How We Budget

A recent Twitter conversation about saving money got me thinking about how we save/manage our money. Perhaps these are things you’re already doing, but this is what works for us.

Before we were married, we took a pre-marital counseling class. One of our assignments was to create a budget, and we basically use the same format today. Obviously the numbers have been tweaked, but not much else has chance. We live on one salary, but *full disclosure* we have help. This is not a secret to anyone in our real lives, but it would be disingenuous for me to say, “You TOO, can live in Orange County on one teacher’s salary and be JUST LIKE US.” To be fair, it is my husband’s goal to stretch our savings for as long as possible. He’s constantly looking at our savings and imagining if we were to never put another penny into the account, how long would that amount last us. It’s like a game to him. (Not a very fun game, granted.)

So, here’s what we do. Get excited. (But first know that I’m not a financial advisor. I don’t have a degree in accounting, or math or anything business-y. My undergrad degree was in sociology. I was an English teacher. I’m not qualified to tell you any of this, except that this is what has worked for us for almost eight years now.)

1. Create a budget. Write down every single thing that you spend. All of it. Don’t be shy. Create columns for necessities and wants. Bills that need to be paid, money for groceries, gas, insurance payments*, car payments, house cleaning, gardeners, eating out, anything. Don’t worry about cutting costs at this point, just write it all down. Put it into a budget. THEN, if you decide you could stand to spend a little less at Starbucks, make that happen. (See #3 for my best advice about how to make this work. Do the same for your cable bill, your grocery bill, whatever. When we because a one salary household, we cut our fun spending first. Sadly, we also cut savings. Speaking of -

2. Savings first We have a set amount that gets transferred to a savings account every month, and that happens on the FIRST of the month, not at the end. We used to have multiple savings accounts – vacation, general, Christmas. Now we just have one, because we’ve been doing this for so long that we know what we can spend from savings and when. Also, big purchases and vacation money typically comes from our tax return.

2a. Along those lines, we have several payments that are automatically debited throughout the month. I debit those from our checkbook on the first. (We get paid monthly, so this works for us.) It’s helpful for me to see those amounts GONE, and know what I’m actually working with in our checking account.

2b. Since my husband is a teacher, (and so was I,) we have never gotten paid in the summer months. We looked at our budget, multiplied the total by two, and divided that amount by 10. (Two months of no paychecks, ten paychecks per year.) So, every month, before money even hits our checking account, that amount gets transferred into a savings account so we can afford to eat in the summer.

2c. For payments that happen less often than monthly, we used to break the amount down into monthly amounts, and transfer that amount to a savings account. We don’t do that anymore, but it is a good way to ensure that you always have the money to pay things like insurance premiums.

2d. Okay, I can’t stop talking about savings. Once we’ve written down our monthly expenses, and then subtracted that total from our monthly income, anything and everything extra goes into savings. If it sits in our checking account, we spend it.

3. Cash, cash, cash. For things like eating out, shopping, fun activities, date nights, etc. all of the money comes out in cash once a month, similar to the envelope system a lot of people use. If it doesn’t have a line item, it gets paid in cash. We have three categories: allowance – we each get money to use however we want, gift money – for buying gifts, and entertainment – money for eating out, movies, taking the kids places, etc. This sounds like we’re taking piles of cash out every month. We’re not. Each of those amounts is rather small, and during a typical month we eat out as a family once. Cash is easy because it’s visual, and when it’s gone, it’s gone. (This is also the reason I love gift cards at the holidays. If I’m shopping, you can almost guarantee I’m gift card spending.)

4. Write everything down. My husband is anti-tech. We still use a paper check register, and we print an excel spreadsheet of our budget every month. There is PLENTY of budgeting software available to make this easier for you. Not only do we record everything that we spend, but we also debit it from it’s respective column in the budget. It’s easy to justify things bought at the grocery store as necessities, and avoid staying within the budget, but it’s also easy to find a number that works for you and make it work. This means that at the end of the month we’re less likely to buy fun things at the store and stick to necessities. If an emergency were to arise, we would do what it takes to feed our family, but typically there’s no need to exceed the budget.

What do you do to save money? What tricks work for you to keep your spending in check?