A couple of weeks ago, my wife and I sat down to make our first real budget. Now, we've tried to stick to a budget before, but it was completely unrealistic, and we had no real goals in mind when working on it. The result was a meaningless piece of paper that we looked at on the first day of the month and never really looked at again.
You have to be completely committed to sticking to a budget, otherwise it will not work. Maybe this isn't true for everyone, but it is for us. Each night we talk about where we are in our budget: how much we have spent and how much we have left. We still have three days left on this budget period, and we have run out of money in certain categories, so we will not spend another penny. Here is how we came up with our budget.
First, we had to determine the time period for each budget. We get paid every two weeks, both on the same day. So each budget has to go for two weeks. This presents challenges because most bills occur monthly, and our pay comes at different times of the month each month. Some months we get paid twice, and occasionally, we get paid three times. I am sure in the months where get paid three times, we will save the extra money for the summer, or pay extra on our debts.
Next, we had to prioritize our bills and needs. We will not use credit cards to pay for anything anymore, so the total of our budget cannot exceed our pay. This was particularly challenging this time because our paychecks in the county we teach in are smaller for the first check. Here is what we came up with:
1. Necessities: Utilities, Water, Phone, Groceries (Food), housing
This are things we need to have and can't be sacrificed. We listed these first to make sure they were covered.
2. Mortgage Payment
3. Daycare
While this is not a life necessity, it is necessary for my wife and I to work.
4. Debt: Credit Cards, Car Payments, Student Loans, etc...
If you fall behind, the debts snowball. We make sure at least the minimum is always paid.
5. Savings
You may think it is odd that this is down this low - but it doesn't make sense to put money away while you are paying interest on your debts. My savings account might earn .5%, but I am paying 22.9% on a furniture loan. Right now, we are only saving for the holidays (so we don't have to charge gifts) and our emergency fund.
6. Luxuries: Cable, Cell Phone, Entertainment, etc...
These are nice but not necessary.
7. Other
This is where everything else goes. My daughter's birthday is coming up, so we added in a line item for gifts. The priority here will vary.
This is obviously not a concrete formula, just a nice starting place. Once we set our priorities, the budget wasn't too hard! We had to figure out which bills would be due soon that would be covered by this paycheck. This time, we are paying everything except our mortgage, which isn't due until after our next paycheck (so our next budget will be centered around our mortgage). We did have to make some sacrifices though...
We will not be eating out much anymore - it is easier to eat in anyway with two young kids. Plus we will save on gas.
We are going to try and stretch our gas so we don't spend as much on it - this might mean combining trips and doing more shopping online. That won't be so bad.
We are going to be clipping more coupons for groceries. We are also going to find ways to stretch our grocery dollars more (that is a topic for another day).
This seems easy enough. After trimming in some places, we even had a little left to pay extra on debt - which is going to be a priority for us until our debt is gone.
It turns out we should be able to cover all of our bills and expenses with our income - so the fact that have this much debt means we have been overspending for years. I wish we had taken our money more serious earlier on. We have about three days left on this budget, so I will post then and let you know how we did!
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