Our New Budgeting System

One of my goals for this year was to take our family budgeting to ‘the next level’.

For the last year and a half we have been using a reverse budget and tracking our spending as a family with the Smart Budget app.

This method was great because it gave us a good financial snapshot of our income and spending without being too demanding on us. There was just one budget number to stick to instead of a dozen.

I tried repeatedly to get into a set budget when we first started to pay off $82,000 in debt but I failed. I failed a lot.

No matter the method, Excel spreadsheet, fancy financial software or pen and paper notebook, I could never stick to a budget or tracking for very long.

I was repeatedly overwhelmed both with how many bills we had and the demands of entering all of them into one system. I’d try one system for a few weeks, fail, and then try another system and fail again.

Was I weak of will? Was I not choosing the right software? Was living within a budget and tracking expenses beyond me?

No. None of those answers are right.

What I can see now, after having found success with budgeting and tracking, is that I was trying to run before I could walk. I was trying to change everything overnight instead of a few small things at a time.

It wasn’t until we had paid off a lot of our debt, dramatically cut our household bills and spending, that we made any financial software, app or tracking method work for us.

We needed to take those small steps – cancel a few bills, give myself a ‘fun money’ budget each month, calculate what we’re actually spending on groceries every month and then try and stick to the average for a few months – so that we could eventually make the big leaps.

Why change if things are working?

The reason we are making this next jump is because we want to sharpen our financial skills.

We want to learn how to live within a set budget for each category of our spending and amortize our costs over the year. October through December is an expensive time for us for eating out and gift giving. We made it work last fall by saving a little less those months. This year we want to use a monthly budget with roll over to accommodate those expenses.

Moving from a reverse budget to a categorized monthly budget with roll-over.

We know our transportation spending for last year was £1100/$1600. That includes bus, cabs and passes for the trains and horse tram. So we have set budget of £100 a month and are allowing the unused budget to roll-over each month. This will allow us to accommodate months with bigger expenses such as when we take cabs to the airport or purchase annual passes.

Smart Budget vs. Home Budget

To make this change we had to switch our budgeting apps.

Previously we were using Smart Budget. This is a great app if you want to start tracking expenses and you need to sync the app from multiple devices. Good for people with joint finances that want to easily get a snapshot of their expenses and spending.

Why did we switch? Smart Budget doesn’t allow you to set expense limits and it doesn’t easily allow you to put expenses against multiple accounts. We tried it out for a month with our new system and it not only took a lot more time to enter expenses but we had to do some out of app bookkeeping to reconcile our budget and accounts.

Enter Home Budget. Home Budget, while not perfect, is allowing us to set category spending targets, have roll-over budget per category and easily assign expenses against financial accounts and categories. It also does some fun financial forecasting and has the all important Family Sync function for multiple accounts.

If you’re a financial software user yourself you might wonder why we aren’t using something that connects to our bank account and downloads transactions for us. We like entering our spending. The act of entering it helps us stay focused and resist purchases we don’t need. It keeps us honest.

Someday we might move to a system that downloads transactions from our bank accounts but as we have learned over the last three years: we’ll need the skills first.

A change is as good as a rest for finances too.

After a month using this new budgeting and tracking system we’re happy with the change. It’s challenging us a bit, for sure, but it’s also motivated us. I am feeling more resolve, even with a new baby at home, to defrost something from the freezer for dinner rather than call for take-out. And when we had multiple birthday parties to buy presents for this month I didn’t bat an eye at the cost because our gift budget is very healthy.

Photo Credit: Alan Cleaver

Have you ever changed your budgeting or financial system? Why? Was it an easy change to make or did you struggle?

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  • One method that I found very useful for dramatic financial change was reverse budgeting. Instead of assuming that you have to have this much for all of your standard categories and then using the remaining for savings or to pay off debt, I turned it around. I said ” I will save x dollars every month and pay off Y of my debt and I’ll have what is left over for monthly living. ” This new mindset really overturned many of my false assumptions on what it costs to live comfortably.

    Dan at ZenPresence.com – Ideas for Meaningful Living

  • I use YNAB (www.youneedabudget.com). This software has changed the entire way I use and think about money. Our current goal is to get one month ahead in finances — to use this month’s earnings for next month’s expenses. My husband has a variable income, which makes zero-based budgeting difficult. Once we get a month ahead, we’ll know exactly how much we have to work with each month. I used to think a “budget” was a list of bills, then all the extra went to food, gas, entertainment, etc. I never understood why some months the finances seemed to work on paper, but not in reality. Now, I have EVERY expense accounted for, including sinking funds that roll over for irregular expenses. We now have very few financial surprises and have gained so much peace of mind.

      • YNAB is amazing! it’s totally changed the way I think about money and spending. I’ve been doing it for four months and, despite being on a very variable income, I’ve been able to stay ahead of the bills, pay off some outstanding debt and still have lots of fun. i did the free trial but I was sold within the first week.

  • very good post. and i’ll check out those apps. i have used some ideas from iwillteachyoutoberich blog before. i also use an excel sheet which i created myself. this together with manual entry of each expense got exhausting. i recently discovered that cancelling numerous cards and sticking to one debit card did wonders – all of my spending is in one place, i don’t need to enter anything, just keep an eye on the balance and/or set up a balance alert. i give myself an amount and then that’s it, need to stick to it. apps seem like a more hi tech way so defo need to check them out but this i found was the easiest way of tracking for me.

  • I’m having a hard time right now using our budget. It doesn’t really work but because we are generally frugal then we are never too off track. However somehow right now I find it hard to pay off whats on my credit card. I’ve always been a pay off every month person! Anyway I am considering not using the credit card for a while but feel that I need a tracking system for our bank account if I’m going to do that. I have a android phone. Any recommendations on apps that will work for me??

