How we set our family budget... #oldschool

It’s that time of year when people are setting goals.  Odds are that loosing weight and saving money are probably the top two goals…  at least those are my two top goals year after year.  Today I wanted to share how we budget.  Be warned:  I am a paper person.  This process is low-tech and old-school.

Over time I’ve learned to accept that I will never use an app to budget.  Likewise, I believe the measure of a good system is one you actually use.  While ours may seem overly simple, it works for us.  In the past, I’ve tried to really, really tease things apart.  It became too overwhelming and thus, I stopped budgeting.

Our process:

We budget monthly, by paycheck.  We get paid on the first of the month. 

Our paycheck is auto-deposited into our savings account.  From there, we automatically transfer out the exact same amount each month into our checking account.  The magic here is that we are automatically saving each month, at the start of the month.  We save first.

Since we get paid at the start of the month, the same amount each month, we assign every dollar to a spending category, remembering – we’ve already hit our savings goal for the month first. 

Additionally, we keep a separate checking account specifically to pay our taxes and insurance.  We move money into that account quarterly from the savings account.  This system has changed our life, in that I’m less worried at tax time about having the funds to pay our property tax bill each quarter and our end of year taxes.

Summary:  We have three accounts. Savings. Spending. Spending just for Insurance/Taxes.

Let’s also talk about credit cards.  We have an American Express, Visa (from TD, which I hate and need to close… goals for 2021), a Chase Amazon Visa (5% off our Amazon and Whole Foods purchases), and I confess I have a TJMaxx Rewards card ($10 coupons are a treat).  Here’s the catch: We ALWAYS pay off our credit cards in full each month. Sales, rewards, all of that is meaningless if you pay late fees or interest on purchases. I use the AmEx at all times, unless I they don’t take it or if it’s for Amazon/ Wholefoods.

Now here’s how we actually budget:

First, I buy a 97 cent, 1 subject, college ruled notebook.  I only use 18 pages, but I buy one for each month.  Total annual investment in budgeting: $12.  I also really like the colored Papermate Flair pens in the medium point.  I find that having the right paper and pens is also essential.  I don’t know why, but it is.  I don’t question this – I just comply with what my weird brain demands.

Next, on the opening page of the notebook I have a list of 17 categories that work for us.  I assign them each a page number and the amount that I think we’re going to be spending that month.  All 17 line items total our monthly paycheck.  Every dollar is essentially pre-spent.  This means, if I’m spending a lot in one place, we need to cut back some other place.   

Let’s look at the categories and then we’ll look at January as an example.

1.     House Related

If we go to home depot, this goes here.  If I cut a check to the lawn mower guy, it goes here.  If we have an electrician come, it goes here.  You get the point.

2.     Groceries

This also includes trips to the farmer’s market and beer.  Beer is food these days.

3.     Telephone and Internet

Our cell phones and internet services at the house.

4.     Utilities

Water, gas, electric…

5.     Medical

This is an on-going large expense for us.  We have insurance but it doesn’t cover anything out of network…

6.     IT/ Media/ Subscriptions

Netflix, Apple payments, New York Times, Wall Street Journal, etc.

7.     Out to Eat

I love take out.  Just saying.

8.     Sports & Rec

We all ski/ snowboard.  John bike rides a lot.  Kids skateboard.  If we buy a season pass to ski, it goes here… we have to plan ahead to know what month we’re going to buy it in.

9.     Education

Things like instrument rentals, extra classes, summer camps.

10.  Pets

We have a dog and a fish tank.  The chickens are budgeted with the farm. Vet bills go here… if we buy dog food at the store, it goes here but if we buy it off Amazon I don’t bother to break it out of that bill (see category #13).

11.  Transportation

Gas and car repairs.  Our insurance is paid out of the Tax & Insurance account so it doesn’t get budgeted here.

12.  Drugstore

Any Rx we buy or other “stuff” while we’re there…

13.  Amazon Card

We have a Chase Amazon credit card for the 5% you get back on purchases.  We also hate Amazon (for a zillion reasons) but we still do shop with them.  I can’t deal with sorting out what purchases go to which category so I just have a blanket lump sum that I budget for this card.  Again, we try not to shop from Amazon so that makes it easier.  It’s harder to do this with Whole Foods.  If I do buy from Whole Foods, then I save the receipt and I add that number to the tally for Groceries (Line #2) but I don’t deduct it from the Amazon line.  Weird.  I know. But my purpose here is to know what I spend on these categories that I deem important.  Again, this system works for me.

14.  Vermont House

We own a second home in Vermont.  All the electric bills, snow plowing, propane, etc. are budgeted here.  However, the property taxes, mortgage and insurance are paid from that separate account.

15.  Gifts

If we buy gifts for people outside of the immediate family, that goes here.  For example, last year we had a lot of Bar/ Bat Mitzvahs, so that gets budgeted for here.

