I have had several people ask me recently how we set our budget. How do I know what to spend each week on groceries etc. So I thought I would share our system and explain how and why it's working for us. Every family is different, so I think you have to find a way that works for you and stick to it. But it's always good to have different ideas on managing money.
The first thing we did was enlist the help of a super-smart Financial Advisor. She's one of the smartest people I think I have ever met in my life. Shes worked with my parents for several years and has done a fantastic job for Tim and I as well. She oversees what we are saving, how we are saving it, retirement etc. Any big purchases that we make go through her :) It's nice having an un-emotionally involved opinion when making a big purchase or financial decision!
Our day-to-day budget is set up like this:
We have 2 checking accounts and a savings account all with the same bank. The savings account is pretty self-explanatory...it's there for savings :)
Our main bank account is for fixed expenses which are our "bills"...these are bills that don't change and have to be paid whatever amount that they are.
Our second account is our flexible spending, or our discretionary money...which includes things like gas, groceries, clothes, entertainment etc. These expenses aren't fixed, we determine how much we spend on them.
So the process goes like this: Tim gets paid weekly on the same day of the week each week. His checks are automatically deposited into the main account or the "Bills" account. We went through and added up all of our fixed expenses. We subtracted that from the total that he makes monthly. Whatever was leftover after all of the bills, we split between living expenses for the month and savings. We figured up a baseline of what we needed for living expenses each week and whatever the difference was we set aside for savings.
So on his pay day, his check goes into the account. We have automatic transfers set up for a specific day each week that automatically transfer a set amount into savings and the amount we set for weekly living into our second checking account or our spending money. By keeping our bills separate from our spending money, it forces us to stay on budget each week because there is no cushion in our spending money (except money left from the week before, which happens almost every week). With all of it automatically done it's sort of "out of sight, out of mind". We forget that it's there, it continues to grow and ensures a great future for our family!
So the next question I get a lot of is "How do you determine how much you need weekly??"
Well, this totally depends on your family size and lifestyle. With the recent increase in gas prices (and Tim commuting to work at KU med 3 days a week) we've had to increase our weekly spending money quite a bit just to cover the extra in gas he is spending a week. Here is a breakdown of our spending money for our family of 4:
Gas: $75/week between the 2 of us
Groceries: $100/week (this includes diapers, cleaning supplies, dog treats, toilet paper etc)
Misc Spending: $85/week - this goes for play dates, dinners out, birthday gifts etc.
Some weeks I use the extra $85 to put some more into groceries or adding to my stock pile, but for the most part I try to stick to this budget amount. I almost always have money left over at the end of the week, which is a great feeling!
Now, there are other expenses that come up, such as car repairs, clothing, special occasions (like a sisters wedding) etc. These are all things we discuss with our financial planner to help set a reasonable budget and stick to it. This generally will come out of Tim's paycheck and we transfer it with our regular weekly money, take it out as cash and use only that. Cash is a really easy way to ensure you are sticking with your budget because you can't spend more than you have.
I will admit...I LOVE to shop. I enjoy shopping more than anything else to be honest. Nothing is more fun to me than going to Target, buying whatever I want and then coming home and organizing yet (yes I am a strange person who loves organizing things!) But the reality is that we (as in, the United States) are in a tough economic state right now. And I'm blessed to have the ability to not work and stay home with my kids. So by stretching our money as far as I can, I know I'm doing my part to try and give my girls the best possible advantages later in life. As much as I enjoy shopping, I enjoy seeing our savings account grow every month even more...there is no better feeling than not having a panic moment when something goes wrong. It's no longer a crisis, its merely an inconvenience. So I challenge everyone to get a budget in place and stick to it!
My other advice: Find a class for Dave Ramsey's "Financial Peace University"...it will change how you look at money forever! It was by far the best investment to our future I could have made!
Happy Planning!!
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