Creating and Sticking to a Budget: How we analyzed and updated our 2012 budget

by Melody on April 4, 2012

Now that we have gone through how to set up a budget, what to do with your budget, how to manage your savings and the crazy mistakes our family has made along the way, I thought a fitting end to this budgeting series would be to detail how we updated our 2012 monthly budget.

I’ve said it before and I will say it again, a budget is a living, breathing thing.  Life is constantly changing, incomes change for better or worse, babies are born, houses are bought or built, preschool happens, college happens, everything happens.

I don’t think our budget has ever been the same for longer than 6 months at a time.  We generally sit down and re-evaluate every few months or so, depending on where we are at in life or what season we are in.  At the beginning of each year, we sit down and have a big financial meeting to discuss what needs to be updated and changed, what worked and what didn’t and how we are both feeling about our expenses.  We try to foresee all the things we will need to save money for in the coming year, even if they aren’t going to happen until the end of the year.  This helps avoid fun surprises.  We can’t foresee everything however, which brings me back to the constant re-evaluation part.  Budgets are not meant to be set in stone. If you try, it will make you crazy.

So for us, we started out the year going through our budget line by line.  Since I am the one that mainly handles the budget in our house, I first went through and re-evaluated everything.  When I was finished, I had my husband take a look and see if he noticed anything that could be changed or anything that was glaringly over the top (or WAY under where it needed to be).

Income

We base our budget solely on my husband’s income, we started this before I left my job back in 2008 to get ready to be on a single income.  Anything I make from the blog (or other additional sources) goes straight into savings.

He gets paid weekly and to make it easy, we budget on a 4-week month.  On the 4 months of the year that there are 5 weeks, we take that extra paycheck and send it straight into savings.  It is just easier to keep track of for us and it’s kind of like a bonus on those select months.

The first step in re-evaluating our budget was to see where our income was going to be.  It didn’t change much from last year, but we have different withholding for our Flexible Spending Account and health insurance, so we needed to account for that. This seems like a fairly logical first step, as you can’t determine what you can spend throughout the month if you don’t know how much you have.

Monthly bills

For us, a monthly bill is anything that is a recurring payment every month.  Sound simple?  This includes our cable, internet, phone, newspaper and utilities. I went through each bill for 2011 and took an average of our monthly payment.

I also include things that may not necessarily get paid every month, but happen at the same time during the year.  This includes our home expenses (water, sewer, garbage and irrigation) and car insurance (paid every 6 months).  I add up the total we will pay for the entire year and divide by 12, regardless if the bill gets paid every other month or every 6 months.

Even though our son won’t start preschool until September, I added up what we will pay for the 4 months of the year he will be in school and divided it by 12.  This way we started pulling out a lower amount in January and won’t take such a hit at the end of the year.  We sacrifice a little in savings now, but will benefit later.

Discretionary spending

While I don’t necessarily consider food and gas to be “discretionary”, this is where they end up.  Once all the set bills have been accounted for, we take what is left and divvy it up.  For information on all the funds we use, read my post here.  Based on the past year, I evaluated each area.  Did we consistently go over, did we consistently have extra?  Our health insurance changed in that we pay no copays but we have a super high deductible.  This meant that our monthly cash fund was overflowing, but we needed more in a savings type account for bigger purchases.

Most everything for us stayed the same, but it was useful for us to take a look at each item and talk about it.  Even though I have been doing the budget for years, my husband took one look at our car fund and couldn’t figure out why I wasn’t using hard numbers (oil changes, tabs, licensing).  I was just throwing a number out there and couldn’t figure out why it was never matching up.  Why?  Who knows?  It took a fresh set of eyes to see it.

We also took a closer look at our monthly gas fund.  While we are pretty right on each month, gas is going up (sadly, I just paid over $4/gallon) so we’re going to track this a little closer.  I’m going to start using Mint.com again to keep an eye on it throughout the month.

There you have it folks, our 2012 budget. It’s not very pretty, but it’s very functional.  It’s also very flexible if we need it to be.  It’s so empowering to have your entire income laid out in front of you.  No surprises, no forgotten bills, (mostly) no mistakes.  I tried to cover all the tools we use for our monthly budget, but please let me know if you have any questions about how we do things.

And the 2012 Budgeting Series coming to a close.  I’ll be doing a final wrap-up in a week or so, stay tuned.

In case you missed it:

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