The Ten-Minute Budget
Do you hate the very thought of budgeting? Does tracking every dollar you spend seem like a waste of time — or, worse, an activity guaranteed to curtail your spending “freedom”? Good news, then…you and I are a lot alike! But one month, after spending over nine hundred dollars on clothes — and not realizing it until I got the credit card bill! — I recognized I needed to rethink my assumptions about budgeting.
Overcoming obstacles to setting up your budget
Even after reading a lot of articles and several books on how to create a budget (including some here on Get Rich Slowly), none of them ever really stuck with me. I’d flip through them, thinking that they sounded great, but kept putting them off. Each month I put them off, though, was a month I veered dangerously closer to being financially “upside down”.
I realized that I had two beliefs I needed to get past before setting up a budget:
- I felt like a budget would take a ton of time and effort for very little return.
- I liked what I considered the “freedom” of being able to spend whatever I wanted, when I wanted to spend it.
The biggest issue I had to face, though, was admitting that I had a spending problem: I was spending every dime I made, and then some — and I couldn’t easily tell you where it all went.
After reading several personal finance books and becoming increasingly frustrated with my lack of spending accountability, I finally gave in, made a budget spreadsheet, and tried it for several months.
Much to my surprise, creating a budget actually gave me more freedom! Instead of having a panic attack when I got my credit card statement, thinking, “How am I going to pay this off?”, I knew where I stood every few days. Instead of forcing myself to pay cash (which is easily stolen, or used and then forgotten), I had an at-a-glance look at exactly what I was spending, and where I was spending it, every month.
But most importantly, I stopped feeling guilty every time I bought something for myself. As you’ll see in the videos that follow, I have a “fun” spending category. As long as I spend less than that amount every month on fun stuff, I don’t obsess over it. In this way, having a budget has been a huge stress relief for me.
Cash vs. credit
The final problem I had to overcome was remembering to put everything in my budget. I decided to cure this by simplifying my life. Instead of charging purchases on several different credit cards, I ordered a rewards credit card and charged everything to it.
Not only did it give me cash back for everything I charged, but I was easily able to download the data every few days from my provider’s website. I also got rid of all my store credit cards — the small amount I saved wasn’t worth the extra time and hassle to put the numbers into my budget.
Many financial authors support a cash-only system in order to help get yourself out of debt, since spending cash is more tangible than swiping plastic. However, a budget, updated every few days with data from your card provider’s website, gives you the same knowledge of where your money goes immediately. Plus, a credit card offers consumer protections, down-to-the-penny accuracy, and rewards points!
J.D.’s advice: Do what works for you. If you have problems using credit cards responsibly, it’s best to stick with a cash-only system. Use your debit card and track expenses that way. If you know that credit won’t cause you problems, consider making most or all of your purchases with a single card.
The 10-minute budget
If you’re a visual person like me, you’re going to love this. Instead of a typical text-heavy, boring budget post, I’ve boiled down the entire task of creating a budget into two videos I call the “10-Minute Budget.”
The first video is a six-minute introduction. It describes some financial mistakes I made, and how those mistakes pushed me to make a budget. (Watch to find out how I spent over $900 on clothes in one month, and how much money I saved later on!)
The second video is the actual 10-minute budget. Please take a few minutes now to download the budget spreadsheet, watch the videos, and follow along.
Stop Being a “Budget Slacker”!
Don’t make the same mistake I did and get that sinking feeling when opening up your credit card statement. Knowing where every penny goes, and being able to quickly see which expenses to eliminate should your income decline, is well worth the time investment. Creating a budget enables you to never again say “Where did it all go?” and feel the frustration of spending more than you earn. If you have 10 minutes, try this out!
If you already have a budget, please watch, too, and leave your comments on how to improve it. Or share what you do to help track your expenses…to help us “budget slackers.”
For more information on budgeting, check out the Get Rich Slowly guide to building a better budget.
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There are 33 comments to "The Ten-Minute Budget".
THANK YOU so much for sharing the spreadsheet! It is so simple that it seems like something I could actually keep up with!
This is my favorite personal finance blog!
