Keeping a budget: The why

I'd like to back up for a second here and talk about a basic money management tool: the budget spreadsheet. In this post I'll explain why I think this is a useful and important tool. In a subsequent post I'll tackle the how.

A long time ago, in a land far away, I didn't even have a bank account: I got a weekly allowance from my mom and dealt in cash. Overspending was never a problem because I only had the cash in my pocket; once it was gone, there was nothing more to spend.

In high school I got a job and needed a bank account so I could cash my checks without having to pay a fee. Though I didn't have many financial responsibilities, tracking my funds became a little harder. I learned that I couldn't really trust my bank balance because it takes longer for some transactions to go through than others, so on Saturday when the ATM said I still had 50 bucks left and I was like "Woo hoo!" and spent it, and then come Monday something I'd bought on Friday went through, I was suddenly in the red and paying overdraft fees. Yuck.

That's when I started tracking my spending in that handy little transaction register your bank gives you. Very helpful. I'd just keep all my receipts and write down everything I bought in that little book, and it greatly helped in avoiding those overdraft fees. Except when I forgot to write something down. Oops.

But even the transaction register is no longer sufficient for the convoluted mess my finances have become. I have automatic payments set up for things like the mortgage payment and the electric bill. I have credit cards. I have automatic deposit. This means that there's activity in my bank account that doesn't come through me directly. I also have expenses that are important and substantial but don't happen every month, like my car insurance payment.

All this has brought me to the budget spreadsheet, a fantastical invention I became aware of when I temped for a property management company and saw how they kept their properties' budgets. Amazing.

The budget spreadsheet helps me do the following:

1. Anticipate how much money I'm going to be spending each month and on what (vs. how much money I'll be bringing in) so I don't run into that overdraft problem;
2. Track trends in spending so that I can make conscious decisions about where my financial priorities are...for example if I'm having trouble paying my bills but I see that I'm spending a ton of money on eating out every month, I can curb the restaurant binge;
3. Factor in how much money I need to set aside every month for those less frequent expenditures, such as aforementioned car insurance but also vet bills, dog registration, car registration, oil changes, etc.;
4. Planning for fun stuff, like travel or going to a show once in a while: I know that if I want to do these things I need to save up for them on top of what I'm already putting aside for #3 above. (Does no good to set aside money for car registration only to spend it on a concert because I forgot what that money was in savings for.)

Even when I don't have a steady income or steady expenses I find it helpful to keep a budget spreadsheet because it helps me see how much money I need to make in order to keep my head above water, and if I'm short $100 this month then something has to get cut out and I can use the spreadsheet to fiddle with the numbers--whittle away a few dollars here, a few dollars there, until I'm in the black again.