Posted in Blog

Money Planning Series: #1 Our Budget Tracking System

I’ve given some thought and space here to time tracking, but money is another limited resource that gets a significant amount of my intentional planning efforts. I want to give this topic the attention it deserves, so every Wednesday for the next several weeks, I’ll cover a different aspect of financial planning and budgeting.

Now, I’m not a certified financial planner. This isn’t a place for me to discuss or offer advance on what you should do with your money. That’s not the point of the series and certainly not my expertise.

In this space, I will share the systems and planning we use to manage our financial resources, in case it is helpful to others. It is a bit of a look under the hood. (And I know I would naturally just be curious how another family makes it happen!)

To start the series, let me share how we set up our budget. Our budget is organized in an Excel file that is managed essentially like a set of virtual envelopes. All of our envelopes (a.k.a., budget categories) are listed along Column A. There are about 40 envelopes capturing all of the regular expenses we’re paying (from homeowners association dues to utility bills) and things we’re saving for (including Christmas presents and retirement). Anything we can think of that costs a “significant” amount of money that we can anticipate and reoccurs gets its own envelope. There’s an emergency savings envelope for those expenses you can’t just plan on.

Then, each month gets its own column (Column B through infinity). For each month, we denote how much money is in each envelope. Every new month starts out with amount the previous month ended with, and we subtract any expenses and add any additional money we put in the envelope. For example, we know our mortgage payment is X. We make sure to end each month with X in the envelope.

Some budget categories are more variable, like automobile gas. We start out with what is in the envelope from the previous month, subtract out receipts for gas purchased, and add a set amount each month. Basically, since I’ve tracked our expenses for years, I know our average amount spent per month on gas, so I always put at least that much in the envelope every month. Some months we have extra in the envelope, which just carries forward to the next month in case we need it (like months with long road trips or heavy commuting).

Many of our budget categories are for various items we’re saving for. Now, we could always have one pot of money called savings and then spend it on whatever we wanted if and when we have enough money saved. That’s a fine strategy, but I like saving for something specific. It allows us to better set savings goals and see how long it will take us to save for it.

For our savings budget categories, there’s typically not much money coming out of the envelope. We just keep adding a designated amount month after month. This is how we pay for our vehicles. We act like we have a car payment and pay ourselves every month. We don’t buy a new car until we have enough saved to buy it with cash.

The key to the entire budget is all of the money in the envelopes has to equal the total money we have available. To check this, I compare the sum of all of the money in our virtual envelopes to all of the money available in our financial accounts. Luckily, in Excel, I set up simple formulas to do this comparison for me.

So that’s the basics. I’ll cover additional topics later in the series, like how we leverage Mint and how we use this budgeting system when an emergency occurs.

Photo by Fabian Blank on Unsplash

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