You’ve hit on my favorite PF topic! I do wish pwleople would realize that budgeting offers far more flexibility and freedom than flying blind (and being blind-sided by the consequences). More PF “gurus” need to stress budgeting as the foundation of all other financial pursuits.
Thanks, Erica for the excellent post. I watched both videos and both are really good explaining how to do the budget. 2nd video took longer time to download in IE and so, I had to download manually and view in Quicktime.
In your Excel template, would have been better if you have reference cells from ‘Budget per month’ to ‘January 09′. That way, if you change the numbers on ”Budget per month’, would also reflect on monthly columns. However, this is just a minor tweak.
Thanks again for a great post..
We all budget– some more formally than others.
Paper– My personal favorite on index cards or in a notebook and always with you and available for review
Spreadsheet– I also use this one (MS Excel) for intermediate and long-term budgets
Formal budgeting software program– Another good approach, but requires time to learn the program and time to input EVERYTHING
Your head– Rather loose and free form, but hey, something is better than nothing
No budget– Not recommended
The last approach, “No budget”, is a budget approach, but a haphazard one. It can be an expensive one that leads to paying too much, bouncing checks and paying late and other fees.
I have always had a problem finding an example budget that would work for me. This one that you provide looks like something that I could really use! It’s not that I don’t want to budget, it’s that I have a hard time knowing how much of each category I’ve spent and I have a hard time sticking to it. This looks like it might help me commit to budgeting accurately.
I am a life and financial planner working in York, UK and with your permission I would like to relate a story about one of my clients.
L is not wealthy; she works in the grossly underpaid health sector. She is divorced and has to bring up her two teenage children with very little help from her ex.
When she came to me she was scared of money; it gave her sleepless nights. Over a period of a year working together we overcame her fear, put in a system for budgeting household expenditure, dispensed with the unnecessary expenditure and concentrated on only spending money to further her life goals.
Her life goals centered around her children and friends. Now in her second year into her regime she is spending more time with her children, doing gigs, going to parties with friends – and sleeping at night. Her words to me the other day were almost the same as yours: “budgeting has given me the freedom and confidence to do what really matters, without any guilt.”
This story is not unusual. I spend much of the first year with clients on budget work and it always pays dividends.
Most people tend to budget for the “current situation” so they know were they stand today – and thats the cornerstone, if not the entire foundation, of financial planning. It is important, though, to take budgeting to the next stage by setting your life goals, costing them out and developing the “desired situation” budget. In other words, you start managing your financial resources to achieve your true life goals. You are now at a position where life leads money, rather than the other way round.
I do agree with the obstacles you give to starting to budget, but I would suggest there are possibly more profound obstacles. The first is fear. Many people are simply afraid of what they will find in their finances – and in their lives – when they start to dig. A budget is not really about money, its about the very life you live and many find the process of self-discovery challenging, especially when they try and do it alone. So its often important to get help. You don’t need to hire a financial planner, but use a friend, family member, someone who you can trust to be objective, non-judgemental and keep it all confidential.
Another reason is beliefs inherited from childhood. Often children brought up in a disciplined household where money is controlled tightly will rebel when they have control over their own spending and take the diametrically opposite approach (spend, spend, spend). Similarly, children brought up in an easy spending household may enter adulthood with the attitude that “my parents didn’t budget and they survived, so why should I.” The reverse is true as well, of course, but these are examples of how childhood influences and emotions impact on adult money decisions.
For more on the emotional aspects of money (and remember that money is a deeply emotional topic), read George Kinder’s “The Seven Stages of Money Maturity” – life changing stuff that goes to the heart of life and money.
Thanks for listening to me.
Jeremy Deedes
@Jeremy
Thanks for the great story. I have the great honor of speaking on the same stage as Mr. Kinder next Tuesday. He’s the keynote speaker for a conference I’ll be presenting at. I look forward to hearing what he has to say. In preparation, I’m reading The Seven Stages of Money Maturity right now. I’m actually thinking about taking his weekend seminar in March, too. Get Rich Slowly readers will be hearing a lot about Kinder during the next few months, I think.
Great post. I personally use credit cards for everything and encourage others to do the same. My only concern is that -statistically – people spend 30% when they use a credit card vs. cash. Any thoughts on this?
