As I discussed earlier, a budget can take many forms. Today I’m going to share my method of budgeting, which I’ve used for the past few years. It won’t be for everyone, but even if it doesn’t work for you, I hope it gives you some ideas to build your own system.
I developed this system gradually. For many years the only system I used was the registry in my checkbook. I would religiously check my account balance by phone or online and make sure I had entered everything correctly. That helped me see what I’d been doing, and to see how much my current balance was. But it didn’t help me plan or manage my spending, and I gradually realized why.
It didn’t give me any information about upcoming expenses, about whether I would have enough money in the bank for upcoming purchases before payday, about how much (if any) money I was free to spend without screwing up future payments on necessary bills.
So I started playing with budget plans that worked FORWARD from the existing checking account balance, rather than recording past purchases and ending with the current balance. I’ve called it many things, in my mind and out loud: budget, number crunch, ledger. But at the recent League meeting I came up with a term I really like: future checkbook. Think about if you took your checkbook, recorded all the expected upcoming bills and purchases, and the predicted resulting balance after each one. Then, as each purchase occurred, you erased it so you knew it was dealt with. Thus, the only items in your checkbook would be things you still had to deal with.
Instead of estimating whether you had enough money to cover bills, you’d know just how much money would be in your checking account after each bill hit. If you felt there would be too little left over, you could put off some discretionary purchases, move a bill back a few days, or deposit some money into the bank. You could plan in advance so you wouldn’t be scrambling at the last minute or, even worse, dealing with overdraft or insufficient-fund charges.
So here’s what my “future checkbook” looks like (all numbers and many items have been made up, for my privacy and your comfort). It’s an Excel spreadsheet I keep in Google Drive, so that I can access it from wherever I am.
What do you think? Make sense? Every day or couple of days, I check my checking account, enter the new balance at the top, delete any transactions that have come in, and make sure the ending balance is the same as when I edited it. (I make sure my last line is $20.00, which makes it easier to see if I’ve entered and deleted everything correctly, but you don’t have to if you just make a note of the ending balance before you start messing with your spreadsheet.)
I’m sure you’re full of questions, such as, “Yeah, but what do you do once 3/31/2013 gets here and you have no more entries in your spreadsheet?” and “What if a magazine I forgot about automatically renews my subscription and the money comes out of my checking account but isn’t accounted for in my spreadsheet?” and “But I don’t buy Xmas presents each month or go on a trip every month, so what do I do when I get to that line item?” or “Why are you such a nerd?” (Hey, that’s mean!)
I can explain more of the techniques I use to keep my budget in line. It’s kind of like a bonsai tree that I tend and prune and add little improvements to. So ask away! Or, if you want to just enter your numbers into a spreadsheet like this and see how your budget looks; stay tuned for a tutorial on how to set one up!