Managing Household Finances // Set Your Budget & Savings Goals {series, part three}

For Kate & Trudy readers only, use the discount code SEEGREEN19 for 25% off your Household Finance Kit purchase.

10/1/2018 UPDATE: The kit has been updated for 2019 and does not look exactly as shown in this blog series (very close, but slightly adjusted / improved). It’s been updated and 5 new pages were added! Thank you for ALL of your support! I’m thrilled to see so many users of this great budget planning method.

Hooray! You’ve made it to Part Three of the Household Finance Binder Series. If you missed Part One ~ Create Your Binder and/or Part Two ~ Enter Financial Data & Pay Bills, make sure to catch up first before continuing on.

Today we’re setting your budget and savings goals. This is the final installment of the series and probably the most intensive, so make sure to block out some time to focus. You’re about to graduate to the world of organized and responsible money management. Congratulations!

Before we begin this week and as a reminder, I’m featuring the Household Finance Kit in this series and it’s available in my Etsy shop as an instant download. Start your own household finance binder *today* if you wish!

20140227 Household Finance Series_part three

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SET YOUR BUDGET

>> Remember last week when we filled out the Income Record? Pull that out now along with the Household Budget and Notes for the upcoming month. The first area to budget for in the upcoming month is income. There are multiple ways to budget for income. Here are a few examples:

: Paycheck – You receive a regular paycheck. The amount is either static (same each time – usually for salary employees) or fluctuating (different each time – usually for hourly employees). You know the dates you’ll be paid and can anticipate at least a minimum expected amount if fluctuating.

: Variable – This is income that is not on a pre-determined schedule. For example, babysitting every couple weeks would be considered variable income. This is similar to a fluctuating paycheck described above but the dates of your paychecks are not pre-determined.

: Other – This could be anything from Etsy shop income to garage sale income and might also fall into any of the above described categories.

Once you categorize all of your expected income, make any assumptions you need to in order to insert a budgeted amount into the Household Budget. This section is very important because it drives all of your spending, loan payoff, and savings goals coming up.

Household Finance Series - Part Three | www.kateandtrudy.com

>> Before we dive into individual expenses, we need to review the Loan Payoff form. Since loans are already incurred expenses and there’s typically a minimum payment required, this is the very first expense item that should be addressed on your budget.

The Loan Payoff form contains a header area to fill out all the main loan details – what is it, total loan amount, your monthly payment, etc. If you’ve already paid down the loan a certain percentage, you can start with the current balance versus going backwards to track the past payments. Forward focus!

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Once you complete this form for each outstanding loan (student, mortgage, car, etc.) transfer the amounts of your monthly payment(s) to the relevant Household Budget line items. Easy enough, right? You might decide to use a different color pen or an asterisk to identify the line item as also a loan payment before we add the expenses.

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>> Now, it’s time for budgeting expenses on the Household Budget form. Let me start off by saying this is not as hard as it seems. “Difficulty” is why it took me so long to budget, but in reality, I just didn’t feel like thinking about my spending habits. You can do this! Let’s go through each section where I’ll give you a few tips and tricks to estimate some categories.

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: Home – These items are typically known from historical data (utilities) or regular bill amounts (rent, cell phone). Utilities such as heat and electric tend to be seasonal so make sure to take data from at least the past year and understand how your particular home reacts to these changes. You might also review the prior month’s bill as a basis. If you don’t have data available, check your utility company’s website to see if they have a cost estimator. If you have a mortgage, this should already be input per the loan payoff review previously.

Household Finance Series - Part Three | www.kateandtrudy.com

: Auto – Your auto financing costs should already be input per the loan payoff review previously and your auto insurance should be known, but items such as gas, parking, tolls, etc. will have to be estimated. Gas is the most difficult as the prices are always changing and driving frequency might be different each month. My recommendation is to:

> Determine your car’s real city/highway miles per gallon (not the dealer sticker version, how your car actually performs).

> Estimate trips already known such as to work and to the grocery store. Designate between city/highway miles, if able.

> Figure the estimated number of gallons you’ll need based on the known trips using the following formula:

((city miles known/city MPG) + (highway miles known/highway MPG)) = total known gallons of gas needed in current month

> We all know the car is used at unexpected moments as well, so increase the budget by a factor that you feel comfortable with based on your family’s typical “unexpected” driving. We typically just add 25% on top of the known mileage, or:

total known gallons of gas needed in current month * 1.25 = budgeted gallons of gas needed in current month

> Last step – promise! Take the budgeted gallons of gas needed in current month and multiply it by the expected cost. Here’s where it gets tricky because the cost of a gallon of gas is always changing. Simply estimate the cost with a cushion of up to $0.10-$0.50 depending on how often and wide your area fluctuates.

> You now have your budgeted gas…probably the most intensive line item to estimate!

