Budgets are an important aspect to a healthy financial life. If you don’t have one, it’s extremely important to create one, since a budget provides a map of where you’re headed financially. Without this map, you likely won’t get to where you want to be.
My opinion on budgeting is that it should be high-level. I’ve never understood how anyone can create a budget specifically just for groceries, gasoline, etc. and possibly stick to it each month. No month is exactly like the last so I find it hard to believe anyone could live under such restriction and continue to do so month after month.
My personal budget is created in such a way that I look at each paycheck as its own event. From that, I deduct any bills that are due between this paycheck and the next, and then I calculate how much to designate to each savings account. This leaves me with a lump sum that I can spend in any way that I see fit, although I do aim to keep this the same amount each payday, within a $50 range.
Since I’m single and childless, this works well for me. It gives me the freedom to spend more on one category and less on another without making my overall budget look like it has huge variances. As long as I’m living within the lump sum I’ve designated from each paycheck, why does it matter what the money is spent on?
I use Excel for my budget, which is a great tool considering all the formulas and features available in it. What I like most is that I can actually see how much money I’ll have in my savings accounts at the end of the year if I stick with the budget. What’s more motivating than that? It allows me to see the possibility that comes with dedicating a certain amount of money to be saved from each paycheck. It’s here if you’d like to use it as well. Visit this site for more budgeting templates to find one that works best for you.
Also in the file, you’ll find a tab for tracking all your expenses, if you want to get a full picture of where your money is going. This is tedious, though, and I just started doing this for 2015 to get an idea of how much my expenses are and if I have obvious categories that should be reviewed for reductions. Mint does the same thing, but you have to make sure that you have each transaction categorized correctly before you export the data to Excel. I mainly use this feature in Mint as a way to make sure that I’ve entered everything into my spreadsheet.
While I’m not married, I’ll offer my opinion on budgeting for couples anyway: If both people are working, each person should have their own checking account and, as a couple, you should share a checking account for household expenses. The amount that goes to the joint account should be based off each person’s income compared to the monthly household expenses. Of course if one person has the family medical/dental, daycare, HSA/FSA expenses coming from just his/her paycheck, this should be factored in to reduce the share going into the joint account.
There should also be discussions around joint savings goals, with the same percentages used for those. Any remaining money can be in individual accounts to give each person enough freedom to make small purchases without checking in with the other person first. Ultimately, it’s up to the couple to find a system that works best for them but this is just my suggestion as a way to get started.
Once you figure out how much you can save from each paycheck, it’s best to set up automatic transfers to your savings account(s). I look at the entire year and determine what the lowest amount is that I can move to a savings account from each paycheck and then set up an automatic transfer for every other week for that amount. If there are pay periods where I can save more, I’ll set those up as one-time transfers.
If you don’t have a fully funded emergency account (approximately 6 months of expenses), be sure to get that funded before you start saving for other goals (i.e. new car, vacation, etc). I like Capital One 360 for my savings accounts since there are no account minimums and the website is easy to use. It’s also really easy to set up more savings accounts or close them if they’re no longer needed. The bummer is that interest rates are really low, so don’t expect to earn much interest no matter where you keep your money.
Your budget should be a reflection of your goals, and ultimately, what you value. For example, if taking vacations is important to you, then a decent sum of money in your budget will be allocated to that. For me, I fully fund my Roth each year ($5500 for 2015) and transfer as much as I can to my brokerage account, in the hopes of reaching financial independence sooner rather than later since that’s what I value. Each budget will be as unique as the person/couple creating it. That being said, there should always be room for flexibility. I’ll write more about this soon.