Monday, June 14, 2010

Three Levels of Budgeting

These last couple of months have been filled with all sorts of unexpected monetary hurdles, so I thought this would be a good time to bring up the three levels of budgeting we use to keep ourselves on track.  Our monthly, annual, and random expenses are all taken into account on our monthly budget.

Our Monthly Budget

I use three columns of an Excel spreadsheet to list all our budgeted categories, the target amount for each category, and how much we actually spent.  This makes it easy to do spot checks.  It also has helped me to have detailed records of our expenses. 

It's amazing how often I want to know how much we spent on food, vacations, or grad school in any given month.  I used to simply be curious and anal, now I have a blog to think about.  Having those records makes blogging so much more fun for me since I don't have to estimate my numbers.  It's hard to have full disclosure without having the actual data, right?

For non-bloggers, long-term budgeting data is useful in order to see how you are looking overall.  It also can be used to track spending differentiations that may lead to budget changes in the future.

Annual Expenses

Like everyone, we have several annual expenses.  We used to pay for these out of our emergency fund, but it always hurt to watch that fund get hit for easily remembered events like homeowners insurance.  Now we have a spot on our monthly budget for these annual charges. 

It's much less stressful to pay that $800 insurance bill when I can see we have the money waiting in our "Insurance and Tax Account" at ING.  Contributing $67 a month to that account is also much easier than watching our emergency fund take an $800 whack in the face.

Random Expenses

Some things just can't be budgeted for very easily.  You expect to buy new tires every two or three years, but you don't know exactly when.  You know your dog may require money for a big vet bill someday, but how do you know when it will get sick? 

We budget for these items by putting a set amount into extra ING accounts every month.  Spending $500 at Discount Tire can really hurt, but it stings a lot less if you know your "Home and Auto Account" will be able to cover it.

Does your budget take into account all your expenses?  If not, how do you cover annual and random bills?

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