: Education – This area is pretty simple. If an outstanding student loan is present, you’ll have already entered it during the loan payoff review previously. Any other education costs such as books, fees, etc. can be entered at this point.

: Essentials – This area is for items such as food, clothing, personal care, insurance and a space for child and pet care. All the necessities! Food can be one of the largest expenses of all (except for taxes) if not planned ahead. You can estimate food as easy as $x / day or break it down by meals. Meal planning is the best way to stick to a budget, but that’s a whole different topic! To keep it simple, estimate groceries based on $x / day.

Personal care is another section that takes some forward planning. We like to buy all of our personal care items such as toothpaste, soap, etc. at once so we only have one trip and aren’t tempted to buy things we don’t need.

Planning ahead (are you seeing a theme here?) for times when you may need child or pet care will help you budget these expenses. If your dog needs an annual physical in the upcoming month, make sure to include an estimate for these costs.

: Discretionary – Finally, we have the “fun money” section. This is everything else that may be purchased once the life necessities are covered. Date nights, DVDs, iTunes downloads, beer brewing supplies, etc. Include it all here!

I recommend adding a “contingency” budget at the very bottom of this section to cover any unexpected costs in ANY expense category on the budget. You might never know an expense would come up so it’s best to have already planned ahead.

Household Finance Series - Part Three | www.kateandtrudy.com

>> Now, it’s time to add up all your income, loans, expenses and enter each total in the bottom right corner of the upcoming month’s Monthly Calendar where we’ll determine our net budget. What’s leftover may be applied towards additional loan payoff, savings goals, or even existing/new investments.

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DECIDE WHAT TO DO WITH THE DIFFERENCE

>> Saving the difference between income and expenses is my go-to action. Thus, I’d like to highlight the Savings Goal page. The first question to ask is, “what are your savings goals?” Might they be to send your kid to college? Down payment on a house or car? Maybe a super fabulous vacation or as small as a pair of fancy heels? You can save *for anything.* The form is quite similar to the Loan Payoff form, but the opposite. Instead of paying someone else, you’re paying yourself for later use. Make sense? Fill this form out for each of your individual savings goals, small or large.

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There are two ways to save here:

: Put it in your budget – don’t wait for the difference to be determined. If you would rather make absolute certain you have the money to save towards your goal, then by all means, consider it a reduction on your income by saving exactly what you want each month. Of course, you’ll want to do this first so your expense budget can be adjusted accordingly. This is best for someone with a need, such as knowing a new car is necessary at a specific date.

: Save the difference between income and expense. Once you determine your income, loan payoffs, and expenses, whatever the difference is becomes your savings goal for the month. This is better for someone with “nice to have” savings goals, such as buying a house “when the time is right.”

>> Instead, you may prefer to make additional payments on outstanding loans versus saving the difference.

>> Another option for maximizing the difference in your budget is to plan for additional investments to build your wealth.

Whatever you decide to do with the difference, first know that there has to BE a difference. Since we’re still in the budgeting phase, this is all “anticipated” at the moment. Once you enter your actual amounts at the end of the month, your difference (or lack thereof — hopefully not) will be known. Good luck!!

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RECORD ACTUAL INCOME ~ EXPENSE ~ LOAN PAYOFF

>> Once the budget is all set, you’ll obviously need to stick to it as much as possible throughout the month. At the end of the month you’ll return to the Household Budget to record actual amounts. While this effort can be done manually, I highly (super highly) recommend a system like Quicken. You can connect your online accounts to be automatically downloaded to the software and categorize each individual expense to tie to the category that contains the budgeted amount. At the end of the month, all you have to do is pull the monthly expense report and voila! Record all totals into the Household Budget and you’ve got yourself a completed budget. As for cash payments…just make sure to record these somewhere as you’ll need to manually adjust the actual spend for items purchased in cash.

Household Finance Series - Part Three | www.kateandtrudy.com

Household Finance Series - Part Three | www.kateandtrudy.com

Household Finance Series - Part Three | www.kateandtrudy.com

>> When actual amounts are entered into the Household Budget, you can total everything up again and enter in the bottom right corner of BOTH the Household Budget and Monthly Calendar. Is there money leftover? If so, go on to the next, and final, step.

Household Finance Series - Part Three | www.kateandtrudy.com

Household Finance Series - Part Three | www.kateandtrudy.com

Household Finance Series - Part Three | www.kateandtrudy.com

>> If you came in under or at budget, congratulations!! I’m so proud of you! Now, what do we do with all that money? If you already budgeted to save, make additional loan payments, or add to your investments, simply confirm cash flow and take action. That’s it! Now, repeat …

Household Finance Series - Part Three | www.kateandtrudy.com

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…and, just like that, you’re a budget master on the road to building up wealth, one month at a time!

If you’ve made it through this Household Finance Series, please share your binder on Instagram and/or comment about your experience below! Tag your Instagram photo with #organizedbyKT so I can send you some love.

CONGRATULATIONS!!!

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