For the first time in several years, I decided to design a budget for myself. I’ve never been a fan of budgets. While I used one when absolutely necessary to get myself on track initially, after recovering from low income and high expenses, I decided to ditch the idea when I was comfortable spending significantly less than I was earning. My prevailing thought was, Why restrict myself if I’m managing to spend only on necessities, save for short-term goals, and invest for long-term goals?
Budgeting is great, even necessary, for people living pay check to pay check or if living is otherwise tight. It’s a great tool if it is implemented intelligently and if it is flexible. There’s no reason to beat yourself up if you’re over one category by 10% for example, particularly if you can balance out the difference in another category or in another time period. The budget has to make sense as well. Don’t set the budget too low to reasonably meet or too high to be pointless.
Part of using a budget is reconciling your actual spending against your budgeted spending. I intend to do this on a quarterly basis this year, which will smooth out some of the monthly bumps. As this is the first time I’ve worked with a budget in a long time, I thought it would be a good time to review the first month. Additionally, the MoneyBlogNetwork is encouraging a writing project this month on budgets, so the timing works out well.
Continue reading to see my first Actual vs. Budget report. Click on the thumbnail to zoom in on the data.
My salary was as expected in January. I’ve received no raises and no bonuses so far, but my other income was higher than expected.
As far as my expenses go, I did a good job of staying under budget, despite the bottom line. I didn’t go grocery shopping in January, apparently. I’ve been surviving on the food I’ve had in the apartment as well as dining out and ordering in. You can see in my Dining Out category that I was a little over budget. My power spending was higher than budgeted only because I paid for two bills during the month of January. My tax spending was higher than usual because I also included a quarterly tax payment for 2007.
I purchased a new phone this week, a BlackBerry 8830, which necessitates a data plan. This means that for the rest of the year, I will be over budget in this category. My monthly plan will run about $60 after my employee discount. I got a good deal on the phone as well.
My budget doesn’t include all expenses, just the ones I intend on monitoring. Perhaps it needs to be more comprehensive. Does anyone have any suggestions for improving my budget or the Actual vs. Budget report?
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8:47 am (reply)
If you know that you’ll be over budget in one category for the rest of the year, why not edit that budget category? I budget monthly rather than yearly, so some months, I up a category if I know that I’m going to be spending more. I use zero based budgeting and try to set aside a fixed amount of money, so if, say, I know that I’ll be spending more on travel one month, then maybe I’ll cut my spending on entertainment. I would suggest editing that category so it truly reflects what you expect to spend, rather than just planning to be over budget for the majority of the year.
9:05 am (reply)
To make our budget run smoother, and rack up some rewards, we started using a credit card to pay all of the utilities. This meant that we knew exactly what the bill would be for that month because the sum total was already known. Now we have now surprises just a credit card to pay in full.
9:46 am (reply)
I like to budget monthly as an exercise to remind myself of my goals and make sure I put my money towards them.
Hate to nitpick, but your math in the variance column doesn’t add up correctly. Your surplus variance is $2,466, not $4,367.
9:59 am (reply)
Thanks for the correction, Dan. I’ll have to wait until this evening to fix the chart, but you’re right, I was using the wrong calculation for the total variance.
10:30 am (reply)
I have a more detailed one that I made over the past few years. I can send it to you if you would like.
11:11 am (reply)
Ed-
I’d love to see that report. I’ve made quite a few over the past year. I’d love to see another one. Can you post it somewhere? divshare.com putfile.com etc?
11:14 am (reply)
Flexo-
Do you have this budget posted somewhere?
11:28 am (reply)
MF: Here is my 2008 budget.
2:07 pm (reply)
My wife and I use a budget that takes into account both of what we earn, and then leaves us with proportionally equal amounts leftover to spend on “whatever”.
An explanatory video and template spreadsheet are available here.
2:26 pm (reply)
I agree with Megan. I also edit my budget monthly. I try to make sure that I’m hitting all of my year end savings goals, but I switch it up every months.
9:14 pm (reply)
Budgeting is a good habit – but budgeting is good for determining how you spend, it doesn’t control why you spend. However as a first step, budgeting is good, but to really benefit and save you should review your spending habits. I have written a few articles on this topic at my finance blog as well. You have a lot of useful information on this blog and will be adding it to my blogroll for regular reading.
8:54 am (reply)
Personally I don’t like budgeting but like you I understand its usefulness as a tool. You might be surprised at the all the little details it unravels in your spending. Though I do have to ask shouldn’t your budget be fluid? if you’re all of a sudden going to be paying more or less for something why keep that budget item fixed to the original amount?
3:15 pm (reply)
Why not use “You Need a Budget”, then you can see budgeted vs actual at every step of the way as you go along? With the new account tracking in the latest version of YNAB Pro it is even easier to use.
3:19 pm (reply)
djc: I’d rather keep all of my financial information in one piece of software, which at this time is Quicken (and Excel for spreadsheet manipulation). Adding a separate, incompatible piece of software would require me to keep up-to-date financial information in more than one place. Despite the relative ease of YNAB, PearBudget, and other online tools, I’d rather not add to the amount of work I already do.
4:05 pm (reply)
Flexo, I agree with your thoughts on budgeting. Like you, I did a Jan budget, but after doing the actuals I realized it’s mainly to keep me focused on eliminating the frivilous spending in a couple of categories.
Therefore, my only suggestion would be to dial in a bit closer on the categories you are really concerned about. For me, I see myself moving towards a food/entertainment/houshold goods ONLY budget. Everything else, is either quasi-fixed (utilities) or changes radically from month to month (vacations).
Thanks for posing the question. It really got me thinking about why I actually budget.
I use a monthly tracker to assist in paying bills on time. Maybe the tracker in combination with the food/ent budget is a good solution.
12:34 am (reply)
I ran a budget last year and even though it didn’t keep my spending in line necessarily, it did help me plan for other events.
I was able to contribute more to my ESPP plan, make sure I maxed out my IRA, and even increased my 401k.
As mentioned in one of the comments, the big concern is finding out where the hot spots are. Spending too much eating out or at Target can be a killer.