Monday, October 29, 2007

How Did I Get Here? – Part III: Budgeting Is Not a Four Letter Word

The next step in my financial revolution was to set up an Excel spreadsheet system to track all of my money.

For me, budgeting has always been a four letter word. My mom has tried to teach me to budget on numerous occasions, but I never stuck with it for more than a month or two. After reading countless pieces of advice on how to create a budget, I discovered why: Budgeting is not about bills.

She’d always tell me to add up my monthly bills, subtract that from my monthly income, and the rest was basically one giant miscellaneous category.

There were so many problems with this approach. First of all, miscellaneous isn’t a real, tangible thing. The miscellaneous money wasn’t allocated to anything specific. How was I supposed to know how much to spend on TV on DVD sets and how much to spend on food?

Second, there are many other things in life besides bills, and not all of them are monthly. This system didn’t take irregular expenses like car registration and gifts into account.

Luckily my mother is no longer my only source of financial advice. (I’ve actually been giving her a lot of advice lately.) There’s a whole internet out there with tons of different tips and tricks for creating a budget that actually represents my real life. The one that made the most sense to me was The Zero Based Budget, so that’s what I use.

Every month I start a new tab in my spreadsheet. On the top I list my income, and below that I list my expenses (with no miscellaneous category in sight). With the magic of a few formulas, Excel tells me that I’ve spent all my money when the total at the bottom is zero.

This post is part of my Financial Revolution Series, which is my personal financial story. Each post gives a piece of the story, detailing how I got into debt and how I turned things around.

Next time on TVG&M: Making Choices and Cutting the Crap

5 comments:

Finance And Fat said...

Congrats on starting the budget! That was far and away the most powerful force in my getting started at attacking my mountain of debt. I wouldn't start the month without it now.

Matt and Carol said...

ZBB!!! I know what that is!!! :)

Am still so proud of you!

Carol [who does have a misc fund to catch the stuff that she forgets about - but it's like $50 and is used to buy pizza or wet wipes or school pictures or something else I forgot]

TV Girl said...

On the misc category - I tend to hate it because it got me in so much trouble before. I personally steer VERY clear of it by giving everything an exact name, which may mean adding a category and rebalancing the budget in the middle of the month (that happens less and less the longer I've been budgeting). But I can definitely understand having a small amount (like $50) for little things that come up, especially for a family when there's more people and therefore more things that can come up. That makes it almost like a mini e-fund or blow money.

Sheesh, I think I could make a whole post on the misc category. :)

Matt and Carol said...

Well - okay - I guess technically I rename it midmonth to 'school pics' or 'pizza' :). And it's always cash!

TV Girl said...

Ah, same difference then, IMO. And really, as long as it's cash and less than you earn, it's all good! :)