16.  Donations

We donate over 10% of our annual income.  It’s important for us to spread this out so that it doesn’t all come at one time (like December when every non-profit is asking..). Some of this is tax deductible, some isn’t (i.e. political contributions).

17.  Other

Now you’re like “What kind of a dumb category is OTHER?!”  But the reality is that we don’t really “shop.”  Haircuts, nails, clothes shopping, etc.  we never really did a whole lot of that before and now it’s even less.  All that gets thrown in here.  So does anything on that TJMaxx card. If I think that I need a new dress for a party that month, I’ll budget for it.  Odds are when I go to assign funds for that… I’ll find something already in my closet to wear.

How I assign the amounts I think I’ll spend:

I have been doing this for at least a year, so I have a basic record to follow. January is going to be a very big medical bill month for us because one of the kids has a medical procedure and I know we’ll end up having to spend our entire annual medical deductible.  This means that things like eating out we need to dial back on (hence, really good meal planning this month and trying fun new recipes).  Plus, there is a bit on the Amazon card that will be “above normal” due to holiday spending (remembering the Amazon card is it’s own line item and gets paid on the 21st of each month so anything bought at the tail end of one month, carries to the next). Also, our heating bills are very high.  Normally we have the house pretty cold during the day because we aren’t here, but with all of us being home and living in this crazy house...well, let’s just say it’s a bit pricey.  We wear a lot of layers and I’ve recently started wearing these amazing North Face Tights every day…  I have a third pair coming.

Now you know about the categories, the accounts we have, the credit cards we have and how we plan each month, let’s talk about how we actually implement the budget:

About 1-2 times a week, I get a cup of coffee and while in my PJs (these are my favs) I get out the paper notebook, pens, my phone and my check book.  I open the app for the Visa and AmEx and I literally go through each charge (since the last time I did this, a few days earlier) and write down the date, place and amount by category.  For example:  If I bought $20 of gas at Quickcheck on Dec. 15.  I’d turn to page 11 (Transportation) and write “12/15           Quickcheck            $20” 

I do this with the Visa, AmEx and checking account.

 Exceptions to this process are: If I buy from TJ Maxx on that credit card, I save the receipt and enter it in the “Other” category (pg. 17). For the Amazon card… I just allot an amount to the line item of “Amazon card” and it’s like I “ set it and forget it”… don’t try to buy off the card.  I generally know about what we spend so I pad that number by about $150. 

Again, it helps to get in a rhythm with regularly looking at your spending because you’ll develop a deeper understanding of your spending habits and then gain a “financial intuition” about what you’re actually doing… and then you can feel if you’re going off course.   

At the end of the month, I tally up the number for the category on each page and transfer that total back to the original, first page of the note book. Then I can compare my budget amount to my actual amount. Pretty simple.

Why this system works for me:

 Planning ahead –  thus, seeing in advance  - where your money is going makes you hold on to it tighter!  If I think at the start of the month where I have to spend (i.e. health care) and where I’d  like to spend (um, take out…), I consciously make compromises, vs spending blindly and then coming up short on what I need to pay and then have to dip into our savings. 

This method also results in feeling less deprived (hello, take out!) but also results in being ok with what I’m not getting (bye-bye, home décor). It just depends what your priorities are. 

Example: I’ve been saying for six years that I want to “decorate” our home, but honestly, each year I’d rather choose to spend on things like season ski passes or John and I regularly getting a sitter and going out to eat (now, just take out and with the kids). 

Some other notes:

Going to the drugstore.  We have to go every month, in person – it’s because of the type of medication.  We don’t go until the order is ready for pick-up (i.e. no wondering around the store) and I always send John to get it.  Why?  I will find something to buy if I go into the drugstore.  Period.  Moral: Know your weakness and avoid it. 

Grocery Shopping:  I  have always over spent on food. When I lived alone, I shopped like I was apart of a couple.  Now that I’m a family of 4, I shop like we’re a family of 5.  However, meal planning helps prevent over buying because I know what we actually need. My over buying is based on the fear that we will run out of something (and thus, starve… it’s all kind of irrational). Planning reduces that fear. Also ordering on-line is great to aviod just randomly picking up stuff because I want it… I’ll do a future blog post on meal planning.

How has COVID impacted our budget? 

We’ve been super fortunate that we haven’t seen a reduction in wages from COVID.  Changes we have seen are a lot less driving (transportation line has been way lower), but higher take out bills (I can’t cook all the time). I also think the price of food has risen.  We also donated way more money in 2020 than I had planned to because of both the need (food pantries, etc.) and the election cycle.  Instead of panic shopping, we panic donated to pretty much every dem running for office.  Hopefully with the election done, we’ll be spending less on politics! Hair cuts have been less (John was every 3 weeks… his hair looks so good longer). TJMaxx is totally not happening right now… so that’s a savings.  And I don’t need any new clothes.  I bought new Carhart overalls in 2020 so I’m pretty much set for 2021 in the clothes department. 

And that’s it folks.  Have a question?  Or a tip to share?  What do you use?  Drop it in the comments!