How We Budget: A Simple and Easy to Maintain Budgeting Strategy
I have previously shown a breakdown of our budget in percentages (here and here) but neither of these breakdowns really served to show exactly how we budget on a day to day basis. I shared our budget categories in 'Our January Budget' but didn't go further than that. We've finally come across a great method that's been working for us for about 9 months now and if it can help you do the same then it's worth sharing!
Both my husband and I are paid bi-weekly and on the same week. It takes $1800 each payday to cover our budgeted items. Since all of our money goes into one pot, I use several ledgers to keep track of how our money is allocated. Each ledger has an 'account' name and the amount that is allocated to it each pay at the top. The rest of it looks like this:
Date Item In Out Balance
Right off the top, any amount that we make over $1800 is inputted on a ledger called 'Mortgage/Emergency' and stays in our account unless we have an emergency. Since our paycheques vary from week to week, the amount paid into this account also varies. $1800 is the bare minimum of what we make in a week unless there is an emergency (recently we had a death in the family and missed some work resulting in a lower paycheque than even our $1800 number). Usually though, we are able to put anywhere from $200- $500 in this account or even more if we have an especially good month with bonuses etc.
After this, I put an entry into each ledger for a predetermined amount. They are the following:
Food/ Gas and other Consumables: $405
Property Tax, Mortage Interest and Fee: $400
Baby: $10 (Baby also gets two separate payments from the government that go straight into his ledger)
Car & House Maintenance: $140
Gifts/ Donations: $50
House Loan: $100 (This is a loan from family that was used when we purchased our home. It is our last non-mortgage debt but does not incur interest.)
To determine how much money to allot to each category (particularly our fixed expenses) I took an average of what we spent on that category over a few months and divided that by two. Because some months have more than two paydays, we should eventually have some breathing room in each category. The total of all of the categories equals $1800 and that's how I determined how much to allot to our variable spending/ savings categories. We would prefer more money in several of these categories but until I go back to work and our income increases, we have a tighter budget.
Every couple of days I enter all the amounts we've spent onto the appropriate ledger and deduct it from the balance. We do allow ourselves to go into negative numbers within reason. This is what has helped this budget finally work for us. In the past, if a large unforseen expense came up that wasn't quite an emergency but we 'needed' to spend on it anyways, it was very easy to just give up our budget completely because we had 'failed'. Now though, if an expense pushes us into the negative numbers, it doesn't matter. We just cut back in that category until we are back in the black. If we are perpetually in the red then it is quite possible that we need to adjust the amount that we are budgeting for that category. This means we will have to cut back on clothing or entertainment or something else to make this happen. This flexibility has been the main reason that our budget has been successful!
Currently, our RRSP ledger is in the negatives because it is RRSP season and we decided to 'borrow form ourselves' to maximize the amount we get back from our tax return. This is acceptable because we will use the tax return to bring this amount back to a positive state. The amount for our 'Gifts' ledger needs to be revised because we recently began sponsoring a child and the amount is slightly higher than we used to donate on a monthly basis. Constant revisions and check ups have been key to keeping us on track.
Overall, I'm much more aware of where our money has gone and is going now. I'm much more confident in the state of our affairs and we are better able to plan for the future now that I can clearly see how long it will take us to save up a certain amount. Most importantly, our budget has given us the freedom to spend money! I don't have to feel bad about buying items that I want because the money is coming straight out of my spending account and I know that the bills are being taken care of and money is being saved. We have achieved a kind of financial freedom that looks a little different than we expected- but is still exactly what we were looking for!