How I Budget

When I first started this site I knew very little about budgeting or how to create a budget. Realistically I knew it was something I should be doing, but wasn’t. I also knew that I was spending more money than I was bringing in because I was struggling to pay my bills every pay check but I didn’t know where my money was really going. Since then I have managed to bring budgeting into my life and get some control of my finances. Recently a reader asked me how I budget and I thought considering the state of the global economy it might worth sharing my approach.

This is my approach to budgeting (please note I am not a professional, just an everyday person). I know that software exists out there to help people balance their books and budget but I chose Excel and as my tracking tool. Here is how I budget:

  1. Collect data
    When I first started budgeting this is all I did. I collected my receipts and my bank statements. I tracked where every penny I spent was going. This part is probably the most important since it gives the later sections a realistic starting point.
  2. Create a rough budget
    I use the data I’ve collected over the past few months and I figure out how much I have spent on a particular category and how much I’m likely to spend again. For example a common expense is food (say I normally spend $100) then I look at items that might go change for the coming budget (if I’m having a dinner party I’m likely to spend more money). Once I have these together I have a rough idea what my budget looks like based on my historical spending (with some future planning).
  3. Adjust to fit
    At this point I’ll have a pretty good idea if my budget has me living beyond my means or not. It’s also the point where I try to adjust my numbers to be more in line with what I would like to spend. For example when I realized I was spending hundreds of dollars a month on eating out I cut it down and eventually stopped spending money in it altogether. After this my budget for the week is complete
  4. Continue collecting receipts and keep spending down to match adjusted budget
  5. Now the most important part of the budgeting process: keep collecting data

  6. Repeat from step 1 every budget

Over time this has given me a pretty good sense of how much money I spend from week to week and how regular changes will impact me. For example I know that on average I spend about $100 on food every week (or I did before the baby) and I use this as a starting point for my budgeting. Each week varies slightly but I have a good idea where my money is going and if I’m living beyond my means. It also gives me regular feedback based on previous spending rather than a guess. I use the feedback from the data to make changes and assess why my spending might be off.

Hope this helps, if anyone has some comments or tips they’ve used in the past I would love to hear them.

Weekly Budget – Week 23 (October 27 – November 2)

Its been a few weeks since I posted up my last weekly budget and now that life is starting to settle into a bit more of a routine I think its time to start the process up again. I think it might be a few more weeks before I really get a grip on how the baby is going to impact the standard weekly budgeting but in the meantime I need to have some goals that I am working towards.

Weekly Budget
Oct 27 – Nov 2
  Budget Actual
Alcohol $35.00  
Food-Lunch $0.00  
Food $125.00  
Gas $75.00  
Entertainment $0.00  
Smokes $25.00  
Misc $125.00  
Transportation $0.00  
Stupid $15.00  
Total $400.00  

This weeks goal will be a grand total of $400 for non bill related expenses – I think this might be a touch on the aggressive side since we need to pop out of town for a day to make sure the boat is wrapped up and ready to brave the winter. Not a lot of work needs to be done other than to check the tarps and trailer (we never put her in the water this year and last years winterization should still be in place).

Over the past couple weeks spending has been erratic but mostly under control; I haven’t had a chance yet to put all of my expenses into my tracking spreadsheet to see the real results. With that said I had money left over between pays which is a good sign. There are a bunch of new expenses with the baby such as diapers and food and clothing that I’m sure will work themselves out somehow. Next weeks budget should be far more telling as I’m starting fresh with my budgetary tracking rather than waiting for a moment to input all of my expenses into excel.

Baby Steps to Debt Reduction

When babies are learning to walk they take a bunch of small steps and they fall down a lot without hurting themselves. They don’t just jump up and go for a jog. The analogy is great because too often when we start a new project or learn a new skill we try to dive in. Very often the results are very disappointing. There is something to be learned from baby steps.

By taking small steps we effectively break the project or goal down to small steps that are achievable. Babies take smaller steps because they don’t know how to walk and their muscles aren’t able to support them for very long. When it comes to a lot of financial matters we need to take a lot more baby steps rather than trying run metaphorical marathon.

A perfect example of this can be seen with debt reduction. I am like a lot of people out there and I’ve got my fair share of debt. Like all of these people in debt I want to reduce my debt. There are a lot of ways to reduce your debt but if you’ve been spending your money faster than you can make it for years it might be more difficult than you first think. By trying to remove all spending and drop all of your money to pay down debt can be a real shock to your system. I have tried this approach and it requires a lot of effort and I have failed many times.

Rather than doing everything at once you can start by taking baby steps. Starting with something like tracking all of your spending to figure out where you are spending too much of your money. This can help you when it comes time to cutting back and increasing your debt repayment. There are many different approaches out there from debt snowballs to tactics for which debt to repay first. Starting small gives you the opportunity to learn and try what will work for you.

I am still in debt but I am now making some headway, there have been a great many mistakes along the way and a few gun ho approaches where I tried to reduce my spending and pay down my debts at the same time. It failed and over time I’ve learned to take small steps and because of the baby steps I understand how I got into debt and what the solutions are. The baby steps have helped me learn.

Paradigm Shift

A paradigm shift is a significant change in a way thinking.

