Money Obedience

I believe that setting up a budget is an essential first step to get a grip on one’s personal finances. Before I ever set up a budget, I had a general idea about how I spent my money and how much I could save, but I did not really know how I could really improve my financial situation. So, one day I decided to set up a budget. How did I do that?

Well, I started like most people do. That is, I sat down and made a list of my possible expenses in a given month. Then, for each budget item, I entered a dollar amount I believed was the amount I spent last month on that particular expense item. Of course, I had no real idea whether we spent 200, 300, or 400 dollars on groceries. I just put a number down that was my best guess.

I was glad to be done with that budget, but that’s only the first step in the process. After I was done with the exercise of writing down my expenditure guesstimates, I wanted to know how well my budget design was overall. That is, I needed to know if this budget I wrote was realistic, and whether I could actually save money if I stuck to it. So, I recorded all our household expenses. Well, since I don’t live alone in my household, I couldn’t do this alone. My wife followed along and recorded her expenses too. And to do it right, anytime we spent money we would record the expense. (We used our vilkri.com system for setting up a budget . We wanted to be able to record our expenses anytime we had access to the internet – she and I didn’t even have to consult one another to reconcile our daily expenditures. It was easier for us to log in a few times a day, whether we were together or apart, at home or at work, and record our expenses when we each had the chance. It would’ve been near impossible to instead try to remember what we spent and then to record those expenses at the end of the day or even later. We would certainly have forgotten quite a few items trying to remember them all.) We recorded expenses for an entire month, and at the month’s end we looked at the budget against the expenditures to see how well we did.

The very first thing to say is that – no real surprise here! – my predicted expenditure numbers were off for almost all expense categories. We did not really know how we spent our money until we actually kept track of our spending!

Second, a bunch of items were left out of my budget entirely. For example, should I have included prescriptions as a regular expense? Well, with a big family, I guess they are. Apparently, some of the people in my family need regular doses of over the counter and prescription medication. (I know I said that in a strange way – but I’m a person who rarely takes medication, so this did surprise me!)

I learned a lot more than these two things when we did our own household budget. In the end, we took the information we learned about our spending, and used it to revise our budget once again, this time to be sure it reflected our real spending habits. The next natural step is to do it all again, and we did. We kept recording our expenses for another couple months to get an even better idea about our average spending. After that, we could really see where we could cut back on our expenses to save more, and that made our goal of increasing our savings a great deal more realistic.

If you are thinking of trying this at your home, please also take note of two subtle messages in this blog. First, know that all your money-spending family or household members have to be on board in order to get a budget set up. If my wife had not gone along with this exercise, it would not have worked out. Recording only part of the monthly household expenses surely would not tell us where our money actually goes. Related to this is the revision process – we had to decide together how much of our income we should save, and what we could cut out of our expenditures in order to make those savings happen.

Second, I won’t lie: it takes some discipline to record all expenses. You have to keep track of big things, like a tank of gas, but also those little things, like the “pocket change” you used for your morning coffee and a donut. If you leave out even one dollar per workday (say, for candy bars or a lotto scratch ticket) that adds up to about $22 per month.

It’s not the easiest thing to do, but the rewards can be great, if cutting back on expenses and keeping more of your hard-earned money are your goals.