This article has been a long time coming, but mostly for the fact that I really didn’t know how to tackle it so I kept putting it off. There were other things to do, and other things that needed written so it was easy to do so. Lately, I’ve really wanted to circle back where I left off in this series because so many of the articles recently have related to budgeting in one way or another. I finally knew how to do this article when I remembered that this series is telling our financial journey. In the first half, we’ll talk about what we did and some of the lessons learned along the way. We’ll wrap up with 2 suggested services that you really should check out (we’re not being paid by either one, we just love their work). In the next article, we’ll get into the nitty-gritty details of how to budget successfully. So here we go…
The first thing we want to point out here is just how much our budget has transformed in the past few years because as we found out… the first time you do a written budget you will not get it completely 100% correct. It took us quite a while to finally reach the place where we know where every dollar is going.
As the 2nd article in this series stated, our first foray into the world of budgeting started originally on the back of a napkin while having breakfast. We had no idea really of what our bills actually were monthly. Money came in and it went out, but we tried to guess as close as we could. We honestly couldn’t even list all of the accounts that we had open at that point. On the Napkin we estimated (not always correctly) what all we had coming in and going out. This was both a start and almost the end because it scared the daylights out of us. Before this we were bleeding money left and right, now we just looked down to see how bad it was. More so than anything else, it was a tiny step in the right direction because before this we bought anything and everything we wanted.
You have to start somewhere. If you’re not budgeting now, start TODAY!
After realizing that we needed to do more, we moved to some sheets of notebook paper we had laying around our apartment. It was then that we sat down and made every effort to gather all of our account papers to determine just how in debt we were, how much we had coming in and how much was leaving every month. As it turns out, every month we were deeper and deeper in debt and the credit cards were full. We had to figure things out, and figured them out quick. Thankfully, one thing we did not do at that point was open up another line of credit to “fix” the situation. On the notepads we started finding exact numbers and how much we owed and at what interest rate the debts were. We started saving receipts and tracking them. The biggest help to us was realizing how few grocery receipts there were and how many restaurant receipts there were. Things started to get better and we tried to find the cheapest prices for every item, but we were buying a lot of pre-made food (freezer, packaged, etc…) rather than home cooked from scratch. We attempted for the 1st time switching to cash here out of necessity. Since the credit cards were full, we used a small amount of money we have saved to survive through the next round of payments to live on until the next paycheck. Finally, we started keeping that cash in envelopes and trying to spend only cash. The most dangerous thing we did here, and I truly believe we lost a lot of ground due to this, was to use cash AND keep the credit cards around. They were too ready a temptation… which brings us to the next iteration of our budget.
Gather ALL you can about your financial life, and collect it in 1 place.
The next way we budgeted for a time was with an app/website that allowed us to track spending in digital “envelopes”. Honestly though, they were more like empty buckets than envelopes. At the beginning of the month, the app would reset each “envelope” back to $0. The major problem was fundamentally simple, but it made all of the difference. With paper currency and physical envelopes, you fill them up at the beginning of the month and as you use the money it disappears. You can’t spend money that’s not in the envelope. The app however just kept track of purchases, and it didn’t care how you paid so you could just watch it add up and up. Even though this system was broken, we were much more aware of our spending and we started building better habits. As a result of this, we were starting to make a tiny bit of headway. We were able to save for little trips, no accounts were delinquent and we had a little bit of money left over in the bank after the bills were paid. I’ll admit here, the progress sort of went to my head and I thought “we’ll never get bit by these credit cards again, we can use them safely now because we are on a budget!” I seriously thought that we could treat the credit cards just like cash and track purchases just like the envelopes. Just about the time that we shifted from cash to credit again, we opened our last credit card… a Cabela’s Club card. I thought this time would be different, and that we would only use the Cabela’s card for the things we had to pay for anyways. That lasted a whole 10 minutes after we got the card. In my infinite wisdom, I decided that we should rack up even more points by using the credit card everywhere instead of paying cash because you know we are leaving Cabela’s points “on the table” by not doing this. We convinced ourselves for 4-6 months that the digital envelope system for the card was working. The problem was that the spending on the credit card reached the point where it was nearly maxed… again. We finally realized…
The credit cards had to go! Have your cash in envelopes and a debit card!
There’s absolutely no question about it, we truly started to win and I mean WIN only after we switched to Zero-Based Budgeting. It was a term that I had never heard before and I was honestly intimidated by. This budget requires that you account for every dollar that passes through your hands. This is what I was intimidated by at first. When we were tracking things using digital “envelopes”, I was tracking down to the last cent. A small shift in my methodology helped us in that every time we purchased something, I rounded the value up to the next dollar when I logged it in the budget. This made everything much cleaner, and since we’re paying in cash we save the change aside for small trips so it’s technically “spent”. It was at this point a couple of key realizations regarding budgeting were made apparent.
- You have to create a fresh budget every month. No 2 months are identical. If you try to use a mold and fit every month into it the odds of you quitting go way up (this was us!)
- If you don’t spend every dollar “on paper” before you get the money, you’re probably not going to realize where it went.
- A budget is not your elementary school principal. You are in charge here. You don’t have to whittle every category down to dust and bones and think that the purpose is to tie yourself down. It’s actually quite the opposite in that it allows you enjoy what you’ve earned responsibly.
- You have to allow for some fun and wiggle room. Steph and I have a “wiggle room” category in our budget that we put a small amount in every month for the spur of the moment fun thing we want to do (get an ice cream, go see a movie, take a day trip, etc…).
- It’s SO MUCH EASIER to budget when you’re married if you and your spouse have the same goals. By agreeing on the goals that you want to strive for, decisions can be agreed on that will best make arriving at said goals possible.
I’m not going to go into exactly how to setup a Zero-Based Budget in this article, but there are 2 digital implementations of this way of budgeting that deserve a look. The first is called “You Need A Budget” or “YNAB” and the other is called “EveryDollar“. They’re both online and on mobile devices for ease of use. YNAB has been around longer, and the software is more mature as far as the features go. Both systems integrate with bank and financial accounts to assist by ingesting data so you don’t always have to key debits/credits in by hand. YNAB offers a trial before it starts charging for the service. EveryDollar has a free version and a paid premium version. The premium version offers the connection to financial accounts. I would suggest either product to anyone. In our home, we use EveryDollar simply because it’s free and here recently, after paying a lot of debt off our financial life is fairly simple and we don’t need too many extra features. I suggest using both and see which service feels better to you.