Group #1--Income
This group consists of our income that is steady and other income that might come our way. We have two categories in this group. Salary, which has a predictable amount each month. Other Income, which is not predictable. Some months we might have a lot of extra income and other months we might not have any at all. When we set up our budget we plug in the predictable amount of salary and that is what everything is based from. That way our budget can be followed even if there is not extra income that month. Plan your budget around your consistent income.
Group #2--Standard Expenses
This group is made up of all of our expenses that we know we are going to have to pay each month. Most of these expenses are things that we can budget for down to the penny. Some examples of categories in this group are: Mortgage, gas for cars, groceries, utilities, HOA fees, and tithing. We plug in a budgeted amount for each of these categories. We try and keep it as close to the standard amount as possible. For example, we know that our water bill and cell phone bills are going to be pretty much the same exact figure each month. So our budgeted amount will be right around those figures. We also set a budgeted amount for groceries and gas. We watch these two categories closely over the month to make sure we don't go over the budgeted amount. The amount we spend in these categories varies but they are still standard expenses that we will have each month.
Group #3--Envelope Expenses
The last group is our envelopes. To create our envelopes we do a few things. First, we need to know how much money we have to put in the envelopes. We take the budgeted amount of our income and subtract the budgeted amount of our standard expenses. This lets us know how much we have left over after everything that HAS to be paid is paid.
Now that we know how much money is left we need to split it up into what we call our envelopes. Step number two is to create categories for everything else you ever spend money on, or would even like to spend money on. This is the last group. So anything that doesn't fit into your standard expenses goes here.
These are things that you spend money on, but not every month. For example we pay for our car insurance once a year. So we have a "auto insurance" category. We divided the amount we pay for auto insurance by 12 to know how much we would need to save for it each month. That then becomes the budgeted amount that we put in our "auto insurance" envelope category. Some of the categories in this group are random expenses. Sometimes we have medical expenses, sometimes we don't. Sometimes we buy a gift for someone, sometimes we don't.
Another example of a category in this group is savings. We save for lots of things. We save up for vacations, we save up for our daughter, we save up for Christmas, we save up for a car that we will need in the future.
Once we have figured out all the categories for EVERYTHING else that we spend money on, we take the amount that we had left over after our standard expenses are paid and we divide it up between all of our envelope categories. Some categories need more money than others. You just need to sit down together and figure out how much should go into each category.
Make sure as you create these categories you remember to include yourself. We have our "fun money" accounts. Each month we get a little bit of money for our own personal use. If we want to save up our fun money to buy something big we can. That way when my husband buys his fancy cell phone, I don't care, because he is using the fun money that he saved up. I don't feel guilty buying fabric, running races, or buying books, because it is my fun money.
Sit down together and create your three groups. Figure out your income, standard expenses, and envelope expenses. Create names for each of the categories under each group.
Our next post will explain what we do now that all the categories are set up.
This is almost exactly what I do and it works well for me... dave ramsey anyone?
ReplyDeleteCindy and I basically do this as well, we don't as have much income so we have a few less categories but what we do really works out well. We've also found that using mint.com makes all of this very easy. You can set the amount you want budgeted to each "envelop" or standard expense and mint will warn you when you are getting close (or over) your budget with email or text messages. You can set each item of your budget to either roll over (like your envelopes) or to start it over each month. One more thing and I'll stop writing, one of the great things is that it will import data automatically, just put in your bank information and it will automatically import you expenses. It will even assign with budget item it belongs to (if it can figure it out) or you can manually set them. This helps in the "budget" part of things, but I still keep track of expects individually to verify amounts and balance the checkbook.
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