The first attempt we made at budgeting years ago was a nightmare. Our intentions were good and what we did seemed logical at the time. However, after a few short months it became apparent we could not put together successful budgets.
For those first budgets, we calculated what we wanted to spend per category for the entire year. These numbers were based on our income and what we knew (or thought) our expenditures would be. The next step was to divide by twelve to get the budget number for each month.
Seems easy enough, right?
Well, there was one big problem that showed up rather quickly that forced us to conclude this type of process was not going to work.
Every Month Is Not The Same
Do your monthly expenditures always stay the same? Of course they don’t. You may have some expenses that are a set amount each month, like the cable bill or the mortgage. However, most discretionary spending adjusts in amount depending on what is happening that month.
That is the problem we ran into based on our system of dividing the yearly amount by twelve. Months would come where we were being forced to spend (or choosing to spend) more than our allocated calculation for that month.
For example, what happens if you want to take a week long road trip for summer vacation? According to our yearly-divide-by-12 budget, $150 would be budgeted in gas money for the month of July. That’s simply not feasible. We are going to blow way past that amount doing a week of driving for vacation. So how is one going to pay for that vacation trip?
The thing is, a different expenditure would come EVERY MONTH that wrecked a particular category. Life has a way of bringing expenses when we least expect it. We could not make the regular expenses work out, let alone deal with emergencies when they popped up.
Talk about frustrating. It really left us at a loss.
Until we found this cure.
A Successful Budgets Trick: Make a New One Every Month
A revelation occurred when we began to explore the literature on how to make an effective budget. Since expenditures are different every month, the best way to compensate for that is to make a brand new budget – each month. We focused less on the yearly numbers and dealt on what would be coming up for the next month.
So during the last week of each month, my wife and I would sit down and have a budget committee meeting. We’d review what might be happening in the upcoming month that might change our expenses. Then, we would make adjustments to the categories, moving money around to where it would be needed most.
This process happened every month. At first, the meetings were longer as we learned the process and talked through our spending wants and needs.
As time passed and a historical record of budgets began to build, we spent less and less time trying to figure out what expenses might be coming up in the next month. Patterns emerged in our spending and we saw how certain expenses came at the same time every year. After years of building our budgets in this way, we take less than 10 minutes now preparing the next monthly budget.
This method of budgeting, coupled with the building of an emergency savings fund, started to produce successful budgets every month. I’d highly recommend giving it a six-month trial run to see how it will improve your budget planning. If you need help setting up the process or developing a budget form, you can contact me here.
Questions: Do you have trouble making successful budgets? How do you prepare a budget? How long does it take? What’s been your biggest frustration with setting up a budget? How have budgets worked/not worked for you?
Next Post: Beware: All That Glitters Is Not Gold