Tuesday, May 6, 2014

Budget Boot Camp - To Do #4: Budget for Monthly Recurring Expenses


Give yourself a pat on the back for getting to this point-- the actual BUDGET part of the budget boot camp!

So far, you've
I know it took us a while to get to the point of actually creating a budget, but now that you've done those other three things,
your budget will be so much more well set up for success. To keep things manageable, we are splitting the creating of your budget into the following three parts (sorry, I know we're dragging things out again, but I tried to write this as one post and it was completely unwieldy):
  1. Budgeting for monthly recurring expenses (like gas and groceries),
  2. Budgeting for irregular expenses (like car insurance and vacations), and 
  3. Budgeting for "fun" things (like personal "fun money," date funds, etc.)
And while you're budget won't be fully complete and balanced until the third part, you can still hit the ground running this month creating and following a budget for the portion we work on this month. We'll simply add to it next time.

To Do #4: Budget for Monthly Recurring Expenses

Step 1: Decide what tool(s) you want to use to create your budget. 

Option A: Mint or Yodlee. If you're already using one of these devices to track your spending, you could easily set up a budget within that tool. This is probably the simplest way to go, so it may not hurt to start out using these tools to create your budget and see if it works for you or not. You can always change your budgeting software later if you find these programs limiting or frustrating. (I have found them to be great for budgeting for monthly recurring expenditures, but a bit limited when budgeting for annualized expenses and "funds." You may have to track this part of your budget "offline" if you go with this option.) Click here for a tutorial on creating a budget in Mint and here for a tutorial in Yodlee.

Option B: Excel. Even if you use Mint or Yodlee to track and aggregate your expenses, creating a budget in Excel gives you a lot of flexibility and control over the structure of your budget. If you're comfortable using Excel, and know you want your budget set up a specific way, this could be a good option for you. (This is how I run our budget.) I streamlined my own family budget file and added some additional categories to make a free Excel budget template if you'd like to use it (just like our Facebook page and access the free downloads. If you don't have Facebook, just email us and we'll send you the file). No need to reinvent the wheel. Remember, we're just focusing on the green and pink sections (income and monthly recurring expenses) for now. You can add the other stuff later when we cover it (or now, if you really want to...)

"Like" our Facebook page to download our free budget template
Option C: Quicken. This is how Lisa and her husband run their budget. They like it, but Lisa does note that there are times when Lisa has had to put her accounting knowledge to use to create journal entries to get things to work, so it could be frustrating for some. Since I'm assuming accounting background for those using Quicken, I won't be addressing Quicken specific budget details in this post to save space.

Option D: Paper. It's not the most efficient method, but if this is what works best for you, go for it.

Step 2: Figure out your monthly income.
I've lumped this step in with this post since, for most people, this part is easiest step. I use the after-tax amount that actually hits our bank account. You could also do the pre-tax amount and include tax as a monthly expense. (But it doesn't really matter, and it's easier to just use the after-tax number.) Include interest income if it's material and you feel like including it. I wouldn't use interest income to cover your expenses since that would involve transferring money from savings to checking every month, but you can use it to help you meet your savings goals if you choose. If your income is irregular, put your best guess-- you can refine this as you continue to budget.

Step 3: Create categories for your monthly recurring expenses.
Monthly recurring expenses are, like the name implies, expenses that occur regularly each month, for generally the same amount. This includes things like gas, groceries, utilities, cell phone bills, rent, etc. It's a critical piece of any budget, and where most budgets start and stop. Because we want your budgets to actually be sustainable, we'll include two more critical expense categories (irregular expenses and "fun funds" or "blow money") in the next two installments of Budget Boot Camp.

Let's brainstorm categories first. Get out a piece of paper, pull up a blank spreadsheet in Excel, or hop directly to Yodlee or Mint and create some categories. Browse through your spending for the past month (since you've been tracking it, right?) to get ideas for categories. Then check our brainstorm list below for any you'd like to add.


Now that you've got a list of categories, go ahead and enter them into an Excel spreadsheet, or verify that the categories exist in Mint or Yodlee (if you need to create new categories and want to know how, click here for Mint and here for Yodlee).

Step 4: Assign budgeted amounts to each category.
As a starting point, go ahead and use what you spent last month in each category as your starting amount (unless you look at a number and think, "I really could do better." In that case, go ahead and pick a lower target amount, but make it reasonable). We'll tweak and balance the amounts in the months to come.

Step 5: Continue to track your spending.
Continue to track all your spending like you did in previous months, but now we want you to be aware to how that spending is accumulating throughout the month (check in once a week) compared to the budgeted amounts you just spent. At the end of the month, record and review the actual amounts in comparison to the budgeted amounts.

Extra Credit: Are you on top of your credit score? Check out Part 1 and Part 2 of our credit score series to make sure it's the best it can be.

And, just for fun, here is my current favorite mom product: Angeldear blankets. The best security objects come with backups. Just make sure your child doesn't adopt all three at once, necessitating an additional three to be used as backups to the backups. If you don't want to take my recommendation, check out the reviews. My son has the dalmatian and LOVES his "doggies." They have really helped him sleep better.








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