I LOVE my budget! Actually, I have two: one ‘zero-based budget’ that I complete before the beginning of the month (and I just copy the previous month’s budget and make changes, so I’m not reinventing the wheel) and then I have a ‘monthly expenses’ budget which I use to track my spending day by day, in different categories (fixed, variable, miscellaneous, etc).
Since I love spreadsheets and tools that will actually do the math for me, I have fun with it. I’m constantly monkeying around with my budgets. For example, next year I will be working part time—therefore my salary will decrease for about 9 months, if not longer—with my hypothetical budgets I can determine what stays and what gets cut from my current spending routine.
BTW, I can relate to spending a ton on clothes and not realizing it until the end of the month when the credit card bill arrives. The only difference is that I could rarely make myself LOOK at what I had actually spent the money on—I just watched the minimum payment inch skywards and ignored the rest.
Thanks to budgeting, I’ve paid off my credit cards and am now trying to plan an attack on my student loan debt ($56+K). Budgets rule!
I totally agree with using a credit/debit card for as much as possible. It’s a great way to keep track of all spending. I have budget aversion…
Many people hear ‘budget’ and they think that writing one will cramp their lifestyle. When they write a budget they write it how they think they SHOULD spend, not how they DO. They know they are being wasteful and they feel guilty, but they avoid the guilt by never actually adding it up.
But a budget needs to be written to how you spend or it’s worthless, and once you know where everything is going you can adjust things as time goes on.
I am a budget geek. I have a half dozen or so to cover various hypothetical situations. On top of my current budget (that I am constantly tweaking) I have a budget for if I or DH lose a job. A couple budgets for part time scenarios. A budget for after our last vehicle is paid off, a budget for if we have another baby and I stay home for six months, etc.
If you live in the Portland, OR area and would like to hear George Kinder’s keynote address, check out the FPA 2009 Mid Winter Conference in Vancouver, WA on February 10 and 11.
http://www.fpa-or.org/displayconvention.cfm
Disclosure: I’m the conference committee chair and I invited JD to speak! So please come, you’ll enjoy it!
its so much easier with a budget in place to pace and control my spending habits. With 99% of my purchases on plastic, I am able to go over each month and pull out expenses that I can live without and further increase my savings. Budget is key to a stress free life!
Budgeting is addictive, especially once you realize the power you have right at your finger tips. I used to use Excel for a personal budget and for running a small business, but recent got an accounting package for the business and a personal budgeting tool that has streamlined everything. Discovered Dave Ramsey last fall, bought his book and $19 downloadable budgeting software (which runs on a MS Access database, and can be manipulated 🙂 and haven’t looked back. Using some of Dave’s principles and some simplified budgeting logic from http://www.thebword.com (having one checking account for flexible, one for fixed expenses, and one for savings…and categorizes your bills and priorities into one of those categories) I’ve got our per pay period zero based budgeting down to 5 minutes 2x/mo.
Here are some links:
https://beta.daveramsey.com/shop/downloads/software/instant-access-downloadable-budgeting-software-and-mp3-special/prod527.html
http://thebword.com/
Is it me or is there some html embed code showing up on the page below video #1?
Not only does creating a budget allow to open up freedom for yourself, it allows for you to be less stressed. You can see what you have, how you are going to spend it, and what’s left over.
I totally agree with the idea that budgeting has actually allowed me a lot MORE freedom than I ever had before. I avoided budgets for years but could never figure out why I was doing all the “right” things (affordable mortgage, buying used cars, paying myself first, saving and investing) but constantly feeling stress the last week of the month because I was out of money. Well, actually doing a budget showed me SOOOOOOO much stuff about how I was spending money that I just wasn’t paying attention to. It is not an over statement to say that starting and sticking to a budget has completely revolutionized my financial life. And I was doing pretty well before the budget…
I still have a problem with the usefulness of a budget. It all seems too arbitrary. I have recently taken to tracking the amount I spend in different categories — that’s informative, but I don’t know if it really helps me with anything. Setting arbitrary limits for various categories seems to have little effect except to make me feel guilty if I go over these arbitrary limits that I’ve set.
