Before starting on our envelope budget, Maggie and I had to figure out how much money we actually had available to spend. We’d made budgets before and it never worked so this had a bit of a “here we go again” feeling to it but this time it’s really working.
Before, it was always a little unclear, because income was biweekly, most bills were monthly, the water bill is quarterly, and then some income and expense items are annual, which was hard to turn into some idea of how much money we had each month.
I think a key thing was letting go of trying to make a budget tell me how much money would be in the bank at the end of the month. That is good accounting, but really we just need to know on average how much money we can spend. That sounds confusing, so I’ll just get down to what I actually did.
1. Make it real
This is why I’m calling this the “real budget spreadsheet”. Our main sources of income come in every two weeks (my paycheque and Maggie’s maternity leave benefits). Two weeks is also about as long as I can handle in my head at once, so this is also a nice manageable time period.
So I decided to break our budget down to a two week period.
2. Make it simple
Previously, I would have tried to figure out for each two week period what bills were being paid, so e.g. “Okay, the mortgage comes out on the 15th, but at least we don’t have to pay the credit card until the 24th, so right now we have $…”. That just makes my head hurt and no one actually lives like that. So I decided to stop worrying about trying to figure out how many dollars there would be in the bank each pay period.
Instead, I decided to figure out how much there was in a year, and break it down into 26 equal, averaged chunks.
3. Make a budget
I set up a spreadsheet using Google Docs, so I can access it from home or work and Maggie can see it too if she wants.
First I started with all the monthly items. These were almost all bills except for the universal child care benefit. I entered all of these entries in a column, and in a 2nd column created a formula that multiplied each times 12 to get an annual amount. Then I did the same with all the biweekly items. I only entered those things that were fixed amounts – our mortgage, insurance, cable TV, etc.
I kept income and expense items in separate sections, and then created annual totals for both. So now I had a total annual figure for income, and for fixed expenses. I then added lines breaking these down into bi-weekly amounts.
Now, the difference between these amounts (income, and fixed expenses) represented what we can spend every two weeks. Suppose this total was $500, just to pick a number. Then, all I did was add entries to the section for bi-weekly expenses until the spreadsheet showed that the bi-weekly (and therefore annual) difference between income and expenses was close to zero. Just make sure to factor in some savings as one of your expense items, or this approach to budgeting will keep you living just on the edge!
Now that I had this handy dandy spreadsheet, it was actually kind of fun to try to massage the numbers, and made it easy to spot savings opportunities, since all your expenses are laid out at a glance. It led me to find a cell-phone plan that was $25 cheaper every month, and reminded me to make sure I was getting the bundle discount for our tv-internet-home phone package, which it turned out I wasn’t for another $10 per month. So just right there I found $35 a month in savings, or about $420!
Having the biweekly budget, based on annual amounts, makes it easy because you know that as long as you keep your spending within that, you are living within your means, even if a hiccup of the calendar means that your mortgage and your credit card bill come out on the same day a few days before payday when the bank balance is already low.
When it comes to large expenses, you might ask how do you fit those into a two-week budget? You’ll never have enough in a two-week pay period to pay for something like a new refrigerator. The answer is that yes you do, by saving. Making one of your expense items a savings account creates a larger amount over time that can be used for big-ticket items. So when you buy that refrigerator, you are in effect spending money from previous pay periods that you had set aside.
Alternately, for really large items that cannot be put off or that you don’t want to put off, such as a kitchen renovation, you get a loan or you add to your mortgage. Then the increased debt payments come again out of your bi-weekly budget. So you can still pay for big-ticket items, the difference is that you know that you have room in the budget for it. But if you don’t have it saved and you can’t find room for increased loan payments, then you shouldn’t buy it!
Lessons learned
One lesson I learned is that it’s a really good feeling to feel that you actually know how much money you have. I feel in control of my life in a way I never quite have before. There’s peace of mind knowing that I’m not spending money I don’t have.
The other lesson learned is that I’ve become more careful in spending money. $20 used to not feel like it was significant when my only solid point of reference was the size of my paycheque. But once you subtract all your fixed expenses and things you need to spend money on (eg. groceries), there may only be $100 left. Then suddenly $20 is a pretty big chunk of what you are able to spend!
Finally, I’ve learned that we don’t have as much money as I thought. For now, while we are raising a child, that is the reality we have to accept. We are fortunate to have enough that we can still do a little saving, but that saving is a choice that means we can’t spend as much as we’d like on renovating our house. At least we really know where we are at. Ironically, although I may feel like we have less money than I did before, we actually have more because we (I) are being more careful with what we have.
