A budget is the most personal thing you will ever create. It’s honestly a reflection of your life, your wants, your goals, and your dreams. Not only that, but your budget can tell you some pretty incredible things about your money.
The process of closing out your budget (figuring out where your money went during the month) is so important. It’s going to show you where your money went, what categories you should be using in your budget and for your cash envelopes, and how much to assign for your budget categories realistically.
It will also show you if your spending is aligning with your financial goals, and what progress you are making. Don’t just blindly follow a budget. Understand the reasons behind your financial choices, and look at what your budget tells you.
MY JANUARY 2019 BUDGET RECAP
Why do I show you my budget recaps? One of the things that lacked when I was learning how to budget were real-life examples. I was tired of looking at “made-up” numbers or one-sided examples. I wanted to know what it looked like for a real person to successfully use a budget in their life. Not only that, I wanted to know their decision-making process and understand why they were making the decisions they were making.
I hope that by sharing my real numbers and budget with you, that you will start to understand those psychological aspects behind successful budgeting.
WHERE DID MY MONEY GO?
At the end of every month, I take all of the information from my expense trackers, and I organize my spending into categories. Now, I have been budgeting for a very long time, so I use the same categories over and over. If you are just starting out, organizing your spending into categories that make sense to your life, might take some time and tweaking.
I track my budget from the first of every month to the last day of the month.
Even though I budget my income by paycheck, I still like to assign a monthly budget for each one of my categories. For January 2019, my most significant expense was savings and debt. 15% of my income went towards debt payments and saving money.
In January, I paid off my last remaining debt, and I am now 100% debt free. This means that my future budget will not include a debt category.
I also completed the Pack-A-Lunch January challenge, and it was a huge success! I was able to save $147 out of my budgeted amount for food expenses. The one thing I noticed during the challenge, is how saving money in one area of your life quickly trickles into other areas. I was planning my meals ahead of time, and I was able to keep my food costs low by eating what I already had at home. In fact, I went two weeks without going to the grocery store, except to pick up milk, half and half, and other small necessities.
I like to know if I was over or under my monthly budget. If I was over, I mark that amount with a “+” sign and write it in black. If I came under budget, I mark it with a “-” sign and write it in red. This allows me to see how I did with overspending.
I use a zero-based budget, which means my “budget” is really just a sum of my income. So some months, my income decreases or increases. My spending will always reflect those fluctuations.
THE STARTING BALANCE
A starting balance is something that will always be listed on my budget recaps. I like to keep extra money in my checking account at all times, which I call my “checking account cushion.” When you are working with a zero-based budget, all of your income is essentially being used. If you are using a zero-based budget correctly, that means you should have no money left in your checking account, because it should all have a plan for your spending on your budget.
When I first started using the zero-based budget, the idea of bringing my checking account down to $0 every month freaked me out. My cushion allows me to have extra money just in case a bill is higher than expected, or I have an unexpected expense that I need to cover. I also use my cushion for any unanticipated online purchases that I make, and then I replenish my cushion using the cash I have from my envelopes.
Some people call their starting balance “savings” or “beginning balance” but I have it labeled in my worksheets as “starting balance.”
I use the last paycheck of every month to cover some of the bills for the beginning of the next month. For example, my December 20th paycheck will be used to pay for some bills on January 1st, like my rent. By carrying over this starting balance into the new month, I have the income to cover those expenses.
For my monthly income, I use starting balance plus incoming income.
HOW MUCH WENT TO DEBT AND SAVINGS
I like to keep track of my financial goals. Yes, it’s nice to know how much went to savings for the entire month, but I want to know what am I saving for. What savings goals am I currently spending money on?
Same with debt. I don’t want to know how much total went to debt during the month, but what specific debts am I paying off?
In January, $1031 of my income went towards debt payments. 100% of that went towards paying off my car loan. I did have $.02 in leftover interest for my student loans after paying them off in December, but the amount was so small, I didn’t include it in my calculations.
$1029 (or 15%) of my monthly income went towards savings in January. Out of the $1029 that I saved, 41% went towards my house savings account.
I like to track two different savings expenses that are taken out of my paycheck before I see my net pay – my 401(k) and my vacation savings. Every paycheck, the payroll person sends an investment check to my investment company for my vacation savings. This savings is invested in mutual funds in an individual account. At the beginning of my financial journey, I set it up this way so I wouldn’t spend it. It has been set up that way ever since.
To compensate for these two savings contributions, I add the amount of the contributions back to my net pay. When I close out my budget at the end of the month, my income and expenses will even out.
I use sinking funds in my budget to help me save for the future. You can read about why you should start using sinking funds in this article. In January, I added more sinking funds to my budget, so I have the cash to cover future holidays, events and occasions happening in 2019.
HOW DID MY SPENDING COMPARE TO LAST MONTH
Every month, I like to look at how my spending compared to the previous month. It helps me answer the question, “Did I make progress or decrease my spending in certain categories?”
The one category I am always fighting is my food budget. This is the one category I like to look at. I always try to challenge myself to spend less, and I want to make sure that my spending is going down or staying the same from month-to-month, not increasing.
If your income fluctuates every month like mine does, it’s also an excellent way to see where you are compensating in your spending for those fluctuations. For example, in January my income decreased by $1,569. The question I like to answer is, “if my income decreased in January, where did I cut spending to compensate for the lower income?”
For the change in dollars, I write it in red if I spent less than the previous month, and I write in black if I spent over what I spent in the last month.
MY DECEMBER 2019 BUDGET RECAP
I made a lot of progress in December, and I am very excited to see my growth in 2019.
There are two fundamental things that I have learned on my financial journey.
One. There is no wrong or right way to budget your money. The right way is the way that works for you. It doesn’t matter what the financial experts are out there telling you or what you might be reading about budgeting. You have to do what works for you and your unique life.
I get asked all the time why I choose to save money while I am on a debt payoff journey. I get judged a lot because it’s not what Dave Ramsey would do. So my simple answer – it works for me and my financial goals. Don’t be afraid to budget outside of the box, and do things that you feel are right for you and your family.
Two. Being on a debt free journey doesn’t just mean making debt payments. Your budget is just as important as paying off debt. It’s about having a system in place to ensure that you don’t go into debt in the future. What are you doing today with your money that ensures you won’t have to use debt later?
You can get the worksheets shown in this recap here:
2019 Budget-by-Paycheck Workbook: https://www.thebudgetmom.com/product/the-2019-budget-by-paycheck-workbook/
“Where Did My Money Go” Worksheets: https://www.thebudgetmom.com/product/where-did-my-money-go-worksheets-printable/
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