Budgeting Down In the Weeds
Posted by jefferson on Aug 8, 2012 in Eliminating Debt | 44 comments
I have been trying to round out my financial literacy in recent weeks, and (finally) picked up Dave Ramsey’s “The Total Money Makeover” recently. As you probably know, when discussing budgets, Dave suggests setting up a spreadsheet where you clearly define how every dollar will be spent for the entire month. The total number of debits – credits on the spreadsheet MUST equal zero, and any excess should be used to prop up your emergency fund and to fund your debt snowball. If unexpected expenses come up, or any debits or credits are more or less than anticipated, the worksheet must be adjusted to make sure that the end balance is zero. Basically, you can’t expect to realistically dedicate yourself to paying off your debt unless you are operating with a truly balanced budget.
Of course, we have been operating under the concept of a “budget” for this entire year. Meaning, we have carefully set aside an appropriate amount of money to cover all of our fixed expenses, another to hack away at our consumer debt, and grouped the rest of our variable expenses into categories like: Groceries, Gas, Home Supplies, Baby Supplies, etc. We used to use Mint to manage our budget (a wonderful site), as it does all of the math for you and makes it easy to track your progress against your spending goals. The major downside of budgeting with Mint.com is that the true numbers show up entirely after-the-fact, and there is really no consequence for eclipsing your goals for any category. Similarly, there is no reward for coming in under budget. You get a pretty good idea of how much you are spending on each category each month, but it is difficult to get down in the weeds enough to truly speak for how each dollar was spent.
While we have been on the right track thus far in our debt reduction efforts, the past few weeks have featured a landslide of unexpected expenses. I previously mentioned the expensive plumbing issue that cropped up, and just a few days ago we discovered that there was an unpaid property tax bill from last year that somehow was missed in all of the financial chaos that we were dealing with. To keep our debt repayment goals on the right track, we knew it was time to take our budgeting to the next level.
We did some deep analysis of the last six months of Mint.com spending reports to create our first draft of a Dave Ramsey-esque down-in-the-weeds budget, with every single dollar spoken for. In doing so, we quickly realized that with the additional expenses this month– we were going to need to raise some additional income in order to get to that zero balance. This prompted an impromptu craigslist/ebay selling spree, including the decision to go ahead and sell my old guitar and amplifier, as well some additional fundraising efforts. It also involved scaling back some planned expenses, and looking for ways to shave additional money off of a few of our regular bills. After some difficult decision making, we were able to get the end balance down to zero, while still keeping us on track for our debt payoff goals.
For our variable expenses, I am keeping a running total of how much we spend in each category, and updating it as we go. A few days ago, we used coupons and sale prices to stock up on baby formula, diapers, and wipes– which took out over half our baby budget in one fell swoop. However, by stockpiling when prices are low, the running total shouldn’t have to increase until the 2nd half of the month.
| variable exp | budgeted amt | running total | |
| gas | $280.00 | $33.76 | |
| home supplies | $60.00 | $15.87 | |
| baby supplies | $180.00 | $84.54 | |
| groceries | $700.00 | $160.93 |
For the one-time expenses that we are expecting, we made an educated guess as to how much they will cost. If any of them end up being more or less than expected, we will adjust the budget, and balance out the funds in other areas as appropriate. Remember, the total income – expenses MUST equal zero no matter what.
| one-time | budgeted amt | running total | |
| school supplies | $58.00 | $58.00 | |
| school lunches | $60.00 | $0 | |
| school clothing | $40.00 | $0 | |
| car registration fees | $50.00 | $0 | |
| soccer league fees | $49.00 | $0 | |
| bday party gifts | $50.00 | $0 |
With so many side hustles underway, we are using a similar method to track out income. Our ebay/craigslist totals will hopefully far eclipse the numbers below, which will allow for us to allocate more of our funds to quickly get our emergency fund back to where it needs to be, and to resume our debt repayments full bore.
| extra income (non salary) | budgeted amt | running total | |
| guitar/amp sale | $400.00 | ||
| return unused molding | $50.00 | ||
| ebay/craigslist | $90.00 | ||
| rebate (electric co-op) | $30.87 | $30.87 | |
| survey income | $90.00 |
The end game is that in spite of the fact that we have to deal with some unexpected budget busters, I feel better than ever about our debt reduction efforts. By creating a “down in the weeds” budget, it really forces us to consider and evaluate how we spend every single dollar. This level of financial intensity requires some extreme micro-management and may cause some headaches along the way, but when climbing out of debt and turning financial issues on their head– this type of intensity is exactly what the doctor ordered.
