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You Need a Budget- We All Do!
A guest article by Lori in Washington
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Money is a terrible master, but an excellent servant. P.T. Barnum
Living paycheck to paycheck is stressful, to say the least. When an unexpected auto repair or medical bill hits, it may not be just another “rainy day,” but an absolute downpour on our lives.
My husband and I have been married for 20 years and counting. For the first six years of marriage, we didn’t have a budget. I suppose we either didn’t know how to budget or didn’t want to rein in our spending—maybe it was a little of both. We’d each brought some prior consumer debt and student loans into the marriage. Then we continued to acquire new debt by spending a little more than we earned each month (over a period of some years). To compound our problems, we then bought a new-to-us car which required payments (before selling another one we had—and it took quite a while to sell).
Wow, we were in big trouble, and not just in the area of finances. We felt engulfed in circumstances that produced significant strain in our marriage and our lives. We’ve looked back on those times knowing that it didn’t have to be that way…
For about the past 14 years of marriage, my husband and I have worked with a budget—not because we’re so smart—no. It all began when, in desperation 14 years ago, we approached a wise Christian friend for advice. He had pity on us (a firm kind of pity, if you know what I mean—no nonsense type). He was willing to teach us some financial principles and how to live within a budget. It was a huge turning point in our finances and our marriage. Why? Because God brought us face to face with the reality of our situation, and gave us direction, and hearts willing to be diligent in working toward getting out of debt. |
We had become enslaved to lenders mostly through debt of our own making, and we wanted out (Proverbs 22:7).
There were some setbacks during those years and sometimes we forgot our heads and spent money unwisely. But, we were quick to get back on track and press on toward debt reduction. Eventually, we were able to build up some savings. Unexpected things have still happened and they always will (well pump replacement, car repairs, appliance repairs). The difference is that consistent budgeting, along with a modest savings account, buffers the impact--most times--unless God has another plan (Proverbs 16:9).
So maybe you’re thinking, “Well, it’s great that you’ve been able to get out of debt, but what about the financial situations outside my control?” I hear you. Over the past few years, most of us have been affected by the economic downturn: loss of income for those self-employed, loss of jobs due to employer reductions, employee pay cuts, and the like. We probably all know people whose small businesses are hurting badly, and others who are out of work and unable to find jobs. My husband is still working at his job, for which we are very thankful. However, his salary was cut significantly this past year and it has hurt!
Special Note to the Super-Financially Strapped et al. My heart sincerely goes out to you. In consideration of extremely difficult circumstances (long-time unemployment, loss of business, death of a spouse, major medical issues, disability, single parenting due to abandonment or divorce), you still need a budget. The more pressed you are with finances, the more you need a plan for allocating the income you do have (no matter how little). Having a plan eliminates confusion, reduces anxiety, and keeps people sane. It reminds each of us that there are things we can do, and there are things that only God can do. So plan, take the best action, and pray all the way through. Note: If you are married, it’s essential that you pray regularly with your spouse. Make sure you are communicating and know each other's mind on the most important issues. You will need to work together to get through these storms.
The How-To
The way to move out of the paycheck-to-paycheck cycle, get out of debt, and save for the future, is to “spend less than you earn and do it over a long period of time” (paraphrase of a quote by Ron Blue, author of Master Your Money). Building some savings or a buffer of reserve money is the key to taking on rain once in a while instead of getting soaked to the bottom of your boots. It may take you six months or some years to get out of debt and build up savings, but it is possible. In fact, a great way to start is to bank your coming tax return—don’t spend it unless you absolutely must. Save as much of it as you can instead.
So, if you agree that you need a budget, where do you start?
1. Pick a day to balance your checkbook and any credit card accounts and learn the amount owed on any other debts (car loans, mortgage loans, et cetera). Figure out what remaining bills will be due for the remainder of the month. Next, count all the cash you and your spouse have on hand, and any money you might have in savings. Write all of this information on paper with the current date.
2. On this same day start tracking every penny you earn and spend (if you miss something from time to time, guess the amount and keep going). Keeping track of things isn’t hard to do, but it is a team effort for husband and wife and requires consistency. We have a drawer where we toss in our deposit and withdrawal receipts, shopping receipts, notes for other cash expenses (e.g. garage sales), and all bills paid (with the check number, amount, and date paid written on them). Tip: It’s a good practice to scribble on your receipts what was purchased if it’s not obvious. Otherwise, you’ll later be guessing about which category that particular expense belongs in.
3. On paper, write down main categories for all income, bills, and expenses you have each month. You’ll probably miss some at first, but you can add them as you go. The categories might be: income (I include tax returns as income), groceries (which may or may not include toiletries), utilities, mortgage/rent, taxes, auto fuel, auto maintenance and repairs, subscriptions, insurance, postage, pets, gifts, education, charity, clothing, medical, dental, credit card debt, car loans.
Note: The advantage of breaking expenses out into categories and even subcategories is that over time you can tally exactly how much you spend on specific things. You’ll see where your spending priorities are—or ought to be. This helps foster preferential spending changes as well as bigger transitions away from poor spending habits. An example of a preferential change is this: if you spend a lot on movie rentals, but really wish you had more for educational books, you can curb spending on movies in order to budget for books. An example of a bigger transition is this: if your love of dining at restaurants is wrecking your food budget, you must cut back, plan a menu, and eat at home more. This sounds simple, but it really takes discipline to say “no” to yourself.
4. Consider the amount of money you have available to use now plus any income you anticipate for the rest of the month. Divide up this amount into your categories as best you can for the expenses you anticipate.
5. Start watching your spending and do your best to stay within your budget. If things look ugly, don’t give up! Just pray for wisdom and work with what you have.
