budgeting

Expense Tracking

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In January, I mentioned how I have a very detailed spreadsheet to track my expenses. I started this spreadsheet concept in 2012 when my husband and I started combining living expenses. We also moved from NY to PA to a VA apartment to a VA house in a matter of 22 months. I needed to have a way to make sure I didn’t miss any bills. I didn’t want to rely on receiving the bill itself in the mail or in my email before paying it. I chose to develop the spreadsheet based on our pay check dates, which were every 2 weeks.

Here’s my sheet, in essence. Pay no attention to the actual numbers in this screenshot, as I didn’t take the time to make sure they were made up but still proportioned to each other. The format is exactly as I use it though. I set it up at the beginning of each year.

For the entire year, I record the pay check receipt across the top of the sheet. The dates are based on the day the money hits our account. This has changed over the years, as we used to get paid on Tuesdays, but now Mr. ODA’s pay check shows up in our account on a Saturday.

The first section, which is all gray, is the rental income. I then record all the rental income near the 1st of the month. If a pay check isn’t near the first of the month, I record it for any pay check date that shows up in the first 10 days of the month. Realistically, I receive the majority of our rent on the 5th of each month, so it doesn’t make sense to record it as a projection any earlier than the 1st, and as near the 5th as I can. The ‘Net PM’ is because I don’t collect rent on our KY houses; the property manager collects rent, removes their expenses, and then we receive the net by the 10th of the following month.

The next section is the light green, which captures routine expenses on the rental properties. I record the HOA due date every 3 months, each month’s mortgage payment, the payout to our partner (I take in all the rent each month and then pay him out his half plus our half of the mortgage payment), and then the VA property manager’s expenses.

The white section covers all our personal expenses.
– The bottom two gray lines are simply an indication to me that those affect Mr. ODA’s account and not our main checking account.
– I pay our personal mortgage near the 1st of the month (some time between the 1st and the 10th, but I typically prioritize this getting paid as close to the 1st as possible).
– Our personal residence’s HOA is only due one per year, which is why there’s nothing on that line for this particular snapshot.
– Then I have all our credit card payments. For the year, I project based on the previous year’s average bill. As I get closer to the statement end period, I update the projection. If I project that a credit card bill is going to be $1000, but as we spend through the month, we had more expenses than I thought, I update the projection on the spreadsheet to reflect that. So where it said $1000, I may put $1700 to cover my savings projection.
– I project our my utilities too. I know that I have an electric and water bill each month, and I have a cell phone bill that I pay in 3-month increments to my sister-in-law for a family plan. When setting up the sheet for the year, I simply keep the same numbers from last year for the utility lines. While I can log into my account and see the details, it’s easier if I already have it laid out like this. Then I can see, “last year, for this month, my bill was only $40; why is it $70 now?” One caveat here is that I usually keep the lines on this sheet to those items that are going in or coming out of our checking accounts. The water bill can now be paid by credit card (since we moved to KY last year). Technically, I should remove that from the sheet because I track bill due dates separately from this part of the sheet, but since I’m used to tracking the water bill’s due date like this, and I like seeing how the bill changes from last year’s amount due, I’ve kept it on the list.
– I have our IRA contributions listed as well, since that’s a big chunk that comes out each month. The maximum contribution into a Roth IRA is $6,000. We have automatic contributions twice per month, so that’s actually $500 out of each ‘pay check’ grouping.
– The “other” line is for expenses that happen every year, but they aren’t worth having individual lines because there’s only one or two payments per year. As I type that, perhaps my own HOA payment could be added to the other line since it’s only paid once per year. In Virginia, we had personal property tax that would be due each year. We also have our taxes that we owe (because we purposely plan our taxes so that we don’t get a refund because that means you’ve given Uncle Sam an interest free loan). We have vehicle registration fees due. All these ‘one off’ payments are recorded on the “other” line and then I describe the expense two lines below with the asterisk.

As for the savings projection, this is probably mislabeled. It has always said ‘savings,’ but it’s really just the net of that two-week period’s income and expenses. To know if I’m in good shape (if perhaps I’m in a position where my account balance is being kept really low), I net the two ‘savings’ next to each other (so I would add the $60 and the -$19 to know that my income from that first two-week period will cover my expenses for the second two-week period also).

