Saturday, March 18, 2017

Effectively budgeting for our lives (a work in progress)

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Creating a budget that you can stick to is achievable for all of us; it just takes a little time to establish (and some commitment), but free or inexpensive budgeting apps available for your smart phone make it pretty easy to track your expenses in real time. It's a goal that Mrs. Awesome and I set for ourselves this year, because having money for the things that are important to us is part of what creates our loved, lived life, and by spending a little time, you can too.

Budgets suck. There, I've said it. But they really are helpful to keep you on track and the spending under control. We are bombarded every day by new products and services, and advertising does a great job of convincing us to run out and buy things we don't really need. "Of course life will be perfect and I will finally be happy if I have _____." I'm guilty. I see some cool gadget or upgrade for our Jeep, Heathen and I immediately try to figure out how I'm going to get it. Do I really need that 4 person tent that attaches to the back of the Jeep? It looks SO cool and we want to go back country camping this summer... totally ignoring that we already own three other tents of various sizes... so I totally fall for it.


So there we were just after the New Year, getting ready to put together our budget. But how to create a budget and actually stick to it? We've been making budgets for years and haven't really stuck to them. It seemed like we were standing at the foot of Mt. Everest in flip flops and cargo shorts and our goal was to summit. But this year is going to be different. Why? Because we knew that we needed to change our spending habits and stop living like the grasshopper in the old fable. So that would be my step one.

1. Be HONEST with yourself: Are you really committed? Creating the budget is the easy part (and it's not even that easy) sticking to it... that's the challenge. Are you committed to making your best effort to stick to the budget you make? Because, I can tell you from experience, if you aren't, then you won't. Mrs. Awesome and I sat down and had an honest and open conversation about our income and expenses, and what our goals were for savings and retirement, travel and all the other things which are important to us. Once we knew we were both on the same page, we were able to move forward with building our budget.

2. Figure out your income: This is your budget, so you can set it up however you like, but we figured out our annual take home income after taxes, etc. and divided it by 12 to get our total monthly budget amount. 

3. Figure out your monthly fixed costs: Fixed costs are those expenses like rent, mortgage, auto or student loan payments which don't change every month. Our fixed expenses are set up to auto pay, so we subtracted that amount straight off the top of our monthly budget. We also factored some savings and retirement contributions under our fixed costs to ensure that we were setting that money aside before it had a chance to be siphoned off. The amount we have left is what we have to work with for everything else for the month- our variable costs.

I'm going to take a short break here to talk about Toshl. We've used their free app for years to track our expenses, but this year, with the new version, we decided to purchase it in order to take advantage of the Budgets feature. This feature allows the user to create a "master" budget and then for each category we created a sub budget, like entertainment, gas, groceries, etc. which is linked to the master. That way, when we log an expense, the category budget is decreased as well as the total amount in the master, which shows you both how much is remaining in each category as well as how much remains total. There are a lot of other apps in the market, some like Mint can be linked to your accounts and every time you swipe your credit or debit card it updates your budget automatically. I know folks who love the convenience, but I like taking the moment to manually enter each purpose because I get the immediate feedback on the device in my hand showing me how much remains in each category. We've been using the new app for the past couple months now and I'm really happy with it. In the end, if you choose to use an app, it needs to be one you like and fits your needs.

4. Establish your monthly budget categories and determine how much you need for each: Do you eat out 5 days a week? Like retail therapy? Drive a gas guzzling Jeep (I do)? No judging here, we all have our "latte factors" and establishing the categories you need to have is a very personal decision. Mrs. Awesome and I have a slew of categories such as:

          a. Groceries
          b. Dining
          c. Medical/Dental
          d. Entertainment
          e. Gas
          f.  Automotive
          g. Personal Care
          h. Household
           i. Home Improvement
           j. Travel
          k. Charity
           l. Gifts
You get the idea. Once you've established your categories, you get to decide how you're going to divide up disposable income you have remaining however you see fit. This is a bit of a choose your own adventure, but take the time to develop a good forecast of what your monthly expenditures actually are. 

5. Do it!: Commit to keeping to your budget- you may need to make small changes and tweaks along the way, but you can do it! There's a bit of fun to be had in challenging yourself to stick to a budget and I can tell you, when you do, it feels great!

6. Yeah, but I just got crushed by an expense I didn't anticipate...: Well, your budget is like the ballast in the bottom of your ship- it will help right you when you get hit by that rogue wave. You can look at the expense you hadn't anticipated and make educated decisions on how you'll cut back in the weeks or months ahead in other areas so that you can mitigate that expense. Again, you've covered all of your "must-pays" and fixed expenses, so it might be a few weeks or months of cutting back in some areas, but that's a mindset too. Challenge yourself to face those budget reductions and find creative ways to maximize your spending. Can't buy a latte every morning for a while? Well, learn how you might make one at home, or cut back to just a couple a week. you can do it!

Budgeting is rewarding. You can plan and save for the things you want without frittering away your hard earned income. Imagine being free of credit card debt, of living within or below your means. It's possible, if you're willing to take the first steps.  Please let me know if you have any questions, or leave a comment below!

We'll give you an update at the end of the year about how we did! 

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