Monday, January 14, 2013

Week 2: Family Budget

Task #51: Create a monthly budget of expenses and income

What it is: Just what it sounds like. A plan for how much money we expect to take in, how much we expect to go out, and hopefully find that the difference will be somewhere well north of 0. Like (I believe) John Maxwell says: "A budget is the difference between knowing where your money is going and wondering where your money went."

Why I haven't done it yet: Like the Food Plan, we did do this a while ago, but let the move and other external events push it aside. We kept to our original budget really well for more than six months, during which time we were able to save up the money we needed for the down payment on the house. Unfortunately, the process of moving to the house really threw us off course. Obviously there were all sorts of one-time and unexpected expenses (we did do a lot of planning, but those pesky unknown unknowns always getcha), but settling in took some time. We weren't 100% sure what the utilities would run (they honestly still perplex me--we lost power for two weeks over the summer from the Derecho that ran through the DC area but somehow our electric bill stayed steady). there was spending on furniture and all sorts of odds and ends that we should have worked harder to keep a steady hand on, but we didn't. Plus, Mikey's stomach problems required him to go onto formula, which blew another big hole in cash flow (seriously, non-parents--do you have any idea what regular, non-soy/organic/platinum-laced bottled formula costs? A gallon of organic whole milk runs about $1 less than the single quart of formula Mikey downs in a day).

However, Mikey is turning 1 (already happily transitioning to real milk), the new year comes new tax deductions (one more dependent plus itemized deductions from the interest on the house), and another bucket of savings from having refinanced the house (yes, yes, I know we've only been here for six months, but we were able to refinance as a regular loan and thus cut out the insurance, saving us another pile of money each month). Plus: new year, new leaf, new resolutions and all that, so it's time to take out the green eye shade visor and put together a plan.

What I hope to accomplish: There are two parts to this that we're going to need if it's going to work. The first, obviously, is our basic monthly plan. Thankfully, after having lived in the house for all these months, I feel like we're going to have a better idea of what our utilities and other expenses will run, so hopefully we'll be able to make a solid baseline for ourselves.

The second is more conceptual, but I think is going to be the key to making this work long-term: how do we make the budget more flexible and able to handle unexpected/periodic expenses? I know Dave Ramsey would say that step #1 is to put together a $1000 emergency fund, largely for these kinds of unexpected events that show up (which would have been perfect for the $900+ repair bill we got for the Fit last month). It makes sense to me and we'll definitely put it in place: I like the idea of having a "middle man" between our monthly in/out cashflow and our savings. However, I'm wondering if there's something smaller we can do for smaller unexpected expenses--birthday and wedding gifts and long drives back to my family New Jersey (which can run up quite a bill in gas and food alone).

In addition to that, we have some expenses that aren't fixed in place every month. For example, where we live, we pay our water bill quarterly rather than every month. We don't drive all that often, which means that some months we hardly spend anything on gas and then the following month have to fill up both cars extra times. And, of course, there's always that one merchant who takes four days for the check card to process with the bank, leaving me with the false idea that we were way under on expenses one month.

One adaptation Sharon and I did with our last budget was to budget ourselves some "fun money" each month--if we're going to occasionally want to buy something for ourselves, why not put a number on it and give ourselves some boundaries for what we can spend? And, of course, if we don't spend all our money one month, we'll have more for the next month. I'm wondering if we might want to try something similar with some of these "rolling" expenses. I know Ramsey recommends paying for everything in cash, which would make it easier to compartmentalize a lot of these expenses, but I do wonder about some of the practicality of carrying cash around like that. Despite my best efforts, my wallet still usually looks like the George Costanza special.

Honestly, what I want is to be able to look at our money at the end of the month, move all of our extra spending into our savings account, and feel confident that I'm not going to have to pull any of it out again. I want to either figure out a way to keep a close enough eye on our money that I don't have to go nuts with it, or finally admit to myself that I really need to go nuts with it and keep a serious eye on it.

Hopefully, one day I'll be able to look back on this and wonder what I was so worried about.

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