Setting a budget, and sticking to it

Welcome to the New Year! The sun is shining, the birds are chirping… Well, actually not for us – it’s cloudy, 20 below freezing, no birds around… But hey! Our spirits are still high from where we finished 2019. January was a good month for us. We managed to stick to our budget and fully pay back family debt #1. That’s two debts down on our path to building our wealth.

The two-week school break over Christmas flew by and before we knew it the kids were back at school and we were back at work. Back to the daily grind!

Sometimes it’s nice to return to a routine after a holiday period is over. Get a bit of normality back into things. I’m the kind of guy that thrives off process and order. Sometimes to a fault.

You know those kinds of people that can eat the same thing every day, or have their house arranged like a display home from a magazine with not a thing out of place, ever? That’s me. I like the sound of both of those things.

But I have learnt to relax a bit over the years and not be as process regimented. Two kids will help with that. Having a young family has taught me that not everything needs to be picture perfect all the time, or that leaving the bed unmade for a day won’t bring on the next apocalypse.

Don’t get me wrong, I love a good holiday, a trip away, or a new adventure with family or friends. But being a process-driven guy, I like to spend most of my time in a routine. That’s just the way the wife and I like it.

What the bloody hell does this have to do with our personal finance journey? Well I went on a bit of a tangent, but to bring it all back, setting a budget and tracking expenses is a routine. You allocate money to buckets each month and track how much you spend from each bucket making sure not to overspend. Rinse and repeat for the next month.

Sounds easy when you put it like that, doesn’t it? As with most things, sometimes it’s easier said than done. The difficult part of sticking to a budget, in our opinion, is the behavioral shift needed to not make that purchase you think you need.

If you’re anything like us, you like to have nice things. I remember my mother always said to me, “You have to have the best of everything, don’t you?”. Drive a used car in good condition that’s good on fuel? No way. We like the blacked-out SUV riding on 22’s that guzzles enough gas to warrant having an oil well in our backyard. Take that example and apply it to everything else you buy and that just about sums up the kind of purchases we’d make.

Breaking this habit was – and still is – hard for us. We still like having nice things, but we also like the idea of financial freedom. Ah, why can’t we have both?! I personally think we can, in time.

Setting and sticking to a budget is a combination of mental fortitude and an exercise in mathematics. You need to have a good idea of what your everyday expenses are (mathematics), but also the will not to buy unnecessary things just “because you can” (mental fortitude).

Google search “How to make a budget” and you’ll be overwhelmed with all the options out there. Two popular methods I hear about a lot:

• The 50/30/20 method – 50% on essential, 30% of what you want, 20% savings

• Budget for each major category of spend (e.g. mortgage, groceries, gas, etc.)

No method is right or wrong. But one option will be more right for you than another. What works for us may not work the best for you. It may be a bit of trial and error for you to find the right fit.

We personally follow the ‘Budget for each major category’ method and it’s working well for us so far. Like we mentioned in our previous post, budgeting this way ties in really well with our expense tracking app, Mint.

Here’s a quick look at how mint displays your budget on its online platform. This isn’t all the categories, but you get the idea for what it looks like.

Image 1: Snapshot of Mint budget overview

It’s nice and visual which we like. Since the wife is more into the behavioral side and not the numbers, I generally take control of the expense tracking for us. The cool thing about an app that’s connected to your accounts is that it updates every time you open it. With a few recategorizations here and there, you know how you’re tracking against your budget as often as you want. We find this quite handy as we know when we’re approaching our limit in a certain category and can have a chat to agree what we need to do.

There will be things that pop up from time to time that you didn’t see coming and this can be frustrating. You might be tempted to throw it out the window and put it in the too hard basket, but don’t. Just accept it’s happened, factor it in for next month if it’s a recurring expense, and move on. Think of it as an opportunity to get an even better understanding of your finances.

A technique we use to make sure we stay on track for our overall monthly budget if we overspend in a category is to underspend by at least the same amount in another category. For example, if you’ve overspent on groceries by $150, reduce your spending on takeout by at least $150. I know this isn’t always practical, but the point is to make concessions where you can to stay on track.

Let us know if you want to know more about our budget tools, techniques, or anything else in the comments section below. We’d love to hear from you.

Blake & Allanah - FIRE with a Family