Budgets, Part 1

So you’ve set some goals. You’ve calculated your Net Worth. Now what?

Now you get to budget!

That’s right—you get to budget. And no, I’m not going to call it a “spending plan” or some other euphemism. Budgeting is delightful. My favorite holiday is New Year’s Day, a day for freshly sharpened pencils and a clean budget slate. I create multiple budgets … just for fun! The standard budget. The retire-at-55 budget (eat beans now or eat beans later?). The worst-case-scenario budget (a.k.a. the zombie apocalypse budget). The every-kid-in-public-school budget (sweet Jesus, September 3, 2019, activate 🙏).

I self soothe by mentally calculating the per meal cost of what everyone in my family eats.

It’s a beautiful life.

Before all this rollickin’ fun though, you gotta figure out your current budget. And you do have one. A budget is just a record of what’s coming in (ideally, more) and what’s going out (preferably, less). Make $10, spend $9, remember? That’s how your Net Worth increases and how you get closer to those aforementioned goals. We’ll focus on the what’s going out piece first.

It’s possible your current (mystery) budget is growing your Net Worth the way you want it to. But wouldn’t you like to know for sure? For that, you need data. Lots and lots of data:

For 30 days, record every cent you spend.

And when I say every, I mean every.

When my husband and I first merged our finances, we were living in New York City. To build a combined household budget, I had to figure out how much he spent every month. By far, the most frustrating conversations revolved around cash expenditures. He could never remember where the cash went.

(Have you heard about the $20 NYC “door tax”? That’s the price you pay for going out the door of your apartment. It just disappears. LBYM tip of the day: stay home.)

We would have an increasingly Kafkaesque dialogue as I offered up possibilities—“Did you get a haircut? Buy street meat? Give money to those Showtime guys?”—and he would shake his head, bewildered. Finally, in the interest of marital harmony, we created a separate line—Pizza—and any otherwise unidentified cash expenses went there.

Given credit cards’ reputation as harbingers of financial overindulgence, you may be surprised to learn they are my preferred payment method. One of the things I appreciate most about credit cards is their built-in record keeping. If you use electronic payment methods for most of your monthly expenses, this tracking exercise should be easy. If you use a lot of cash, the exercise may be more daunting, but if the hassle of taking out your little notebook and recording an expense makes you think twice about spending that money … is that so terrible?

Guess what keeping a food diary helps you do? That’s right … lie to your food diary. Ha! Actually, it deters you from mindlessly munching the half-eaten chicken nugget from your kid’s dinner. ’Cause that is one depressing entry.

If you’re a pen and paper gal like me, at the end of the month, you’ll have a little notebook with 30 pages that look like this:

Categorizing your expenses by frequency will be helpful later when you’re putting your (not a mystery) budget together. That’ll be Part 2. Other covers any once-a-year payments or one-off purchases. Life insurance?

The party never stops at LBYM.