Over the years, I've gotten better and better at budgeting. Initially, I got started with budgeting and tracking expenses in college. While it's taken some trial and error to figure out best practices when it comes to this area of our personal finances, I think I'm finely getting it down to a fine art. Here are some of the more major things that I do to keep my budgets accurate and on track.
Being Honest about Costs
Over the years, I've noticed that not everyone is completely honest with themselves about their total expenditures. Even my wife does this a little, although not through trying to hide something or anything like that. Sometimes it's just a matter of perception.
For example, for many years, she didn't consider things like income taxes or health insurance premiums as costs. As a matter of fact though, these two items are actually our greatest budget expenses, comprising nearly 33 percent of our total income. However, since they come off her paycheck before she ever sees them, and are items that she really couldn't control, to her, they didn't seem like expenses.
I tend to look at every cost, in every category, whether it's 10 cents or $1,000. It doesn't matter to me how it is charged to us, whether it's pre-tax or post-tax, or whether it's a cost we can control or not.
Not Being Afraid of Change
I've made a multitude of changes and adjustments to my budgets and the way I budget over the years. Going from a simple sheet of notebook paper to a notebook itself in college, on to a ledger book, and eventually to a single page spreadsheet, and then a rolling spreadsheet, copied and updated each year to make results easier to track over time, I've never been afraid to change when it comes to my budget and expense tracking.
Being able to "roll with the punches" so to speak, when it comes to methodology and technology has not only made it easier to budget but to analyze my progress over time. Being able to pull and pool statistics and data in a matter of seconds by way of spreadsheets saves me untold time having to do it all by hand with a calculator.
Making it Simple
While I utilize spreadsheets and technology to my advantage, I don't tend to overdo it. I find that there is a peak point of sorts when it comes to using technology to make my budgeting life easier before their usefulness levels off. I reach a point where spreadsheets, graphs, and data collecting will only tell me so much. But technology isn't going to make spending or saving decisions for me. And I still have to be there to input collected data, and review and analyze trends to make decisions on how I'm progressing with my budget or changes I might need to make.
Building in Reserves and Expecting the Unexpected
Constantly missing the mark because I've cut our budget to the bone can be defeating and lead to lack of interest in continuing to budget. Therefore, over time, I've learned to build a little bit of fat into our budget. It's nothing major mind you, but it's often enough to counteract those unexpected costs that never fail to pop up when I least expect them.
I typically take about 10 percent of my monthly budget and make it into a reserve line for emergencies. If I don't use this amount in the current month, it rolls over into the next, building upon itself throughout the year so that when an unexpected cost arrives, I'm prepared. It's kind of a pre-emergency fund that keeps us from dipping into our real emergency fund…a frontline defense of sorts.
If, at the end of the year we haven't used all or any of this reserve, we might take a small portion of it (around 20 percent or so) to treat ourselves to something special, and consider the rest as savings, starting anew the next year.
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The author is not a licensed financial professional. The information provided in this article is for informational purposes only and does not constitute legal or financial advice. Any action taken by the reader due to the information provided in this article is solely at the reader's discretion.
- Personal Budgeting
- Budget, Tax & Economy