Budgeting. Such Fun!
Was that an audible groan I just heard from you?
I know that the thought of doing a BUDGET is dreary but once you have one set up it literally takes five minutes a week to update. I promise!
For a long time I was saving here and spending there and everything did appear to be ticking over OK. There was always enough money in our everyday banking account and the statements that arrived in the post appeared to show that the systems I had set up were working. One of the basic principles of investing is to earn more than you spend and we appeared to be doing this. But I didn’t REALLY know in real time what was coming in and what was going out. So, one day I sat down with our bank statements and actually went through them page by page. To my surprise I did not recognise many transactions that had taken place. My husband and I would scratch our heads as to where we had been 4-5 weeks ago so we could work out why we may have been in store XYZ spending $100.
The ‘aha’ moment came when I went on to our online banking and actually started to look carefully at more recent expenses and then gradually started to go further back. I noticed a $20 payment going out on a monthly basis. It was going to a bank account that I recalled closing about three years prior. I calculated that $720 was unaccounted for. A visit to my old bank turned up nothing. A phone call to my current bank discovered that the $20 went out one week and actually came back in the following week. Nope, I didn’t notice that either!
The time had come to sharpen up my game. I didn’t like the idea of misplacing money and it worried me how much more money I had been losing here and there. So, what do you do in times like this? Reach out to the mighty Google. There is a plethora of budgeting software out there. I wasted plenty of time finding a system that I could shape to fit my needs, I signed up to a couple and instantly got bogged down with learning how to use their systems; and then stopped. They never seemed to fit my life and my spending habits.
Remember the K.I.S.S. philosophy? Keep It Simple Stupid! I was being lazy and endeavoring to get someone else to come up with a solution to my very own problem when I could really just expend a bit of mental energy and do it myself. Elizabeth Kerr is an excellent financial writer and hit the nail on the head when she pointed out that it need not be too difficult. You just need two columns. One is Incoming and the other is Outgoing. This could be on paper or on your computer, I chose the latter.
So I kept that simple concept in my head when I designed the following:
Click here to download an Excel sample spreadsheet: EXPENSES/SAVINGS SPREADSHEET EXAMPLE
I got out my bank statements and made a long list of where we spent money (about 55 areas) and I entered all of these into the column on the left. Then I added three columns along the top which is basically expenses, savings and then earnings. It took me a couple of months to tweak it. Gradually the total amount in my miscellaneous and cash out columns reduced as I grew to understand completely where and what we were spending money on. I have put a few examples on my spreadsheet to give you the idea but you need to pick headings that suit your purchasing habits as yours will be different to mine.
I have now cancelled all paper statements as they are old before they arrive. On a weekly basis I open up our online banking (both everyday banking and then credit card account) on one side of my computer screen and open my budget spreadsheet on the other. Then I manually fill in the columns with what we have spent.
A simple formula adds up the columns for me to give my totals. Now I am fully aware that there are software programs out there (YNAB and Pocketsmith for instance) that will do this for me. However, I like that I have to VIEW and THINK about every transaction we have made. It keeps us accountable for our spending. Since doing it this way we as a family have stopped buying so much STUFF that was purchased on a whim that we really didn’t need anyway.
But wait, there is more!
At the end of each month I do a little something else.
I have another spreadsheet where I track our net worth. I log on to each individual investment at the end of the month, find its exact value and put that figure into my spreadsheet. This way I can compare month on month how we are tracking and how we are going year on year as well.
(Just a note on this: investment balances on things such as Kiwisaver, managed funds and shares don’t just go up. Despite me putting money in each month my balance sometimes goes down. Some commentators say not to watch too closely or you might FREAK OUT, particularly as balances get bigger and you have more to lose. I’m playing the long game so this fluctuation does not phase me. I take it as an opportunity for my regular contributions to buy units at a cheaper price.)
Click here to download an Excel sample spreadsheet: NET WORTH SPREADSHEET HERE
I am no financial advisor, nor am I a budgeting know it all. But my two simple spreadsheets work for my situation. They cost me nothing and are simple to use. Once I had them up and running it enabled me to be a better saver and investor as I knew exactly how much I had to work with and where it was located. If you are at all interested I think that with a few modifications to suit your own life then they could work for you too. It clearly illustrates to me the power of steady saving and the very powerful role of compounding interest. I’m not a millionaire yet, but with the addition of a few formula’s I have calculated when I will be and I get a bit of a thrill out of that I can tell you. Such FUN!
Been on the road a lot again this week so managed to listen to some more great podcasts and read some great blogs.
Podcasts worth a listen:
I always like to listen to the very sensible words of Mary Holm who is on Radio NZ every second Thursday: www.radionz.co.nz