First step towards building wealth? Budgeting your income and expenses

habit-saving-moneyI want to put something out there. If you have read this blog site over the past couple of years, you might think I have everything together. Whereas I feel confident in my approach to growing net worth, something I have struggled with for years is how to run a proper budget.

You see, years ago when I entered the work force as a newly minted software developer, I started making decent money. I wasn’t a big partier. My idea of vacation was to visit my parents at Christmas and Thanksgiving. Hence, I didn’t spend big money. It never entered my mind to spend the big bucks to go to JavaOne or some other convention.

Essentially, I made enough money and spent little enough that i didn’t HAVE to run a budget. My checkbook would fill up with money and I would only use what was needed. At one time, I called up my bank and asked if I could automatically move some into a savings account. This was pre-Internet banking, and they said “no problem!”

I could go on about the golden years, but the sum issue is that when I got married a few years ago and we had kids, all of that went out the window. We suddenly discovered as a couple, that there wasn’t “enough money” at the end of the month. I had big savings that kept us from crashing. But I knew that dipping into long term savings was not the path to success.

Budgeting is communicating

And then I learned what is SO HARD about budgeting. The task itself isn’t hard. You track incoming and outgoing money. The hard part is communicating with your spouse. Because that what a budget really is. A tool to communicate.

Many studies have been done, and it reveals that money is one of the biggest (if not the biggest) issues that causes issues in marriages. My wife and I had different backgrounds with money. To bring up the subject caused her stress. For me, I initially was too concerned with making her happy, so I would push off issues about overspending until the worst opportunities.

We would go clothes shopping for the kids, and my mind would be filled with, “Can we afford this? Can we afford that?” Meanwhile, my wife was trying to pick the best things. Then we would go out to eat, and my heart would sink as the thought of all that money we were spending.

We tried several things to get onto a budget. It required experimentation, talking, letting go of assumptions, and lots of separate, small talks. Eventually we forged a path and got going. I felt relief.

Nobody’s perfect

As I hinted at the top of this article, I’ve never been rock solid on budgeting. In the past year, we had actually gotten off budgeting. Several changes happened like a new baby, moving into a new home, and seeing my paycheck change from every 2 weeks, to twice-a-month, and back to every 2 weeks. It was enough to cause the budget worksheet to fall by the wayside.

But last month I knew we had to get back on course, because I had already paid our primary mortgage using emergency cash reserves twice this year. That was a red flag that we were again off budget and not communicating with each other about money.

I steeled myself to dig up the old worksheets, update the values, and hammer out a new one with revisions. After about two weeks of effort, my wife and I had a new one to embrace this month. And I already feel like we are moving back to the right path. I feel like it’s only fair to share with my readers that no one is perfect, including me. If you have tried budgeting in the past, but failed, I implore you to try again.

Ideas on budgeting?

To wrap up this post, I wanted to at least describe the way our budget works. You don’t have to do it this way. Do what works. But if you have no idea, let me at least give you an idea to consider.

I have a spreadsheet where the first column lists the total income I expect to receive. The next few columns are critical items including: mortgage (or rent), utilities, groceries, insurance, and gas money.

After that are less important things like: clothing, dining out, date night, household. The last column is dubbed “Misc” and essentially contains whatever the final balance of money is left after everything else. If you have other things like debt or savings, put them on your budget as well.

Essentially, plot out every nickel of money until it’s all accounted for. Then when you spend money throughout the month, I subtract it from the relevant column. Every little bit of money I charge to the debit card results in a deduction from this worksheet. I can see instantly how much money is left in any category. If we are about to run out, then my wife and I must decide where to reallocate money. And if there is no more money, perhaps in dining, then that’s the end of dining for the month.

No one has to tell the other “you can’t spend that!” Instead, we use the worksheet to handle it. And if we run into funding issues, we work it out together. At least, that is the plan. Reality doesn’t always work according to plans. So we’ll keep on working at it, hopefully better with each month.

And good luck to you as well!