Perfectly Imperfect Family and Finances

Posted By Mr. Imperfect on May 27, 2008

This post is another step in our journey to eliminate our debt. To view previous post, please click here. If you are new here, consider subscribing to our RSS feed to get post as soon as they are available. Not sure about RSS feeds? For a description, and a brief tutorial, check our RSS Page.

If you are serious about getting out of debt, and changing your life, this is the most crucial step. Since this is such an important step, it is a good idea to take your time and complete this step over several different sittings. Remember, you have to know where you are before you can map out the route to where you want to be.

I will tell you that this is the most difficult step so far that we have experienced. Not difficult to create, but frustrating to keep in check and balanced. If you have not done so, please read our previous posts in this series here and here, they are the first steps to creating a budget. Without further delay, here are the steps we used to create our budget:

1. Gather those receipts The ones that you are going to have saved for a month (we have read recommendations of anywhere from two to six months, but it was not feasible for us as we needed to get started immediately). Sit down in one location, we prefer the kitchen table, grab a legal pad or notebook, and get ready for step two..
2. Categorize Everything that you find a receipt for, assign a category. In the beginning do not worry about specifics (those will be worked out as you go!!), just get a general idea of which category your purchases need to be in. We have such categories as: bills (a free table for you to use is here), home, food, personal care, pet supplies, automobile expenses, insurance, taxes, etc. Notice that these are very broad categories. We kept it simple as long as possible, until we had a firm grasp on just where our money was going.
3. Enter your totals Again, just place items under the main categories for now. That is how we started, and it did not take long to find the biggest leaks in our budget (Dining out, tech toys).
4. Find your soft spot(s) If you are in good shape and have no improvements to make, we commend you ol’ masterful steward of resources. If you find some changes need to be made, welcome to our club.
5. Choose your method Once you have the previous step completed, it is decision time. There is actually a poll on our page about this very question, so if you have a moment, please click your answer and vote. Are you going to continue by hand? We wanted to start this way because it made it more personal for us when we had to hand write each figure and total. Will you use a spreadsheet? Money management software(Quicken, MS Money, etc)? A web-based application (YNAB,Mint,Pearbudget,etc.)? What ever your choice, it is imperative that you like the interface and “usability” of your chosen system, or you will not stick with it.

Once you have a handle on where most of your disposable income is going (assuming you have disposable income), start your sub-categories in that area. As stated, our biggest problem was dining out. Under food, we created the sub-categories groceries and dining out. We further investigated (but did not create sub-categories for these) our dining out expenses and narrowed them down by restaurant and day of the week. Surprisingly, our biggest expense was through the week, and not our weekend “date” meals. Once we had that category under control, we divided the next biggest, and so on.

The secret to gaining ground is to find those areas that can be trimmed, and then appying that surplus to your financial plan. We have just finished Dave Ramsey’s The Total Money Makeover: A Proven Plan for Financial Fitness and are going to follow that advice with a few personal tweaks. A post for the near future is one that discusses creating your own financial plan, using the suggestions of authors and combining several ideas, as well as speaking with a personal financial advisor. The latter concerns me somewhat, since no one (other than ourselves) would have my best interest entirely in mind, and most of personal finance advisors earn either a percentage of your total wealth, commission on products sold, or both. It pays to take the time and do the research yourself, make a decision, then put your personal plan to work.

Remember that personal finance is just that-personal. Do what works for you. When you blow your budget to the hot place and back (and you will), recoup, count your losses, adjust accordingly, and move on. Also, the budget is not set in stone at our house. We never make changes without total agreement. If you are not married or in a relationship that requires consent, obviously you are the CEO and can adjust as you see fit. If you are in a relationship, it is not negotiable-you and your spouse must be on the same page. If you are not in harmony with each other, you may as well draw flowers and butterflies on that legal pad. It will not work. If you are not a subscriber, please consider this free service. We are going to do a article on talking about finances with your spouse soon, and you will get it immediately if you are subscribed.

Recently, I have been toying with the free downloadable version of Pearbudget (they just released a web-based subscription service). I like what I have seen so far, and will give a full review in a later post. As always, have a great day!

• One Step at a Time: A Journey Toward Financial Independence
• What Debt Would You Pay Next?
• Saving Money While doing Your Household Shopping
• Improve Your Financial Situation Through Education
• Beating Depression caused by Job Loss
• It Pays to be Financially Organized

Category: Family, Finances, Goals, Personal Development, The Journey
Tags: budget, Finances, financial independence