Michael and I started a new series within the Michael & Marnie series that focuses on Budgeting. If you missed the first video, take a look at it here. This week, we decided to narrow in on what we feel is a key feature of a good budget-setting up our expense categories. Grab a cup of coffee and a snack, because this is a LONG post!
To review, here’s what we’ve covered so far:
STEP ONE: ACCOUNT FOR ALL YOUR EXPENSES
When we say all, we mean all…from your daily Starbucks fix to the newspaper you pick up on Sundays, write it down. Go over old credit card statements, bank account statements, and figure out exactly where every penny went for as far back as you can go, ideally a full calendar year, if not longer. You’re going to use these numbers later to look for patterns and figure out how to plan what goes where in the budget. Don’t worry about how much you’re actually spending, just focus on WHERE the money has gone.
STEP TWO: BREAK DOWN YOUR EXPENSES INTO CATEGORIES (THE 3 BUCKET SYSTEM)
This is the fun part-figuring out where everything fits into the big jigsaw puzzle called Your Budget. Again, at this point we’re not going to get critical about the actual amounts. We just need to figure out where to “file” each line item. For us, we refer to the 3 buckets: MQA, Credit Card Purchases, and Cash Items.
BUCKET #1: “MQA”-otherwise known as Monthly, Quarterly, Annual Expenses
This is the biggest bucket, both in the sheer percentage of your allotted budget, and categories. The expenses in this bucket are usually paid by check (either the actual paper kind or virtually by bank draft or electronic check). It’s best to imagine this as an escrow account or holding account for bills or expenses that are not unexpected. We know how much these amounts generally are and have already set aside the money to pay for them in this bucket. Michael and I also have a “Bill Pay” account, or operating account, that we use to actually pay the bills. We don’t keep money in this account, but transfer what we need out of the MQA account into this account to pay the bills. To make it easier for you to picture, I’ve included a breakdown of the categories we have in our budget, as well as basic PDF spreadsheets for Monthly and Quarterly/Annual for you to reference. When you view the PDF, the categories run across the top of the table, and the months run down the side. Inside each box are two places to fill in numbers: “reserve” is for how much you’ve set aside for that month’s payment, and “paid” is what was actually paid. That’s another great tool to see how accurate your budgeting turned out to be. To download an editable version, click Monthly-Excel or Quarterly/Annual-Excel.
- Utility bills (water, gas, electric)
- Health club or other club dues
- Phone bill (can include mobile bill as well, ours are separate line items)
- Car payment
- Pool maintenance
- Car Insurance
- Health Insurance
- Homeowners Insurance
- Congregational dues (or tithing if you belong to a church)
- Life insurance
- Pest Control
- Home Security/Alarm System
- Property Owners Association
- Vision (Contact Lenses)
- Home Maintenance (we set aside a certain amount that we expect to pay for routine stuff, like checking the AC units, plumbing, etc)
- Federal Income Tax
- Property Taxes
- Homeowners Association
BUCKET #2: CREDIT CARD PURCHASES
As much as we like to pay for things by check or cash, sometimes it just isn’t feasible for us. Using a credit card is sometimes a more secure option, and who doesn’t like the points? So here are some categories that we file under this bucket for our budget:
- Gas for the vehicles
- School lunches
I should add that while we use a credit card to purchase the above mentioned things, the amount charged is immediately transferred from our bank account to the credit card company THE DAY WE MAKE THE PURCHASE. We do not advocate carrying a balance on the card. To ensure that money is set aside for this purpose, we have a second bank account (escrow account) for this bucket.
BUCKET #3: CASH ITEMS
Some people think it’s old-fashioned, but Michael and I still like to pay in actual paper money for certain things. Generally, we use cash for the budget items that are the hardest for us to keep to a budget, like eating out and clothing. So we use an envelope system-at the beginning of each month, we fill up the “envelope” with the allotted amount (sometimes it’s a real envelope, other times it’s really just a savings account set up for that specific category), and once it’s empty, it doesn’t get filled up again until the beginning of the next month. If you have a hard time sticking to a budget, I highly recommend this method!! Here are the categories we include in this bucket:
- Cleaning service
- School supplies/extracurricular kids’ expenses (sports gear, tutoring, etc)
- Entertainment (eating out, movies, family outings)
- Car repairs (oil changes, routine items)
- Dog expenses (vet, boarding, grooming, food)
- Vacation (we set aside a certain amount each month in a virtual envelope to use toward a family vacation)
This is just how we set it up-if it makes more sense for you to move some of these categories into the MQA bucket, go for it.
So for those of you that are following along, here’s your homework assignment for next week: now that you have all your expenses, try to put each one into the above buckets. Then you’ll be ready for the next step-how to figure out how much money to allot for each bucket/category!
Can’t wait to see you next Monday with the next installment of the Michael & Marnie Monday Budgeting Series!