In practice, as I receive the income or I pay a bill, I change the text from black to gray. This tells me that it’s paid and accounted for. I also update to actuals as I go. So if I projected a credit card payment to be $150, but the actual payment was $147.34, that’s what gets put in the sheet when I make the payment. This helps me track actual amounts through the year, as well as sets myself up to create projections for the next year.

I have a separate tab in my workbook that tracks additional income for the year. For example, when I was working part time, I recorded that income on that other spreadsheet. Each time we get money from our credit card rewards, it gets recorded on my income spreadsheet. By keeping track of our additional, unplanned, income, I have the ability to identify our actual savings net for the year. I take the ‘savings’ bottom line from this spreadsheet and add all the additional income we’ve brought in from the other sheet.

While I’m not budgeting the details of our expense categories (e.g., $300 per month for groceries), I’m tracking my income and overall expenses based on bill payments. Last year, I had tracked my expenses by category to see if overspend in one area in particular. I didn’t keep up with it though because the billing cycles didn’t line up with when I’d be running my financial update, but I hope to get in a better grove this year. This set up makes me feel comfortable that I’m not missing a bill. If I get to the end of a 2-week period, and I haven’t grayed out an amount, then I know it’s time to investigate why I didn’t receive mail or an email prompting me to pay a bill. Usually what happens is I’m tracking Mr. ODA’s credit card payment and wondering how much longer he’s going to wait to pay it until the due date. 😛

I hope that was easy to follow. I don’t want to put all our exact numbers in there, but I wanted to share how I “budget.” If you have any questions, don’t hesitate to reach out!

Budgets and Overspending

mrsonedollarallowanceLeave a comment

I’ve rewritten this several times over the last two months, constantly afraid of who I’d offend. Instead, I’m just going to share my raw observations and hope it makes sense to the people who need it. Plus, what’s a better time to discuss budgets than the first post of the year? I actually have quite a few posts related to budget planned. So we’ll start with why I believe budgeting leads to overspending.

I don’t like budgets in the sense of the word’s common understanding. A literal definition of the word is, “an estimate of income and expenditure for a set period of time.” In this context, I’m all for a budget. I have a detailed (over-the-top, probably unnecessary) spreadsheet that I use to manage our money. In any given two-week period, since 2012, I can tell you my projection of money-in and money-out. I make sure my expenses are covered.

ENVELOPE SYSTEM

The extreme version of budgeting (in my opinion) is the ever-popular “envelope” concept. It’s simple: you decide on your monthly spending categories, and then you put your cash* in the respective envelope to pay your bills. (*Please don’t pay for everything in cash!) When you run out of money in a given envelope, that’s it for the month. There must be a way that this works for enough people that it keeps getting touted as a great idea, but I’ve seen it fail. You’re creating a dependency on these envelopes instead of an understanding of your finances.

What happens with any leftover money in the envelope? The articles I’ve read about this system literally tell you to celebrate if you come in under budget. No. How does taking your extra money and spending it frivolously get you to your goals faster? Or it tells you to add it to next month’s envelope (e.g., if you have $50 left over in this month’s envelope for groceries, put it in next month’s envelope and now you have $350 instead of $300 to spend on groceries). How are you creating discipline and an understanding of budgeting if you can splurge next month? Now you’ve spent an extra $50 in month 2, but you need to scale back to $300 for month 3. That’s not creating a routine.

I want you to create a relationship with money.

RELATIONSHIP WITH MONEY

We don’t budget in the colloquial sense. We have a relationship with money. I make sure that my mandatory expenses are taken care of (e.g., mortgage payments, utility bills). Everything that can, goes on a credit card. When it comes to paying off the credit card every month, it goes back several steps.

My thought process is cemented in whether or not the value of an item is worth it to me. When I’m about to buy something, I take the time to think:
1) Is this item worth the price I’d pay for it?
2) Will this item serve a need (not a want)?
3) If it’s a want, will this item bring me enough happiness that I’m willing to spend this amount of money on it?

Want to know something I recently struggled with? For years, I’ve wanted a desktop tape dispenser. Years. I don’t even think about it until I’m wrapping Christmas gifts. So once a year, I have tape, but I wish I had a desktop tape dispenser. I never bought it. I thought, I can struggle through needing two hands for my tape dispensing needs for a couple of days out of the year. I thought, if I buy a desktop tape dispenser, then I need to buy a different kid of tape than I already have on hand. Every year, I just dealt with it because it wasn’t worth the cost to me to invest in something that would make things marginally easier for me for a few days of the year. This year, after wrapping more than half the gifts, I decided enough was enough. I purchased 6 rolls of tape for 9.99 and a dispenser for 4.22. I’ve been wrapping gifts outside of my parents’ house (where there were tape dispensers) for more than 15 years. I’ve struggled with the decision to purchase a dispenser every single year, and it finally got to the tipping point this year. All that thought process, over all those years, to spend less than $15.

