This week, I’m going to be talking in greater detail about my approach to budgeting. It’s loosely based off the Dave Ramsey method, but a little bit simpler (hence the KISS budget).
Have you ever wanted to have a budget, but didn’t know where to start? Have you ever wanted to know where your money is going? Have you ever gotten to the end of the month and wondered where the heck all your money went? Have you ever felt incredibly overwhelmed by big, long books about budgeting? This week of posts is for you!
I know how you feel because this was me, until about six months ago, when B. deployed. Before that, budgeting was his “chore” and I just let him do his thing. But I took over budgeting once he deployed and have been responsible for keeping our spending on track. The budget method I’m going to share with you this week is one that I have managed to keep going while a) working full-time and b) parenting a toddler full-time, so you know that it takes very little time or effort on my part.
Today and tomorrow are all about the pre-work that goes into “developing” a budget. Wednesday and Thursday are all about the day-to-day budgeting experience. Sound like fun? Let’s go!
Conducting a Spending Audit
Still here? Excellent. I know this sounds big and scary and a lot like getting audited by the IRS, but I promise it’s much better than that. Conduct a spending audit is really just a fancy way of saying “figure out how much money you’re currently spending.” To do this, you’ll need bank statements (either online or paper) for the last 3-12 months and probably a calculator, pen and paper. Or some slightly better than basic Excel skills. Your choice 🙂
The goal of the spending audit is to take everything you’ve spent over the last three to twelve months and figure out how much you’re spending on different budget categories. This doesn’t have to be complicated!! If this is your first time conducting a spending audit, I recommend the following categories:
- Rent/Mortgage: Your housing costs, not including utilities
- Utilities: Water, sewer, garbage, electricity, recycling, gas, internet and cable (including subscription services like Netflix or Hulu)
- Childcare costs
- Groceries: Excludes eating out- only food you buy in the grocery store. You can choose to include cleaning products and personal care products in this category or not.
- Transportation: Gas and car maintenance- do not include any car payments here
- Cleaning/household products: toilet paper, dog food, toilet cleaner, paper towels, sponges, etc.
- Insurance: Home, auto, life, etc.
- Personal care: clothing, haircuts, waxing, make-up, pedicures, etc.
- Restaurants: eating out, including convenience food
- Non-restaurant entertainment: movies, shows, anywhere you take kids that costs money
- Doctor/Vet: All medical care for you and your family, including pets. This includes any prescription medications
- Miscellaneous: Things you aren’t sure of that don’t easily fit in any other category
- Debt: Credit cards, car payments, student loans, etc. Includes all money owed to others except your mortgage.
That’s it. I wouldn’t try and refine these categories any more at this point- the point of the spending audit is to get a first-pass look at where you spend your money. If you find your miscellaneous category is getting big, don’t worry. We’re going to sort that out together tomorrow, because that says something about where most of your money is going.
Step One: Assign expenditures to spending categories
The first step of the spending audit is to assign each expenditure to a spending category. There is not right or wrong way to do this. I personally have an affinity for markers and paper, so I started out by printing out all my monthly bank statements (sorry trees!) and physically wrote in the category of each expenditure. You can do whatever works for you. This doesn’t have to be perfect. You can see my expenditure assignment exercise below:
Step Two: Add up your categories by month
Most people get paid on a cycle that makes monthly budgeting make sense. This may not be you- adjust as needed. But we budget on a monthly basis, so that’s what I’m going to detail here. Go through for each month (I recommend going back at least three months, but a full twelve will give you a good picture of seasonality) and add up how much you spent on each of the above categories. Again, this doesn’t have to be fancy, as you can see from my scribbles below.
That’s it! We’re going to do something with all these numbers tomorrow, but for now, you’ve completed the first phase of the KISS budget. You now have a fairly accurate picture of how much you spend on what for each month. Congratulations and stay tuned for tomorrow’s installment!