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We do a Dave Ramsey style zero-sum budget too. Every dollar is spoken for- whether it be for expenses or for saving. It looks to me like you are doing great!
Holly@ClubThrifty recently posted..AT&T Internet Installation: Almost as Bad as Comcast
We’ve always budgeted, and have actually been having a ton of success paying off our debts.. but this “zero sum” budget idea is new for us.. I am feeling really good about it so far!
I used to put the numbers in excel and at the end of every month when I saw the money “burned” for cigarettes I decided to quit smoking. Of course as you say it’s a lot of work to keep track of every dollar spend, but it’s better to work preventive than corective.
Gekko recently posted..How to set your targets
It is a bit of work, and I don’t know if this type of over-analysis of our spending is sustainable long-term.. But when trying to get debt free.. it is a great tool.
Sorry to hear about your amp. I know it’s tough to part with something like that. We don’t really do a budget, but we do keep track of the money spent. Budgeting is a lot of work and we aren’t diligent enough to do it.
Joe @ Retire By 40 recently posted..How early retirement will impact my Social Security Benefit
Joe, I sold the amp last night and I feel truly great about it! The kid who bought it was maybe 16 years old and wanted to try it out first. He was soooo much better than me, and ripped into a 5 minute blues solo right away. It is great to know that the amp will be well-loved and put to some good use.
I don’t use the Dave Ramsey budget-my income is way too variable to keep a running total and it just drives me crazy. My BFF is an accountant and a huge Dave Ramsey fan and swears by this method. Keep up the good work!
L Bee and the Money Tree recently posted..It’s time to set some goals.
I would recommend trying it, LBee. It certainly isn’t for everyone, but at least for a month or two, it will really help to identify is something in your budget is just completely out of balance.
I just noticed your comment about the variable nature of your income.. and that can be an obstacle. Our income is generally fairly static, although we are certainly introducing some wrinkles at this point. All the same, I think it would be a worthwhile exercise to look at past income and expenses and to try to chart it out.
Here’s my question, Jefferson: when do you turn off the deep weeds budget? When you’re out of debt? Then when you do turn it off, do you go back into the weeds again? Is this a lifestyle that you’ll continue forever? I’m curious what the timeframe is for that type of intensity.
AverageJoe recently posted..Don’t Be the Emperor With No Emergency Fund
According to the Ramsey plan, you use “gazelle-like” intensity (super speed)to pay off your debt until you are completely debt free. In order to do that, you really need to make some lifestyle changes. So, really, once you’ve made the lifestyle change it is somewhat for good. According to Dave Ramsey, the way that you don’t get back into the weeds is by paying CASH for everything and never using debt again.
Greg@ClubThrifty recently posted..AT&T Internet Installation: Almost as Bad as Comcast
Yes.. The gazelle-like intensity is where we are now, Greg. I am more motivated than other… I am still not on board with Ramsey’s all-cash philosophy, because I think it removes some accountability. I use an all debit strategy instead, because there is a clear record of all that has been spent.
Great question, Joe. Honestly, I don’t think this type of budget is sustainable long term. I think you will drive yourself crazy, and take a bit of the joy out of life, to truly chart out and re-balance your numbers every time a new expense crops up..
But for now, when knee deep in the debt repayment phase– this is the perfect tool. Once we are free of consumer debt, I could see us easily slipping back into our mint.com estimation budget.. As long as there is *some* budget there, I think you are on the right track.
That Dave Ramsey book sounds great and the advice sounds right on. It makes perfect sense that for your finances to work you MUST come out to a zero balance every month. To stay out of debt, you must never get into negative numbers. Right on! And whether that means getting more income and having less expenses, it’s whatever you gotta do.