That’s my thought process for every non-routine purchase. Instead of putting cash in an envelope marked “something for me” each month, I’ve trained myself to manage our money from the purchase point instead of an envelope full of cash that I mindlessly spend down. I can make an informed decision on whether or not I need or want something. I’m taking the time to decide whether this is going to bring me long-term happiness, short-term happiness, and whether the cost of the item is worth it. Had that tape dispenser been $15, plus new rolls of tape for $10, I probably wouldn’t have bought it. Because at that point, I’d be happier with a new shirt or new pants for $25. So I would have decided that my $25 is more valuable to me than to spend it on tape. That doesn’t necessarily mean that I go out and buy a shirt arbitrarily; it just means that I’ve decided that the value of that money is worth more to more towards something else than this item I’m currently contemplating.

OVERSPENDING

I see it over and over: people who budget seem to be the ones buying things they don’t really need. Instead of changing your mentality to be whether a purchase is necessary or is worth the price, the decision becomes “I have $300 left over, what can I do with it?” I see people have their sights on a product that they want. They build it up in their mind that it becomes unattainable, so when the extra money is there, they splurge on it. But did they ever step back and ask if it was really necessary or if their money could be put to better use in their overall wellbeing?

There’s a time and place for splurges. I understand that buying something you want makes you happy, in that moment. What if you thought: does my happiness in buying this gaming console outweigh the anxiety and frustration that I can’t pay my bills in a couple of weeks?

If you struggle to pay your rent month-to-month, then a large influx of money should be earmarked for future bills, not to splurge over and over again. An envelope system creates a reward-driven desire to your spending. The goal should be a more comfortable lifestyle where you’ve set yourself up for success instead of a groundhog-day-struggle to make ends meet.

There have been several instances that I’ve seen in the last couple of months, but the one that really has been weighing on me happened in October when I was working.

I was working at the racetrack. It’s temporary work – working during the race meets and possibly during their horse sales. The Fall meet was 17 days. Depending on where you’re working, you can make some really good money. I happened to be placed in one of those locations, and next to me was a young girl. She complained of having to work two jobs and not getting a day off all month because she was working two jobs. She also shared that she struggles to “make a decent living,” and that she borrowed money from a friend to be able to pay rent on October 1.

The first day, we made over $400 in tips. The second day, she asked how we celebrated making that amount. I bought the Hatch sound machine. I’m going to assume that most of our readers have no idea what that is, but it’s a sound machine and a light that can be programmed for different needs (for instance, I wanted it to give our toddler the signal that it was OK to get out of bed). It’s $60. I had already looked into several options, and I had already determined that I was in a place in life where it was worth it to me to spend the money on the original than to attempt to buy a knock-off that doesn’t work great for $40. Personally, I was going to buy this thing regardless of what I made while working, but I used that as my example on what I splurged on with our unexpected earnings. She shared that she took her boyfriend out for a steak dinner. One celebration isn’t going to break the bank, but it became a routine. It wasn’t until the middle of the month that she said she had paid her friend back for helping her pay rent. That $150 you spent on one meal could have been prioritized to keeping a roof over your head, or being a good friend and paying your debt.

So often, I see someone else blamed for one person’s mistakes. It’s the greedy landlord’s fault that you need to pay rent. It’s the government’s fault for not increasing minimum wage. What if you stepped back and looked at your decision making? Did you buy the new gaming console and then struggle to pay rent on the first of the next month? Did you go to Costa Rica and then struggle to pay rent on the first of the next month? Did you buy that new gaming console, and not add to your savings for future planning? The televisions in our house aren’t huge, but they work. I don’t have a need to replace a working television simply so that I can have the newest technology and the biggest screen.

If you don’t create a relationship with money and an understanding of how to make informed decisions, you may end up with unnecessary expenses with money that could have been more productive. It’s time that you step back and look at your entire spending picture to know whether you’re truly budgeting and learning, or you’re mindlessly spending money because you’ve accepted that’s the cost.