What I’m thinking of doing is making an older system of mine a little more formal. That system works basically like this:
1) Pay yourself first. This is your contribution to investments or retirement accounts, and also debt repayment. This is done as soon as your paycheck arrives.
2) Pay your fixed costs of living. Mortgage/rent. Insurance payments. Utilities. I include utilities here because mine don’t vary by much from month-to-month, and even if they do, it’s not by enough that it’s going to impact whether I’m able to pay them or not.
3) Whatever you have left over you can spend freely on anything you want (or save or invest it, if you like).
So this system is based around saving rather than spending. You set savings targets and anything you have left over is free to use as you please. You can always increase your savings targets if you like.
This system is goal-oriented where I don’t feel that a standard budget is. You set goals to save X amount for retirement, or pay off Y amount of debt, or whatever else you like. Once you’ve met your goals, which is the first thing you do when you get paid every month, you’re free to enjoy yourself however you like with anything that’s leftover. It’s a guilt-free system that encourages you to set goals and accomplish them.
I like it more than the traditional method of setting spending targets. Setting targets for spending doesn’t address what you should do with a surplus, and it makes you feel guilty for using your surpluses as you please, because it will put you over the limit in your budget categories.
I don’t know about others, but I have no problems keeping on a budget using primarily cash only. I will write checks for bills and use my debit card online but I use cash for everything else (groceries, gas, restaurants, whatever).
The key is not carrying cash unless you are going to spend it. I never have cash on me unless I know, when I leave the house, that I’m going to spend it. This makes you think about every purchase you make at least three times–once when you initially want to buy it, once when you grab the cash, and once when you purchase the item. There is very little impulse buying this way, something that is very easy with debit/credit cards.
Take an example: often times when I get off work I don’t feel like cooking. If I had cash on me it would be very easy to stop at a fast food place on the way home. By not carrying cash I have to get all the way home and then decide whether or not I want to go out again (I usually don’t).
I understand the rewards from using credit cards, but saying keeping a budget with cash is too hard is disingenuous. You just need to change how you handle cash.
I do exactly what Tyler #18 does for the exact same reasons. It’s also simpler. I don’t see a need to know how much I’m spending on going to the movies, or on groceries, or on lattes as long as my financial goals are met.
I set an aggressive but reasonable goal (the current one is to pay off my student loans in June 2012; it’s a lot of debt so this means 20% of my gross income is going to repay it), set it up automatically (I did an amortization to determine how much I had to send to my lender each month to pay off in June 2012, and have them autodebit my bank account that amount every month), and that’s it. After all my bills are paid, including that loan payment, I can spend every last penny in my checking account. I pay cash for everything so that I don’t have to worry about running up a bigger credit card bill than I can pay off in the following month. When you pay cash and your other goals are met automatically, there is no need to track spending.
Thanks Erica! I’ve learned so much since I stumbled on to the world of PF blogs last month. After our 2nd car in 2 years was repossesed, I started tracking our spending last month and managed to come up with a realistic budget by the end of January for February. I’ve come across alot of different spreadsheets but I really like yours. Unfortunately I can’t seem to download it and was wondering if I could get it e-mailed to me instead. Thanks again! Puna
Great post Erica. Budgets can do so much for giving you insight into what you are spending the most on.
Interesting post. I tried tracking my expenses for some months a year ago and found out that Amazon and Ebay were among the greatest culprits. It already helped to think thrice about every purchase there. I still dislike tracking and budgeting but OTOH it’s psychological hell for me when I have no money and run on emergency funds. So I guess I’ll finally have to get a grip on it this year.
What’s with the horribly slow 2nd video — I gave up after a minute of waiting. I’m not downloading any more cruft just to play your video.
YouTube was good enough for part 1 – why not part2 ?
When I first started out, I was definitely in the lazy camp. Before I started saving, all I cared about was having a positive bank account with some fuzzy idea that I wanted to keep it above some “emergency” limit. Between then and now, I’ve gone through a few budgets and some things that helped me were:
– Tracking my expenses for a few months first (this prevents you from going over budget the first month and quitting after getting discouraged).
