Three years ago, before my husband and I got real about our finances, I really didn’t have the slightest idea how to keep a budget.
Oh, I knew how to make an Excel chart, with categories in one column and amounts in another. I even knew enough to make sure that the amount in the categories equaled the amount of income we were bringing in.
But that’s where my knowledge stopped. My problem? All those numbers were just theoretical. $500 for food? Yeah, sounds about right. $100 for clothing? Sure. And so it went, on down the line.
No matter how many times I’d play with the numbers, they weren’t based in reality. I simply didn’t get — like deep down in my pockets — that the numbers were ALL I COULD SPEND.
I know, I know. That’s so obvious, right? But I’m being honest here, folks.
Okay, so here’s how we finally started making a budget that was based in reality and actually worked for us.
1. We spent two months tracking everything we spent. We stuck a little notebook in our pockets and wrote down every single thing we bought.
2. After two months of tracking, I divided the things we were spending money on into some basic categories — I started out with fewer and then fine-tuned it as the months went on. Fixed categories were easy, but most of my categories were variable. I estimated those as high as I could. I also added in annual expenses, which we hadn’t encountered in the previous two months, such as insurance and car registration.
3. I totaled up all the categories in Step 2 and freaked out. It was about $1,000 a month more than we were making. Not good. Together with my husband, we started slashing items. Cable: Gone. Bottled water: Gone. Eating out: Gone. Item by item, we slashed and slashed and slashed some more until we balanced the budget.
4. We continued tracking all variable expenses and I synced them up with the categories every week. I gave my husband a progress report and we made on-the-fly adjustments to our categories if need be. We had a lot of these adjustments to make in the first several months.
5. I continue to adjust our budget every month based on upcoming events: Bar/Bat Mitzvah (bump up gift-giving category), Pesach (bump up the food budget), etc. Then I share the budget with my husband and he adds his suggestions. I further adjust, show it to him again, we both agree, and then we’re stuck committed to our budget for the next 30 days.
We’ve been doing this for almost three years now and I can now honestly say that we’re pretty good at this budget thing. Of all the changes that came about from doing the Dave Ramsey thing, the ability to make — and stick to — a budget has been the biggest blessing for us.
Are you budget challenged like we were? Or do you have a system that really works for you?