This is a guest post written by YFS at YourFinanceSimplified he is the tallest, most handsome, most awesomeness, coolest guy that I know. You should really read his blog! (Corey: YFS clearly wrote this part of the article too, but he has a great blog and you should check it out)
I would like to start this post by saying that we’ve religiously kept a spending plan (aka budget) for the last 5 years. Our spending plan, like many things, changes as we grow, and we make changes to fit our lifestyle.
Heck, I would also go as far to say we do a pretty good job of balancing must haves, savings and wants.
But… and there is always a but! For the last 6 months I’ve f***ed up.. big time!
I can’t believe I didn’t catch this sooner, I preach and preach on how you must track expenses, and I definitely let us down in this department.
Now, I’ve always input our transactions like clock work. I didn’t miss one transaction. Where I failed in our spending plan was how I set it up our categories.
Hear that? If you do not set up your categories appropriately you cannot adequately track your expenses. We had a leak somewhere in our spending plan, and because I didn’t categorize right, we would “fix” the wrong leak.
Let me break down how we setup our spending plan.
If you read my post I’m Too Sexy To Budget, you know that we have a zero sum spending plan. But, one thing I didn’t tell you guys was that we live off 1 income.
Anyway, what is a Must Have? Well a Must have is what you must pay for if you lose a job or don’t have any income coming. Business is well the money we put into our side hustle. Savings is well, savings. Wants are our spending money.
Enough posturing lets get into how I fixed the issue.. but, one more analogy before we get into details…
Let me give you an analogy…
You want to lose weight. You go out and get all this fancy smancy equipment, and you work out 7 days a week, but you never change your diet. So, you’re busting your butt in the gym, and you’re only getting moderate gains because you forgot one key piece of the equation–you forgot to address food intake.
Without the right setup you can still lose the game…
I see setting the appropriate budget categories as the key ingredient to a successful budget.
Lets see if you can catch what we did wrong. Below is a screenshot of how we setup our spending plan categories.
The left screenshot is from 2011 and the right screenshot is from 2012. Do you see the difference?
If you didn’t catch it. The issue is in the “Must Haves” section of the old spending plan.
I, like an idiot combined “Food/House/Dating” all in one category.
By doing this we had a huge amount of money set aside for this category.
First, let me tell you how we use the Food/House/Dating category.
It’s used for all our house needs/items such as, grocery shopping, house goods and our eating out fund.
Since, this fund was so large I would randomly go to the grocery store and buy what I wanted when I wanted. The bad thing is, on the back end I would attribute our overspending to going out on date nights too much or spending too much money on eating out.
I was wrong!
It’s as if we had a slow leak on our rear tires, and I was suggesting that we fix the front tire.
To fix the slow leak, I separated food/house from dating. Essentially, I separated a must have from a want!
Then, during our monthly spending plan meeting, my wife and I set some ground rules on how to control my excessive grocery store shopping.
We limited the amount of times we go grocery shopping to two times a month.
Did it work?
Within the first month we saved an additional $1000! It was that simple.
Sometimes, the answer is right in front of your face, and sometimes it’s not.
My suggestion is to thoroughly review your budget for slow leaks. Even though we still were hitting our saving goals an additional $1000 a month isn’t a small sum. It’s as if we got a $12k bonus for changing my habits and appropriately categorizing our budget.
Call to action!
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