In last month’s post, I walked you through how to get started with the Personal Finance Worksheet Template. If you were able to go back through a couple of months of statements to plug in your actual spending amounts, then you’re ready to set your budgets. If you’re still collecting data, that’s okay, too. You can – and should! – adjust budget amounts as you go. I also wanted to quickly mention a post I found at the Creative Savings Blog – for those of you interested in tracking your cash purchases more accurately, Kayln offers a great system with a free receipt tracking sheet.
Back to budgets… Budgeting is a dreaded word for most people. It implies pinching pennies and limiting your ability to freely spend. While that’s true to some extent, I’ve come to see budgeting as a way to understand where my money goes, which actually frees me to spend it on things that are important to me. I like to review my spending against my budget amounts every three months or so. If my spending has changed, I take a closer look.
For instance, when I looked at my spreadsheet from the end of last year, I saw that I was spending a lot more at Amazon.com than I wanted to. (They make it so easy with their free shipping and good prices. Confounded!) Rather than continue to blindly spend at Amazon, the spreadsheet gave me a quick snapshot of the total amount, which sent up a red flag. Then, I went back to our Amazon account and reviewed our purchases. About half of them were truly needed household goods, and the other half were more frivolous items. In fact, we were no longer using most of the frivolous things. Peter and I talked about it and now we’re being much more mindful about clicking that “Purchase” button.
Some types of spending naturally have peaks and valleys. Gift giving, for instance, is erratic for us. There is a spike in spending in the spring and summer (when our family has a lot of birthdays), and also around the holidays. I try to estimate how much I will spend in each of those peak periods, and insert that budget amount into each month it applies to. Then, the best way to get a snapshot of it is to look at the “YTD” totals on the far right side of the spreadsheet. If by June I’ve already spent 75% of my yearly budget amount, I know something’s amiss.
There are two ways to approach setting your budgets. The first is setting them according to what you have been spending. If you have money left over at the end of each month and feel comfortable with your spending levels, that’s great! Otherwise you might want to set your budgets lower than your current spending. A word of caution here, though: don’t try to reset your habits too drastically or too quickly. I would recommend lowering budget amounts by $10 or $25 to start. If you are able to meet that budget goal, you can move it down again next month. Otherwise, I’ve found it to be discouraging when I set budgets unrealistically low and completely miss them.
Take a stab at setting budgets for each of your categories, and see if you can hit them consistently. Next month we will talk about setting goals and using the spreadsheet for longer-term planning. Until then!
When looking at your spending amounts, were you surprised which categories had the highest amounts? Have you decided to make some adjustments? Share your progress in the comments below!