Household Budgeting

You ask, I deliver. A comprehensive blog post about how a couple twenty-somethings with buckets of student loan debt and a mortgage keep their head above water.

PREEMPTIVE DISCLAIMER: I am not a professional financial planner. I don't know your situation personally. I can't speak to your specific situation without an intensive Q&A session.  This is my opinion about what works for us. Please don't sue me if you try what I say and it doesn't work.

As I sit here writing this, my roof is dripping onto the coffee table we've strategically place and covered with towels. We need to complete the hearth of the woodstove we just paid an arm and a leg for so we could adequately heat our house for the winter. There are projects upon projects that need to be done, and all I can think is "Where is all this money supposed to come from?!" The answer is a well crafted budget, planning, patience, and persistence.

While we are here, let's clarify what a budget is: Allocating every penny that comes into your bank account. That means if $4,000 comes into your bank account in a month, your budget accounts for $4,000 of expenditures and savings.

Hubby and I fall under the "DINK" category: Dual Income, No Kids. Thus far, that is a strategic move. We both have college debt, a mortgage, and car loans. We like good food, I have a fascination with beautiful shoes, and Hubby has a rather expensive hobby in beer brewing. Where is the balance? Where do we start?

Step One: How you currently spend your money?
This will hopefully be an eye opener. I've helped a couple people through these steps, and every time, they underestimate their spending by at least 30%. Fear not! There's an app for that! ;)

Mint.com is a great, free (secure) tool to help figure out where your money is going. It is run by Inuit, who owns Quickbooks and Quicken. And no, there is no financial compensation here. I've used this website since 2007, and I like how it works.

Mint.com screen shot

Set up a profile, and add all your bank accounts, credit card accounts, and any debt you have the ability to manage online. This will take some time!! You must be willing to devote time up front to save yourself time (and money) in the long run.  After everything loads, start sorting through your transactions and categorizing them. Mint will catch on.

Now you can review your historical activity by month, 6 month, or yearly intervals. See a trend? I'm guessing you probably spend a lot more on your pets, food, and miscellaneous shopping than you thought you did.

Step Two- Identify your monthly required expenditures.
These come in two flavors: fixed, and variable.

Fixed required costs are the bills that are exactly the same every month. Examples include:

1. Mortgage (or rent)
2. Car Loans
3. Student Loans
4. Telephone/Cable bill
5. Insurance

Variable required costs are bills you must pay, but can change a bit every month depending on different criteria. Examples include:

1. Utilities
2. Auto Gas
3. Groceries
4. Pet supplies and food

TADA! Here are the basic categories of your budget! Analyzing your spending history should give you a better idea of a reasonable budget for your variable required costs. After analyzing our spending history, I determined Hubby spends about $50 a week in gas, and I spend about $40 every 2 weeks. Therefore, I set our Gas budget to $300 (rounding up from $280). We have Sassy's nails trimmed every 3 weeks or so, and she gets the best of the best dog food. Historically, we've spent approximately $50 a month on items for her. That now becomes my budget for Pet Supplies. Use Mint to create these categories with the appropriate amounts. 

Step Three- Allocate your remaining monthly income.
This, my friends, is the second reality check. Here is a small list of things that need to fit in this category:

1. Debt pay down goals
2. Savings
3. Shopping
4. Eating out
5. Home Maintenance
6. Auto Maintenance
7. Personal Care
8. Gifts
9. Donations

Once again, review your spending history on Mint.com. See where you've spent money in the past. Make a conscious effort to cut back in realistic areas. For me, it's shopping. I don't need anything else. Stop. Spending. Money. 

For these categories, make sure they "roll over" month to month.

See the check box next to your budget amount? Make sure that is checked!

This works both ways. If you are really good one month, you can "save up" for that one special thing you want. Or, if you need to spend $3,000 on a woodstove in January, you probably shouldn't be spending any money on the "home improvement" category for a while.

When you are done allocating your income, Mint.com will show you this:

Sorry, I don't need the world to know how much we make...

This means I've allocated everything but $155 of our monthly income. I'm not losing sleep over it.

There is a lot more to get into here. Most importantly, prioritizing and paying down debt. I promise that to be my next blog post.

Leave me some feedback below. What shocked you most? Is anything unclear? What would you do differently?

Check back in the next few days for my post about managing your debt!