Queue the Fixer Upper “It’s Demo Day” excitement because it’s budget time! Y’all know I spend New Year’s Day working on my budget and this year is no exception. Vanilla latte, Rose Bowl Parade and my budget . . . so cozy.
You know I love my budget but if you don’t love the idea of a budget, skip it. Yes, gasp! you can skip a budget. Decide what percentage of your income you are going to save and set up automated transfers to get that money out of your checking account. Invest it and live on what is in your checking account. Read my Budgeting Doesn’t Work For Me post for more help.
If you’re still reading, YAY! let’s budget! But what does budget time look like? Sorry but it’s even less exciting than you probably think. It takes about an hour, maybe an hour and a half. 99% of my budget this year will be exactly the same as it was for 2017.
Exactly the same you ask? Shouldn’t I increase each budget by inflation or some amount? Nope, I shouldn’t and I don’t. My “spending” category is my largest one and includes groceries, going out to dinner, buying clothes, etc. It’s pretty much anything other than utilities, vehicle/boat expenses, gifts and vacations. And my “spending” budget is the exact same amount as it was in 2006. Yep 12 years ago.
I increased it a couple years but found I didn’t spend that money anyway so I put it back to the 2006 level. In 2017, I beat that budget by about $1,000; in 2006, I beat that budget by about $1,250.
This is how I kept my lifestyle from escalating as my salary grew. Yep, we built a bigger home and our utilities and property taxes went up. Yep, we finally got rid of our VCR (only when you could no longer buy one!) and signed up for DVR service. So yes, other areas of my budget increased but my biggest line item that covers some of my essential spending (food) and most of my discretionary spending didn’t change at all.
This, and living without debt, is how I was able to get my savings rate to the 70% range:
Financial Independence Bloggers can’t agree on how to calculate savings rate but here’s how I calculate mine: (Salary Net of Taxes – Expenses) / Salary Net of Taxes. A 70% savings rate means I was living on 30% of my take home pay. Note that I do not include any investment returns in this calculation–I could really juice up my savings rate by including that growth in my numerator.
So if my budget is almost exactly the same as last year, what does it look like to spend New Year’s Day working on my budget?
First, I finish up my December expenses and net worth calculation. I look at how I did compared to my budget. I celebrate any successes and shrug off any failures. This actually takes most of that hour or so. Then I work on next year’s budget:
- I take my 2017 budget sheet which has a column for the budget and a column for the actual expenses for each month. I copy it over to a new sheet and change the titles to 2018.
- I review the budget and actual amounts for each month to see if there was anything really out of wack. If I was way off in my budgeted amount or had the budget in the wrong month, I increase/decrease the amount or move the budget around.
- I then clear out all of the actual amounts.
- I finish up any unusual budgets. This year, Mr. Ms. Liz is remodeling the bathrooms in our desert home so we’ve been working on gathering costs for that project.
- I link in my starting investment values to last year’s ending values–I track my traditional retirement accounts, Roth retirement accounts and non-retirement accounts separately.
- I calculate my expected investment returns based on the budgeted investment values. I budget 2% returns for cash accounts and 7% returns for invested accounts.
- I review the growth in my total net worth so I have that goal in the top of my mind.
- I double check everything and I’m good to go.
This is super easy and it sets me up to succeed in the coming year.
If you don’t have budget and actual numbers from the previous year, it’s a bigger job but still really doable:
- Download your credit card and bank statements for the year and categorize your income and expenses.
- If this is your first time, it may be easiest to use really broad categories–think utilities, mortgage, car payment, car expenses, student loans, insurance and spending for your expenses.
- Then lay out what you think will happen in 2018. If there’s an area you spend too much money on, try to reduce it for your budget.
- Now pop up to the list above and finish up!
Need some more information about how to budget? Check out MoneyPeach.com and get started.
I promise I’ll get off my budget soapbox now that that 2018 is here . . . maybe.
Cheers to a fantastic 2018! I wish you a year filled with love, laughter and goals achieved!
Photo credit: Mr. Ms. Liz sunset over Camelback Mountain, Scottsdale, AZ