How We Budget!

Knowing that money is the #1 reason for divorce… When my husband and I got engaged, we talked a lot about our finances and spending habits.  It was then that we made two key decisions as a couple:

  1. To have a joint checking and savings account.  No separate accounts.
  2. Apply for a joint credit card and use that one credit card for everything.  This would be our AMEX SPG (which we love!)

Having joint accounts for everything tremendously helped us streamline our budgeting.  We both have high visibility into our household spend, and not a dollar goes unaccounted for.

Three years into marriage, and it still takes a lot of dedication and discipline on our part to maintain our budget.  We played around with Mint.com for a bit, but while it was neat to see all of our financial statements all in one place, it just didn’t work for us as a budgeting tool.  They would automatically categorize our expenses in ways that I wouldn’t have categorized them, and I spent more time trying to re-categorize things than was worth my time.  The category thing is very important to me because having an accurate understanding of what categories we spent most in helps us to adjust our spending accordingly.

In the end, the easiest thing for me was to create our own customized budget using good old Excel!  As you can see, I have a Master Tab that logs everything in one place… then several sub-tabs where we keep track of our different spending categories such as fixed expenses, groceries, retail shopping, etc.  I even created a pie chart to visually show where all our money is going to for that month.  If the majority is going towards retail shopping then we have a big problem!!

Note: numbers are mocked up for privacy reasons

This master sheet is separated into 3 sections – Fixed Expenses, Other (Variable) Expenses, and Monthly Income. The Other (Variable) Expenses section is where we have the most flexibility to readjust our spending if needed.

The budgeted amount column is predetermined by us, and we fill it out according to what we think our budget for that item should be.  For example, we have $300 for groceries because we don’t intend to spend more than $300/month for groceries.  The actual spend column does not get touched in the master sheet.  I used a formula to automatically populate that column from one of the sub-tabs.

I’m sure all this is starting to sound really confusing… so to sum it up… this is how we budget:

  1. My husband and I sit down twice a month (15th and 30th) to populate the excel sheet (we save it as a new document each month).
  2. We sit with our laptops side by side.  He pulls up our credit card statement and our checking account info and reads them to me while I start logging in the numbers in one of the sub-tabs according to category.  It takes about an hour for us to do this.
  3. We review the numbers and see where we can adjust.  We pay careful attention to the “Difference” column – if it’s showing red it means we overspent in that category!
  4. It helps us to do it twice a month so when we see ourselves spending too much the first half of the month, we are able to reel back our spending if necessary.

Some months we get busy or lazy and fail to do this, and I notice that those are the months we’re most “loose” with our spending.  It’s so easy to buy little things here and there, but it all adds up!  The months that I’m diligently tracking our spending, I’m always thinking twice before I purchase.

Finally, we pay almost everything by credit card if we can.  I know this is completely counter-intuitive to Dave Ramsey’s philosophy, but we feel comfortable with this because we pay off our credit cards in full each month and rack up tons of rewards.  It is also easier for us to keep track of our spending on credit card statements than to dig through receipts.

Despite our use of credit cards, we have been following Dave Ramsey’s 7 Baby Steps as closely as possible to pay off most of our consumer debt.  The 7 baby steps are meant to be followed in order – you’re not supposed to go onto the next step until you finish the one before.  The reason the building wealth and giving is last is because Ramsey believes you shouldn’t give money that you don’t have.  If you have credit card debt, it doesn’t make sense to give until you get to $0.

Here are Dave Ramsey’s 7 Baby Steps:

  1. Start a $1000 Emergency Fund – this should never be touched except for true emergencies.
  2. Pay off all debt using the debt snowball
    –  The debt snowball is this: List your debts, excluding the house, in order. The smallest balance should be your number one priority. Don’t worry about interest rates unless two debts have similar payoffs. If that’s the case, then list the higher interest rate debt first.
  3. Save 3-6 months of expenses in savings
  4. Invest 15% of household income in Roth IRA’s and pre-tax retirement
  5. College funding for children
  6. Focus on paying off your mortgage
  7. Build wealth and give!

Do you have a budgeting system that works for you?

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9 thoughts on “How We Budget!

    • haha seriously! we had to separate them out cuz we go there the most and if we’re overspending in those stores we can easily cut back. i love costco and target!

  1. I would have to disagree with David Ramsey’s 7 steps. I think giving should occur much earlier than step 7. Tithing is an important act of faith. I may see an arguement for paying down debt first, but I definitely don’t see it being last.

  2. Uh oh. I’m scared what my retail numbers would be. I tried to do a makeshift budget at the beginning of the year, and you’re totally right…little useless purchases here and there totally add up. Maybe i’ll start it back up again…

  3. OMG seriously I’d be terrified to get down to the nitty gritty like this! But kudos for you and Sam for being soooo good with your expenses!!

  4. Very impressive! I used to be terrible with my expenses.I’d just spend money if I had it. Haha. But Chris encouraged me to start a budget to track my expenses and it’s so interesting to see where all my money goes. It’s a lot of work but I’d definitely want to do this when I’m married.

  5. Pingback: You Need a Budget!!! « Jaren & Noelle

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