What’s your budget?

    Ever ask someone their opinion when you are looking to buy something? I bet the first thing they ask you is what your budget is. I often get asked this question when someone is looking to buy a bike. I ask them a number of questions trying to figure out what it is they need/want. However, my first question is still how much are you looking to spend? There are really nice bikes at the bike shop for around $400. Bikes that are multiple times as good as a bike from a big box store. I still ride my 19 year old mountain bike I got in college with only a couple minor repairs to date. On the other hand I also know how amazing it is to ride a bike that costs a couple thousand dollars. My point is that the budget comes first and then you can narrow down your search.
    Despite your feelings regarding budgets they also come first and foremost in the world of personal finance. The other day I revisited our family’s yearly budget. To be honest I never look at it much, but I figure I should update it now that my paycheck is more elastic than it once was.* Most people would consider this task to be mundane, aggravating, or maybe even pointless. I actually like playing with the numbers. I find it entertaining punching in all the numbers while the spreadsheet auto sums everything for me. It also becomes quickly apparent that it is very easy to make the numbers work in my favor, but more on that later.
    I set up my budget as simple as possible. I list all of our expenses in one column with their monthly cost in the next. Something like this:
Groceries (cc)
Auto Gas (cc)
Misc. (cc)
    First, I bet you are wondering what the (cc) means. This indicates expenses that are always put on our credit card (obviously there are more but you get the idea). We also have an extra $200 (the Misc.) for random purchases each month. This keeps me from micro managing the budget. I can’t imagine how annoying it would be to say, ‘well we already spent our allotted $50 at Amazon this month so no more until next month.’ That’s not how life works. Oftentimes people sticking to such tight standards just say screw it and blow the budget anyways. Because I put everything possible on the credit card my overall budget is very simple. It looks like this:
Savings Acct.
Total Credit Card
Gas (natural)
Water & Sewer
Investments & Donations
Whatever is left
    At this point all you need to do is take your monthly income (take home), subtract your total expenses, and you are left with what is hopefully a positive number that can be used for investments, retirement accounts, donations, and maybe even some fun money. I think the simpler your budget is, the more likely you are to stick to it (or at least be in the ballpark).
    Just remember to keep these final two points in mind when looking at your own finances. One, I run my budget this way so that our monthly credit card bill is all I need to look at to determine if we are over or under budget. Its easy to see, easy to track, and easy to look at the statement to see where the money is going. If you can’t correlate the fact that credit card purchases are in fact real money being spent get rid of your credit card until you can. Two, remember how I said it is easy to play with the numbers. Let’s say you input all the numbers and your expenses end up higher than your income. The temptation is to start tweaking things on the spreadsheet, but not actually making those changes in real life. Don’t lie to yourself just to make the numbers look better. Keep it simple, don’t micro manage, and find the causes of overspending to keep your finances in order. That’s how I do it anyways.
Enjoy the ride,
*Early on in our marriage, when we were poor, we had to watch our budget very closely. Not much saving was happening back then.
**This $500 is used for non-monthly expenses like property tax, insurance, etc… I have the bank automatically transfer it into a savings account once a month so it builds up for when these bills come due.
Hopefully anyways…