Having become a father last week I feel that I have crossed over an imaginary line in the sand. Maybe my thinking is influenced by a slight lack of sleep but having this little one has really put a lot of things into perspective. Knowing what is important has always been a matter that was more academic or theoretical.

Seeing my baby girl has changed this dramatically rather than thinking and knowing what needs to be done I now have a very strong driving reason to actually make get things done. Its interesting seeing this change because I have been thinking about find my passions and the biggest point that has surfaced in my mind is a lack of focus and direction as well as follow through.

Being responsible for a new life is a very profound experience. There is no longer an option for pondering but actions need to be taken. This is the main item in my paradigm shift that has taken place before I was overly complacent and nothing was truly important. Now with the baby making sure that she has everything she needs takes priority and actions simply need to be taken; no more dwelling.

The effort to accomplish a task before has been an academic one where there were no really significant repercussions from the actions other than lost opportunities. When it comes to feeding and taking care of a child there is no such thing as a lost opportunity – they have be taken care of to live. I think I knew this before but seeing it in flesh and blood is the difference.

Happy Thanksgiving!

To all my Canadian readers: Happy Thanksgiving! I’ve always like this holiday because of all of the great food but recently I’ve also started liking it because it makes me pause and think about all of the little things in my life that I am thankful for. It also makes me stop and think about all the things I am taking for granted that I shouldn’t be. Be thankful for what you have not bitter and envious about all of the things you don’t.

For my American readers – you get to wait while we get our Turkey a month early! Sorry that’s just the way the cookie crumbles.

To all my readers: Thank you – I appreciate the fact that there are so many of you and that you leave me comments and occasionally send me emails. You guys make keeping this site up a pleasure. Thank you for taking the time out of your days to read what I have to say.

Its a Girl!!

I wrote recently saying that my wife was expecting and this past weekend she gave birth to a beautiful baby girl. Both mommy and baby are doing fine though we’re all a little tired and getting used to our new life together. It’s very awe inspiring witnessing a birth and daunting realizing the breadth of the responsibility that we as parents have undertaken.

So a bit of details, she was born weighing 8lbs 3oz without any complications (other than a long labour).Her name is Claire and I’ll post up some pictures soon. I’ve been taking them I just haven’t had a chance to put them onto a computer yet.

Life at home is slowly taking some form of shape though I’m sure this will be ever changing for the next little bit. I’ll be posting as I can for the next couple days with regular posting coming back soon. The needs of the baby come before everything else.

How to Survive in a Turbulent Economy

The stock markets are up and down like a very big yo-yo and we’re bombarded by talk of recession daily. We as investors are left to deal with it and somehow make sense of it. The fact of the matter is I don’t think most of my readers are active investors, they know to invest their money and to save for a rainy day but I don’t think a great many of them know the ins and outs of the planned bailout. I know I don’t. So where does that leave the majority of people? How are we supposed to survive in this turbulent economy?

Stay calm and don’t panic.

Panicking and pulling your investment when they’ve lost a good deal of money isn’t going to help anyone least of all you as the investor. If you stop and think about it yes we might be in some tough economic times but how likely are they to continue forever? The simple answer is not very. I know people will argue about the stock markets continuously making money but statistics really does back this claim. Using this logic if you pull your money out you’ll loose it.

Patience is a virtue and although you might end up loosing money in the end by being calm and letting the economic front settle a little you can save yourself a great deal of grief. Panicked selloffs are part of the problem that some of these banks are encountering; people are worried about their money they pull their investments and pull out their cash leaving banks with little reserves.

The economy will balance itself out.

If you don’t understand what’s going on in the economy educate yourself before making a large move with your investment money. The economy will fluctuate and this isn’t the first nor the last time we’ll encounter a recession. When the Dot Com bubble burst lots of people lost their money and it will be no different this time but this doesn’t have to happen. Be patient and if you don’t understand what’s going on to feel comfortable speak to an investment advisor.

Listening to the media is dangerous.

Newspapers and new sources are expected to sell their information, this has always been the case. Because of that these sources are always vying for the best story and most sensational headline to grab peoples attention. Unfortunately this doesn’t always convey the truth of the matter. Question what you read, especially if its highly sensational and rely on experts when you don’t know what to do. If you aren’t’ comfortable with what your investment banker is saying get a second opinion.

Stay calm, don’t panic and you’ll probably save yourself a lot of money.

Weekly Budget – Week 19 (Sept 29 – Oct 5)

This weeks budget is very similar to that of the past few weeks and not too much has changed. This week I’ve got my monthly parking costs coming out and I’ve got a bit more driving to do but otherwise its pretty much status quo. My wife is now on maternity leave and we’ll be a bit tighter on the cash front for a little while until she goes back to work.

Weekly Budget
Sept 29 – Oct 5
Budget Actual
Alcohol $25.00
Food-Lunch $15.00
Food $100.00
Gas $50.00
Entertainment $0.00
Smokes $25.00
Misc $40.00
Transportation $115.00
Stupid $0.00
Total $370.00

I honestly thing my Alcohol consumption has gone down even more than it has before and I think the $25 for the week is being generous but until I see the results in the receipts it’ll be hard to tell. I think this weeks budget is very attainable and I will post up the results when I post my budget for next week on Sunday. This is a small change I’m making when I post these weekly budgets up, rather than having separate posts for budget and assessment they’ll be blended into one post on Sunday evenings (or the odd Monday morning).