– Overestimating my first budget (I feel less guilty when I cut costs rather than increase them)
– Including an extra category for unexpected costs and roll it over every month (this has saved me from touching my emergency account several times)
On a side note: you can use a SUMIF function so that you only have to enter a letter for each purchase rather than copy the whole for each item. Using Erica’s sheet as an example, the formula for your food costs might look like this (put this in cell E101):
=SUMIF(D:D,”=F”,B:B)
Where you put the category in column D and the costs in column B. Then, go through the list and for every food purchase, put an “F” in column D. Do this for each category you have, changing the letter to something unique and it becomes much easier to input data (at least for me)!
I too like using a credit card for all possible expenses because it makes it so easy to track what you’ve spent. However, when you use a credit card it’s hard to make a sudden course adjustment. For instance, if you had a sudden loss or reduction in income, when your credit card bill arrived you’d have to face paying last month’s expenses with this month’s reduced (or nonexistent) income. Cutting back on your current expenses wouldn’t help you until the following month.
So I really wouldn’t recommend using a credit card for everything unless you’ve got enough emergency savings to get you through several months’ worth of expenses.
Using cash, on the other hand, lets you turn on a dime.
This what I do: I use Yodlee.
I use a Credit Card for every possible expense I can. I pay off the balance in full twice a month, each time I get a paycheck.
Whenever I have to use cash, it gets classified as a cash withdrawl in Yodlee. There is a nifty “split” function. Whenever I use cash, I make it a point to “split” off that dollar amount and categorize it appropriately, as I did the other day with a 6 dollar expense at the local pub. (Didn’t want to wait for the credit card processing). Also, I can’t use cash at the cafeteria at work, so I categorize each lunch as Restaurants/Dining.
Everything gets rounded up to the nearest dollar, change gets thrown into a jar at home from my pocket.
It can be a tedious, but I know every dollar is accounted for. I’m so anal, I check Yodlee a few times a day.
I haven’t posted here before, but I felt the desire to in this article. Several years ago I designed a spreadsheet to track my expenses that I didn’t even really regard as a “budget” until I started reading more about personal finance. Nothing made me recognize what I was doing more than the posts here by Tyler #18 and Anne #20.
Basically what I do is very similar to what Tyler described – separate fixed living expenses (rent, utilities, retirement/savings donations) as well as debt payments when they are necessary, such as school loans or credit card payments. Currently I am actually in school – studying in Japan, partly made possible by how I spent the last few years budgeting During those few years I was able to get myself completely out of debt, when just two years before I was bumping up against credit limits and in about the worst credit/finance shape someone young like me can get.
After the separation of payments I described above, I set a “goal” each month of discretionary spending, and surprisingly, over the last year of tracking it, I’ve managed to keep it very consistent. There are some periods I go over the goal, but often I’m under it, so it still averages out well over the long run. It’s just nice having a number you can look at as a “target”, even if a soft one.
Speaking of those periods, most people budget monthly, but I’ve done it paycheck-by-paycheck, which for me was bi-weekly. I may look to changing that once I return from school, but I feel doing it this way, more frequently, allows you to grapple with smaller amounts. For example, it’s easier to concretely gauge what you spend in two weeks rather than everything that can happen in a longer period. Of course, I’m sure many here receive a monthly paycheck instead of bi-weekly, in which case I’d probably continue it monthly as well.
In any case, thank you for all the advice, and I’m sure Erica’s budget will help identify ways to improve my own.
OK. You finally convinced me to stop being a slacker and get a budget together. Thank you very much for the post. A budget has been on the “LIST” for quite sometime and has never been completed.
Love all the budget ideas. I use MoneyMinder found at http://www.financialrecovery.com — and use it with clients as well. It’s also Excel-based, tracks your expenses into an Annual page, helps you plan and track periodic expenses, e.g., auto insurance, and plans for your wants and needs.
You should check out http://www.mint.com/ . It automates alot of this stuff for you.
Great idea for the budget and props on your million dollar business!
What about mint.com and the Bill pay sections of online banks? They track all of your expenses automatically and provide you with graphs and charts.