6. Within the first week, choose a tool to help you manage your finances and get up to speed with it. I could have made this step number “1.”, but it’s really best to complete steps 1 – 5 beforehand. You’ll be better prepared to research budgeting tools, and you’ll have the information you need on hand for data entry when you start with the budgeting service or software.
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Tip: Decide if you are comfortable doing your budgeting and expense tracking on-line with a service, or if you want to do it with software on your home computer. Consider that in order to access banking transactions for your accounts, a service company will need to retain your username and password information. I’m personally not comfortable doing this, but other people are fine with it. Once you decide between an on-line service and personal computer software, you’ve narrowed down the options.
OK, so now that I’ve explained the nitty-gritty of budgeting (which isn’t rocket science), l would like to give you a sampling of some tools available for budgeting. Some are free, and some are not. Some are well-known, but that doesn’t make them good choices. For example, I have never liked Quicken Personal Finance or Microsoft Money (it’s been discontinued anyway). They are neither intuitive nor especially user-friendly.
Note 1: If you want financial planning software that will cover both personal and business needs, check out Gnu Cash (which operates somewhat like QuickBooks) or AceMoney (not the Lite version). One of these may work well for you and they sure beat the cost of QuickBooks.
Note 2: In my assessment, budgeting software sometimes isn’t made as flexible as it could be for families with fluctuating income (e.g. sales commission jobs). If this is you, check out YNAB. It has great flexibility. |
Some Free Tools
* AceMoney Lite: This is open source personal finance management software. It features budgeting, reporting, investment tracking, on-line banking, and more. This is a “little brother” to AceMoney (see below). On the web at www.mechcad.net/products/acemoney/index_lite.shtml.
* Budget Templates for Office Excel 2007: If you just want to start by tracking expenses in Microsoft Excel, you can get free budget templates. You can download “The Home Budget” worksheet at www.vertex42.com/ExcelTemplates/home-budget-worksheet.html.
* Mint, by Quicken: I investigated this on-line application, but haven’t used it. So, I asked a good friend (who has bookkeeping expertise) to give me some feedback about her experience using it. She told me that it wasn’t flexible or very user-friendly for budgeting. In fairness to Mint, there are people who love using it—I’ve seen some great reviews on-line from users. On the web at www.mint.com/.
* Gnu Cash Version 2.2.9: This is personal and small-business financial-accounting software. A friend is using Gnu Cash and likes it for tracking personal and business accounts. The website and application seem to have good tutorials and I noticed that the software walks you through the process of getting set up. There is also an active forum available on-line for posting questions and answers. On the web at www.gnucash.org/ (click the “screenshots/features” to see what the software is like and click the “downloads” link on the left to go to the page with the application download).
Some Tools for Purchase/Subscription
* You Need A Budget (YNAB): Finally, a different kind of desktop budgeting software! YNAB encourages you to stay on your budget by following four simple rules: (1) stop living paycheck to paycheck (2) give every dollar a job (3) prepare for rain and, (4) roll with the punches. These rules are woven into the software to help you think before spending. Like Mvelopes (read review below), money is budgeted into categories for future spending. With YNAB, your goal is to build a buffer (an amount of savings within your checking) equivalent to one month’s expenses. Over time, the idea is to stop living on what you’re making this month and start living on what you made last month. It’s like keeping emergency funds in your checking account rather than in savings. The difference is that you start making spending decisions based on your budget, NOT your checking account balance. This is a whole new concept if you’ve been living paycheck to paycheck!
The makers of YNAB are very customer-service oriented. They offer free web classes for users, great on-line tutorials, and a conversational style HELP section within the application. The free web classes and other learning tools are fantastic. The purchase price is $59.95. On the web at www.youneedabudget.com/.
* Mvelopes: This is the Cadillac of on-line money managers! It’s endorsed by Crown Financial Ministries and is an impressive, comprehensive tool for tracking and budgeting all your personal financial information in one place. It has just about every cool feature one could want in a budgeting tool, including bill pay and mobile phone access. Once you’re set up with Mvelopes, it can do a lot of work for you—like instantly recording your transactions as you make credit card purchases.
Mvelopes has made customer support a priority with 24-hour Live Chat, video tutorials, a knowledge base, and a community forum. Mvelopes is a subscription service with three plans available: $39.60 quarterly, $126.60 annually, or essentially $7.40 per month for a two-year subscription. Note: Crown Financial has a storefront on the web here: http://crown.mvelopes.com/. However, the company behind the software has a separate storefront on the web where I found these helpful pages: www.mvelopes.com/faq/ and www.mvelopes.com/overview/. I was able to learn a lot more about Mvelopes from the latter two links to resources.
* AceMoney: This is the same software as AceMoney Lite except that AceMoney provides support for an unlimited number of accounts. It’s a good choice for a family who wants to manage personal and business finances in one place. It features budgeting, reporting, investment tracking, on-line banking, and even currency conversions. If you do any e-commerce, AceMoney has features for managing your sales on eBay or PayPal. Sale price right now is $30. On the web at www.mechcad.net/products/acemoney/.
Lori and her husband are homeschool parents of four children between the ages of 5 and 16. She is a freelance writer who enjoys researching and communicating about subjects that matter to homeschooling families. She has been an active volunteer in her homeschool community for 11 years networking with homeschool organizations, legislative liaisons, co-ops, and support groups in both Washington and Oregon. You can contact her directly at lovinhomeschool@gmail.com.
Addendum from Janice Campbell
Lori's article is right on target-- we all need a budget! I use and love Mint.com for its ease, and YNAB for its amazing features and flexibility. I've tried other things, but these two have worked best for me.
© 2010 by Everyday Education, LLC
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