2010: The year of the budget

Such an exciting title, right?

With the need to make quite a few major purchases over the past two months or so - not even including holiday shopping, which we never plan for financially - Dave and I have decided to start a budget for 2010.  It's an annual budget, and we're only counting purchases that we've made since 1/1/10 (not anything purchased prior to that, even if we pay off the card that it was charged on in January.) At the end of the year, we should have a very clear snapshot of how much we spent in 2010, and where that money went.

As I mentioned, the budget is annual, but it has a monthly breakdown for all of our major categories.  There are two main headings - Fixed expenses and Variable expenses.  For the fixed expenses we just budgeted the monthly amount times 12.   But the variable expenses took a little more work.

We have to think creatively about how much we spend on certain things like eating out, entertainment, groceries, gas, medical expenses, home and car expenses, clothing, toiletries, travel, and a handful of other things. Then we had to step back and decide how much we WANTED to spend on those things.  For example, eating out - which I write an entire blog post about a few weeks ago - is something we spend WAY too much money on.  So instead of budgeting how much we spend in that area, we budgeted how much we are going to spend, which is $100 per month.

Here's how it works:
Each of the categories has a monthly budget amount, the total annual amount budgeted towards that, and then a column that shows how much we've accrued to date.  That's right - it's based on a daily accrual system.  The spreadsheet recognizes today's date, looks at how many days there were between today and 1/1/10 and then accrues a per day amount toward each category.  So instead of saying, "We have $100 to spend this month," at the beginning of each month, we wait to let funds accrue towards that budget line.

For example, since we spent $19 pizza on January 1st, we were originally at negative $16, since we had only accrued $3.28 towards eating out.  Since then, we've let funds accrue and so far we've earned $17 towards our next meal out!  Essentially we are "earning" the money to go out to eat, and we know exactly how much we can spend when we do finally go.

Here is a section of the budget that I copied and pasted (so sorry if the formatted goes out of whack.)  This is from the summary page.  Keep in mind that each category item has it's own tab, and this page pulls the data directly from the individual page in order to reflect what shows in the "spent" column.

Category Per Month Per year Accrued Spent Left
Variable Expenses:          
Dining Out $100 $1,200 $36.16 $19.00 17.16
Social/Entertainment $50 $600 $18.08 $0.00 18.08
Travel $150 $1,800 $54.25 $0.00 54.25
Gifts (Xmas, Bday, etc) $140 $1,680 $50.63 $50.00 0.63
Medical (Rx, Dr.) $80 $960 $28.93 $132.66 (103.73)
Gasoline (not incl. FP's) $50 $600 $18.08 $0.00 18.08
Groceries $550 $6,600 $198.90 $116.00 82.90
Beer/Alcohol $50 $600 $18.08 $0.00 18.08
Toiletries/Target $100 $1,200 $36.16 $9.53 26.63
Clothing $100 $1,200 $36.16 $62.58 (26.42)
Miscellaneous $100 $1,200 $36.16 $32.10 4.06

I had to buy new glasses on January 2nd, which is why the "medical" budget it in the red.  Dave also bought new running shoes right after the new year so that he could start a learn-to-run program (he's making great progress!)  We also budgeted a LOT for travel, mostly because we're planning on going to Mexico this summer and we wanted to make sure to reflect that.  However, it's not likely that we'll continue to save $1800 a year that would go exclusively towards travel (although if we can pull it off, I would be THRILLED!)

It's not perfect yet, and we know that there is going to be some tweaking along the way as we encounter expenses that we didn't think about originally, especially during this first year, as we really start to think about what we spend.  But I think overall it's going to work out really well for us, and will hopefully force us to be more thoughtful about out money. 

What do you think? Do you use a budget? Any suggestions for ways to improve mine?


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