later. On our return trip, while the sales associate was looking for the ring that Nathan had picked, I pointed to what I thought was the correct one, but once she turned it so that I could see the price tag, I said, "Oh, no, that's not the right price." She then told me, "No, that is the ring, the price has just gone up."

Oh. Excellent.

It turns out that both of our rings had gone up in price due to an increase in the price of gold. Had we bought them earlier, we could have saved over $100! We had already gone a little over budget on our rings, so this wasn't good. However, we still went with our first choices. After all, unlike the bouquets and cupcakes, we'll be looking at our rings every day for the rest of our lives. It was important to us to get ones that we liked.

My ring is similar to the setting for my engagement ring. I'll be wearing it upside down from how it is in the photo, with the band curving up against the band of my engagement ring. I wasn't all that excited about having a second ring until I saw how awesome this one would look. Now I can't wait until I get to wear it! Here's a reminder of what my e-ring looks like:

Nathan's ring matches my rings too. That definitely wasn't a requirement, but I like that it worked out that way. 

I wasn't thrilled about the cost increase, but we can still manage to pay for them. Although it's difficult for me to accept sometimes, we don't always have to choose the least expensive option.