Paying Bills =/= A Budget

It’s that time of the month.

No, not that time of the month. It’s the 15th, which means it’s time to pay bills. Ever since I started earning a regular paycheck I have been paid semi-monthly on the 15th and last day of the month. To prevent a cashflow imbalance I always set aside half of my rent (now mortgage) payment from each check. So if my rent was $940 I would hold $470 from each pay period in a separate account and set up autopay for the due date. With housing out of the way I would designate which bills got paid with which check. This is a recreation of what it looked like for my first job out of college. Yes, I did have internet. It was called dial-up.
I saved $50 every time I got paid, budgeted $75 for groceries, paid the assigned bills (i.e. minimum payments), then held on for dear life until the next check. At the time it did not even cross my mind to try to get out of debt. My American Express account was in collections and all I was concerned with was keeping the rest of my credit cards current and not defaulting on my student loan. Unexpected expenses were routine and it was common to have less than $100 in my checking account until the next time I got paid, which could be up to two weeks. I did not have a budget. I had a bill paying schedule.

Do As I Say, Not As I Do

I know that I’m not alone in that regard. I have had numerous conversations with friends and family members who often bemoan not feeling in control of their finances. Without fail, my advice to them is to create a budget.

Although I never stuck to a formal budget before 60 days ago, I long believed that my semi-monthly bill payments and dozen bank accounts were a close substitute. Not budgeting wasn’t for lack of trying. I have always thought budgets were great in theory and for the better part of a decade I made countless attempts to put the numbers down on paper. It just never stuck. Either I could not get my planned spending within the limits of my income or I would forget to account for certain expenses or I’d just refuse forget to follow it if Jay-Z tickets went on sale. I’d always find the money stashed somewhere or use a large cash influx (bonus time!) to cover any shortfall.

Committing to a Plan

It wasn’t until I lost my job a couple of months ago that I got serious about making and sticking to a budget. Today I was working through my preliminary plan for December and per usual the numbers were not working out the way I wanted. For the life of me I could not understand why I had enough projected income (SEVERANCE!) to fund all of my direct deposits but I was still coming out negative. It finally occurred to me that the reason it is so difficult to create a budget is because my life was not built with one in mind. I had no plan for my money when I bought my condo, signed up for my cell phone plan, took on student loans, and committed to all of my financial obligations. Now that I want to tell my money where to go, I’m finding that it already has a lot of other places to be.

But that is no reason to throw in the towel and operate haphazardly. After much trial and error I have found that these three things are paramount in making a budget work for me:

1. Comprehensiveness- My budget needs to account for almost all of the ways I spend my money. Leaving stuff out does not prevent me buying it anyways.
2. Flexibility – I need to be able to change my mind and move money between categories depending on how life is going. I also need a cash cushion just in case something comes up.
3. Intuitiveness – A budget has to be set up to align with how I process cashflow.

The Goldilocks of Budgeting

These three pillars make it easy for me to stay on track. The only problem is that I have yet to find a budget template or software that aligns to all three. One of the biggest barriers I faced when getting started was finding a method that worked for me. I have used Mint to track all of my expenditures since 2010. One of the my favorite things about the platform is the sheer number of spending and income categories available to classify what my dollars mean. I like to differentiate between sources of income and get kind of granular on categorizing spending. Every transaction is automatically labeled and it is easy to change the category as needed.  Transactions flow to the trends tab where I can get a visual on income and spending for the month (or whatever time period I choose). I use the budgeting section too. I give it a solid B. It does allow me to budget for all kinds of categories, set long term goals, and keep track of how much I have left to spend in real time. There is also a feature that lets me carryover a category’s balance from month to month. Where it fails me is in accounting for spending that’s coming from a savings account and grouping subcategories into an overarching super category. For example, this month I paid my annual life insurance premium. Only $748.13 of the premium came from this month’s income. The rest was already saved. However, the entire expense was accounted for against this month’s contribution. I forgot to make it one of my goals, which filter into the budget.

 

 

So now it looks like I’m way over for the month when I’m not. That is another issue I have with Mint. It does not account for my forgetfulness and allow me to retroactively plan.

For all of these reasons, I find it necessary to keep a hard copy budget in Exel.  I have tried many budget templates, but none of them met my needs. Mint.com has several free ones for download. I’d give them a C+ because although the categories are pretty thorough they don’t have any formulas in the cells for adding up categories or looking at percentage spend.

Making It Work For Me

After much searching I found that Katasha at Broke Girl Rehab has created a really good one with the formulas already input.You can get this template by signing up here. It’s a Google doc and you can download it into Excel to make whatever changes you want. It took me a couple of hours to play around with it and customize it to my liking.The first change I made was to reorganize the categories and add totals. I shifted the comments over one column and included the differential between projected budget and actual spending. At the bottom I account for deposits and spending from sinking funds.

Once everything was set up I was ready to direct my money where I want it to go. I entered my fixed expenses, like mortgage, HOA, insurance premiums, debt payments, and estimates for utilities. At the bottom I input deposits into sinking funds, which are separate bank accounts I use to save for longterm, non emergency needs and wants. These numbers are linked to and auto populate the Sinking line under the Savings category.As you can see, once I’ve accounted for savings and bills I have ~$740 left to allocate to the rest of my monthly expenses.

Alas, I don’t foresee much additional income coming in December so I’ll have to make it do what it do. Not bad for a first pass. I was able to include Christmas cards (I’m buying gifts with Capital One Quicksilver rewards), one tank of gas, Lyft rides and a Metrocard for when I’m home in NYC over the holidays, a decent food budget, some entertainment, and still have around $30 leftover just in case. I’ll keep making revisions as things come up between now and December 1, at which point it will be locked in. From there I will transfer this to Mint.com to track spending against targets.

The Forest and It’s Trees

I know that my budget just looks like organized bill paying with some saving. It is. My current financial objective is to maintain homeostasis, so I’m not doing anything too exciting on the debt repayment or savings front. That’s okay. Ultimately, a budget is a personal plan to reach personal goals, which can and will shift over time. You learn to prioritize really fast when your money is bleeding on the screen. While the best time to figure out where you want your money to go is before you start spending it (i.e. at the beginning of any major change in income), if you’re like me and missed that window, the next best time to start is now.

How do you budget? What do you think of my method? Hit the comments and share your thoughts. If you’d like to take a look at the revised budget tracker I used, click here and download it for yourself.

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