Like all personal finance matters, money is deeply personal, which is why I never apply a one-size-fits-all approach. I loved the way Small Steps for Big Change developed her budget, so I decided to modify it for myself to keep track of my expenses. Here is my current budget for 2012:
Note that I have 4 major categories: Income, Savings, Bills, Expenditures. I’ve separated bills from expenditures because “bills” are required, but fixed spending (rent, student loan payments) and expenditures are items that are not fixed (food, restaurants). One could argue that food is a fixed expense, but for the purpose of my budget I’ve kept it in the expenditures section.
For the Income section, I have calculated the after-tax amount and ONLY use that amount when I budget for the month. Items that I have taken out pre-tax are my DC Metro Card, contributions to my work retirement account, and allocations to a medical flexible spending account (FSA). This is why you won’t see a line item for doctor visits or prescription medications in my budget.
The Savings section is comprised of those expenses that I am saving for. One is my retirement, so I list my monthly Roth IRA contribution here. Another is a trip to Germany that I will take next summer. I list both the Roth IRA and the Germany Trip separate from the monthly expenses. I do this because the money I am saving for those goes into two separate accounts.
Under Savings I also include a “Yearly Expenses” section. This was probably the most complicated section to come up with, and I have actually significantly revised it for 2013. I found that it took about six months of record keeping to notice what expenses are yearly and what expenses are monthly. An example of a yearly expense that I forgot about: my safety deposit box. That’s a line item that I have added in for my 2013 budget that is not listed here. Because this section got so complicated, I created a separate excel sheet for “Yearly Expenses.” I’ll address this separate spreadsheet further down in this post.
Next up is Bills. This is fairly straightforward. I’ve noted that all of these expenses come out of my checking account. I use my checking for these because this is where my paycheck gets deposited. Expenditures also come out of my checking account, and since I use an envelope system for these expenses, I take out cash from my checking the first of the month.
And that is it! You can see from this budget that I have $670.44 left over every month. Right now, all of that money goes towards paying down my student loans. That seems like a lot of money to have left over, but because I’ve discovered a few more yearly expenses and things I need to save for in 2013, the “leftover” amount will drop. Especially when I get my own place and my rent goes up.
Now back to the “Yearly Expenses” section under Savings:
You can see that I started keeping track in July 2012, so the record only goes until December 2012. This was a trial run and has helped me come up with my 2013 Yearly Expenses spreadsheet. Here, the gray cells are the amount I contribute each month to each future expense, with total on the far right. The white section is where I keep track of spending. The very bottom tells me how much I have left to spend. I've set up excel to do the addition for me, using a simple =SUM( ) formula. This works because I don't need to get three haircuts, buy gifts, etc. on one day. This money goes in and out throughout the year. I haven't yet come to a situation where I don't have the money in my savings account to cover the items I've listed here.
You will note that on my main budget page, I indicate which account will receive the money I need to deposit in order to pay for my yearly expenses:
I deposit the money into the savings account that I used to pay my credit card each month. This means that for these yearly expenses, I use my credit card. This works great for me - I earn mileage points by using my card and I don’t have to worry about not having money in the account to pay for it as I’ve already transferred the money in (on a bi-monthly and automated schedule). I record when I spend the money in my “Yearly Expenses” spreadsheet, but not in the yearly budget spreadsheet. The budget spreadsheet merely tells me how much money I need to put in to the account I use to pay my credit card.
There you have it! How I keep track of my money - monthly and yearly. It is working well so far, but I have had to make adjustments along the way, just like I'm sure you will! This takes a while when you are first getting started, but once you have the system in place it is really simple and you will thank yourself for putting in the work! Because now, your money will work FOR you!