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Over a year on the budget

By Bruce Kroeze, on July 7th, 2006

money keys Over a year on the budgetHey, it has been over a year and my family is still going strong on our budget!

I just realized that we started keeping a formal budget last June. What a difference a year makes. A year ago, we were still operating on the “quick check method”. You know what I mean:
“Bunny, do we have enough money to get that xxxx I want?”
(takes a look at online balance)
“Sure, keep it under $300″

As a direct result, we had huge ebbs and flows of income. Occasional windfalls would save our bacon when we got too close to the wire, but more often we’d just go “onto the credit cards” for a while, always intending to pay that off when we had a little to spare. That would happen every year or so, but always as a losing battle. The cards would inch up from their previous low point, every time.

It was depressing, and worse, it was provoking panic attacks in me. And why wouldn’t it? We were outspending our income every month, and on some level I knew it. I was deeply afraid of confirming what my increasingly upset stomach knew to be true.

Last spring, after a ridiculous run of overdrafts for no reason other than sloppiness, I got serious. I had adopted Paul Allen’s Getting Things Done methodology, and I went to it with a vigor. It took about two weeks of work, every night and on the weekends, to get through the daunting pile of documents, receipts, and bills. But I did it.

I knew where we were, and it was bad. We had 9 (!) credit cards, with balances ranging from $0 to $12,000. We were overspending our income by about $500 per month, sinking fast.

I set to making my first budget. It took days to create, it was huge and unwieldy. I tracked everything we spent, to the penny. I guesstimated our budget for June and forced it to conform with our estimated income. My wife was extremely unhappy, but agreed we had to do it, when I showed her the truth of our last year’s decline.

Reconciling those first few budgets took around 10 hours a month. I slowly modified my spreadsheets, and stopped tracking into such tiny categories. For example, who cares how much is spent on literal “you can eat it” groceries vs. household supplies such as laundry detergent. Today they are lumped into a combined “groceries” budget and I don’t have to dissect Winco receipts to figure out how much to take from each account.

More importantly, I set up “freedom accounts” to handle irregular expenses. We have 8: Car, Clothes, Hair, Education, Home repair, Pets, Utilities (for non-monthly bills, like water), Vacation. We put money into these accounts every month. This money shares the same account as our primary household, so it provides the buffer to ensure we don’t overdraw even when we spend much of our budget in the first part of a month.

Today it takes about 4 hours a month to do the budgeting and reconciliation. We’ve paid off and closed 7 of the credit cards. One retains a balance of about $5500 left to be paid, and the other is a cash-back card that is paid off monthly.

This year has been a great stride forward for my family. From fear to growth and understanding, dropping the foolish belief that “budgets don’t work” and actually trying one has made all the difference.

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