TB at BlueCollarWorkman recently posted..The Grass is Always Greener on the Job Security Side of the Fence
The focus on the zero balance at the end of the month is the big wrinkle being introduced here, and it is a powerful tool. If it looks like you are going to be short, then you need to find a way to bring in more income or cut more expenses!
While I’ve never read Dave Ramsey, we also do the zero sum budget style, with every dollar spoken for and allotted. I find it makes it easier to stay on track.
Jordann @ My Alternate Life recently posted..Changing Goals
The Ramsey book is a quick read and probably worthwhile for most folks who are trying to get their finances sorted out. Nothing earth shattering there, but is an engaging writer and has some powerful motivational techniques..
It’s unfortunate that you’ve had to face all those extra expenses recently. On the bright side it sounds like it will be the motivation to further get your finances under control. Even though my money isn’t too tight these days, I’d really like to try something like this sometime. Like Lauren one of my major obstacles to budgeting is my fluctuating income. That and I’ve just been way too busy to fit in all the tracking and analyzing.
Modest Money recently posted..Effectively Using Keywords On Your Blog – Part 2
Jeremy, it isn’t too terrible of a time commitment.. Maybe a 2-3 hours up front to build out the budget, and then a couple hours each week to make sure the numbers are on track.
Jeremy, one of these days, you WILL have a budget
Jacob @ iheartbudgets recently posted..How To Save Money: Billing Mistakes (Part 1)
Hmmmm…maybe I’ll have to look into the whole “Dave Ramsey” thing again. I read only one book of his and it didn’t really hook me.
Good luck with your budget!
Mackenzie recently posted..Me, Myself, and I
All self-help books spend the first six chapters talking about how great they are, without providing any actual advice, and this one is no exception. But when he finally gets into the meat of his plan, there is some great advice there.
We’ve been using this type of budget for the past 6 years and I absolutely love it. Once things start to settle down and those one-time expenses are paid, I’d encourage you to ADD those items to your budget each month and save a little bit towards them for when they come around next year.
For instance, in that 2nd chart you have a lot of “non-monthly expenses” as I call them (expenses that happen randomly throughout the year, or maybe once in a given year). The total of all of those listed is $307 for the year. With the way we budget, we would save $25.58 (or $26) each month and by the time the expenses roll around next year you’ll already have the money saved.
It’s tough to start that type of budgeting method amidst some chaos but I’d encourage you to give it a shot.
Jason @ WorkSaveLive recently posted..Recipe: Mini Black Bean Burgers
Thanks Jason, that is some great advice there. I mentioned getting burned by a property tax bill in the article above, and this is a perfect example of a large expense that must be budgeted for. The bill was > $600 (thanks Missouri), which can really sting if you don’t plan for it.
While I use mint.com to track my expenses, it’s also hard for me to have a real solid budget. Because both my wife and I work for ourselves our income fluctuates each month.
Sean @ One Smart Dollar recently posted..Investing in IPO’s
Mint works very well for tracking expenses.. It is really amazing that it is completely free, to be honest. They do offer some budgeting tools as well, but they just aren’t precise enough for what I want to accomplish.
Praises to you for getting your expenses on track. I’m not sure if a system like this would work for me – my budget is more ran like a corporation than counting every dollar spent. But money saved is money saved no matter how you do it! You’ve got a nice list of side hustles going – you should keep playing into that!
My Money Design recently posted..Why Do Poor People Have Two or More Flat Screen TV’s?
The “counting every dollar” thing is not for everyone, and not something that I would want to do forever.. But when it is time to get into gear.. desperation calls for desperate measures.
Congrats on getting “gazelle” as Dave would say. The zero-based budget really gives money nowhere to hide. It’s all exposed and accounted for. We’ve been on this since just before we got married, and it really has kep us on track. And nice work on the side income. I’m a little short each month, so I need to get crackin’ on that as well.
