In my last post we discussed How Do You Run Your Finances? To keep that momentum going we will be discussing, are budgets important?
In order for a family to keep positive cash flow they have understand where they are spending their money and that is where a budget comes into play. The story that follows details the road my wife and I took as we looked to establish our first budget.
As we entered into 2017 my wife and I were discussing our goals for the year, we realized that to be successful we would need some sort of a budget. We knew that establishing a budget would help us visualize how much and where we were spending each month. In addition, we also wanted to see some historical information so that we could accurately estimate for items such as gas, groceries and such.
In an effort to make our budget creation as painless as possible we turned to two tools; Personal Capital and Excel.
To get started we generated a report in Personal Capital detailing our spending over the last 6 months (July – December). As we went through this drill we didn’t expect any real surprises as we thought we had a good handle on our spending. Well, we were wrong. Over the prior 6 months we had spent $4,033 on groceries or $672 each month.
Armed with this new found information we used the $672 as our baseline in our budget and agreed that we can easily trim that by $100 to $150 a month with proper meal planning.
To illustrate one more example showing we didn’t understand how much we were spending, as we dove into our finances we realized that we were also spending $528 a year on haircuts. This was for 3 people (myself and 2 sons) and each of us get a haircut once a month. Our mouths hit the floor with this expense. This was one of those expenses we always over looked because it is essential to stay groomed. I would like to add that we decided to cut this expense all together and have my wife cut our hair since we don’t do anything difficult. Boom! An extra $528 saved every year!
As you can see, Personal Capital opened up our eyes to where we were spending our money and has helped us with our budget.
In addition to Personal Capital, we also used an old fashioned budget template from Excel to put our monthly expenses in. This helps us project our budget for the entire year. Personal Capital is great but it doesn’t allow us to project for items that haven’t happened yet. For example, car maintenance, medical emergency, vacations and such.
By keeping the spreadsheet current each month with actual expenses from Personal Capital and our forecasting we can easily see if we are on track with saving for our investments, vacations and such. This also helps us easily plan for large purchase items as well.
As you can see, if we didn’t go through the drill of creating a budget we would not have had our eyes opened as to where we were over spending. This has easily helped us increase what we are saving.
So let me ask you again, are budgets important?
Note: If you would like to use a template from Excel you can browse them here.