Jacob @ iheartbudgets recently posted..How To Save Money: Billing Mistakes (Part 1)
I was looking forward to hearing you weight in on this one, Jacob, considering your mad budget love. It really builds confidence in your financial situation to know exactly what money will be spent where ahead of time.
I don’t use Ramsey’s cash only method either because I hate getting coins. I think the excel sheet has helped us to stay on track for paying off $30k of student loans in 9 months and saving up for a home, retirement, etc. I was doing the excel sheet and Mint but decided the excel sheet worked best for us.
Jessica @ Budget for Health recently posted..BBQ chicken pizza recipe with Homemade Whole Wheat Crust
Great job, Jessica.. The success stories of people like you are exactly why we are working so hard to get our situation corrected!
What excel spreadsheet do you use? Do you have a template. I am looking for something to track budgeted vs. actual expense (like a check register)?
Thanks
Great question, Jennifer! We have a lovely spreadsheet that we would be happy to share with you. I’ll clean it up for you (remove all of my items) and post the template.
We’re pretty intense with our budgeting and I LOVE mint for keeping track of stuff. We budget outside of mint though – old school in excel.
By the way, Ramsey has a variable-income budget (I read some but not all comments, so if this is in a comment sorry for the dup). I think he calls it a “prioritized spending plan” where you list all of your expenses and then reorder them from most to least important per paycheck or month. I’m oversimplifying it but essentially you spend your money from the top down. You budget way more than your highest month ever, so even if you have your best month ever you already have that money planned. If you make a little money you have food, utilities, mortgage, health, transportation covered (they’re at the top) and then pay back some, but not all debt. In this plan, the minimum monthly payments are on the list (to keep current) and then the debt snowball goes at the end, I believe.
So you have all “needs/bills” taken care of at the top. Then you have “keeping current” on your debts right after that. Then you have the debt snowball underneath it. So all of your extra money after your needs/bills and keeping current goes to the smallest debt until it’s paid off, etc. The varying nature of your income doesn’t stop you from budgeting this way – it just alters how you do it.
Nick recently posted..Show you the money!
Nice Nick.. Thanks for posting that info about the variable income budget. I am sure that some folks will find it helpful..
Keeping things real with good ol’ excel is actually pretty powerful if you link values between worksheets and such.. I’ve got a pretty nice system going.
jefferson recently posted..Budgeting Down In the Weeds
That’s pretty hardcore – I’ve actually never made a budget where I’ve tracked and accounted for every dollar. I just like to make sure I budget a set amount, and within that, spend it.
We operate under the assumption that if we budget $200 for us for a certain category, that’s ALL the money we’re getting, and not a cent more.
CF recently posted..How to tell if fish is fresh
That is what we always did, as well CF…
However, if there were still 10 days left in the month and our grocery budget was toast.. we just simply bought what we needed.
OOF! Hey, whatever works for you, and we only have to do this until March, right? RIGHT? This is precisely the opposite of what I do, and honestly, I can’t even fathom doing the micromanaging budget, but it sounds like it’s working and motivating for you!
Kathleen @ Frugal Portland recently posted..My Net Worth Spreadsheet
Desperate times call for desperate measures.. We wouldn’t be doing this if we didnt have to.
I’ve been on Craigslist selling spree over here too. Just trying to bank some more cash for school. I love Dave Ramsey but I’m not to the point of having a strict budget yet becasue I still live with my parents. I’m grateful for that.
Chase
Debt Free Teen recently posted..Is a Macbook Pro worth $2200
Craigslist is awesome.. I have about 6 different items for sale on their right now.
The greatest benefit of budgeting is not only to get your financial house in order but also to program your subconscious mind about priorities in your life. It’s like a X-ray which reveals every pain point in your financial life. Great work Jefferson.
Shilpan recently posted..Keeping Up with The Joneses: A Fast Lane to Financial Fatality
I keep meticulous records for my budget; my accounting background dictates that I must do so. However, I can’t say I’ve ever held myself to the zero sum line. I tend to run home finances like I run business finances. If I go over or under, I analyze what happened and come up with ideas for improvement.
However, I’m impressed with how quickly you were able to fill in the hole with the zero sum budget. Perhaps I’ll give it a try.