    • My sister is using Home Budget on a Smart Phone that’s not an iPhone.
      Not using a credit card helped us a lot. Everything came out of our checking account and it made us feel really accountable for spending.

      • I was just looking at that app. Glad to know someone is using it successfully. I think the time has come for no credit card, thank you for the encouragement.

  • We use just regular old pen and paper. We print off Dave Ramsey’s free monthly budget worksheets from his website and use those every month to plan for the following month. I’m a visual person and I like paper – so I like to be able to erase things and write in extra categories that might come up. It works for us for this season of life. We love doing budget categories and we also do sinking funds to pay for our homeowner’s insurance and for HOA dues and that sort of thing. We haven’t used credit cards in 5 years and cutting those up was one of the best things that we ever did for our family. Thanks for the post. I really enjoy your blog!

  • I use Mint. It is free and does sync up all of your deposit and credit accounts as well as other assets to give you a net-worth view. We both have jobs as well as investments in some small businesses, so we need to produce quarterly financial statements. If you’ve never put together a financial statement for yourself, it is a very good exercise. It is really fun/rewarding to watch savings and net worth go up.
    It’s free, so there are marketing blitzes to recommend higher paying depsoit accounts or lower interest credit cards, but it’s very useful. It does download all of your transactions, but it makes assumptions that aren’t always true, so I go in and double check the description and also select the right spending category. It also send alerts for bills coming up or balance notifications or spending notifications (like you’re almost to your eating out limit) It’s nice if you have banking relathionships with multiple companies. However, I’ve used it much more for tracking where my money has gone versus planning where it is going to to go.
    My goal this year is to be much more deliberate with my savings and expenses. We’ve always naturally lived within our means, so we only have mortgage debt, but I actually want to be more frugal and would like to see if we can live on only my husband’s income and save all of mine.

  • Hi! I found your blog from your guest post on theWhole9 blog. Love your blog, it’s inspiring me to take stock of my own life, get help, and cut out all the fluff.

    I know this is horrible, but my husband has always done the budgeting. I only know what to spend because I’ll get in trouble and be told to “reign it in”. (“You spent how much at Whole Foods?!?”)

    However, he uses Mint to budget (shout out to Jody! Mint buddies!), and since my resolution this year was to be more money-conscious I love the mobile app. When I’m out and about and feel the need to splurge I can quickly look up the budget and talk myself out of the impulse spending. Did I mention I need help? Plus, it links to all of our accounts so we know almost immediately when something is spent so we can catalog it in the appropriate budget (we primarily pay with credit cards whose balance is paid off at the beginning of each week; been doing this since college and have never had actual credit card “debt”).

  • Holy Moly! Y’all are so high tech with this stuff! I’ve always used a system pretty close to what Dan described in the first comment. I really don’t know how people can track every single penny for such long periods of time without going totally bonkers. I did it for a while 20 years ago, but at this point frugal habits are so firmly ingrained in me that it’s sort of pointless. I do find that having a monthly “day of reckoning” where I look at all of my “variable expense” type spending for the month is helpful, as well as an annual review of all the “regular” bills. But by in large, I find it’s just easier to set up my life to be “frugal by default.”

    • Once we get to “frugal by default” I think we will, again, change how we track our finances. We’re still a work in progress on this – we were in big consumer and student loan debt as of 3 years ago. Made our final payments just over a year ago but I think we have a lot of work to do still to make frugal be default a habit.

      • I’m so impressed that you’ve come so far in such a short amount of time. I’m totally confident that you’ll get to “frugal by default.” It really does get easier and easier the longer you do it. In fact, these days I feel like spending money is more of a chore than a luxury! :-)

  • Great post, and great comments too!
    I used Quicken religiously for a while, and found it so helpful (and kind of fun in a nerdy way) to track everything, do the amortized monthly savings categories (vet bills/car maintenance/gifts/etc etc), and then “hide” that amount so I couldn’t see it as remaining for the month.
    I did this for over a year–it helped me get the hang of where money was going, and areas to trim. I always pay myself first, but do so into a pre-tax work retirement account, so I don’t see it in net.
    Then Quicken went all wonky (still not sure why) and I just gave up on it. Husband pays certain regular bills and I pay others. I know what I need to start the month for my categories, and then anything left from the previous month I put on the mortgage principal (I scrimp so I can pay down more!). So I have become much less detailed, but it only works because I already have a good grasp of our budget (which is simple too).
    I’m also set up to be “frugal by default”.

  • I admire you so much Rachel for sticking to written budgeting. (may it be on an app)
    The only budgeting that have worked for us is reverse budgeting. ie. whatever amount we are left with after paying into savings, paying for bills and food was ‘entertainment, travel, clothes and toys’. This way there is no forward thinking, no budgeting ahead. We’re minimalist/simple/frugal enough, yet I feel we could budget better therefore save more. We’re finished with college this summer, so time to look into a more suitable budgeting system. :o) http://www.mabs.ie has a very straightforward budget sheet

    • Congratulations finishing up with college :) You must be excited.
      The reverse budget has worked well for us and I think we may even go back to it at some point. Right now we both want to work on our frugal skills – not something that comes natural to either of us – and cover our more expensive months in advance. So far so good. This change up has created some great dialogue between my husband and I about our future, goals, etc. Have some new energy for preparing for future changes.

  • Totally agree with this: “The act of entering it helps us stay focused and resist purchases we don’t need. It keeps us honest. Someday we might move to a system that downloads transactions from our bank accounts but as we have learned over the last three years: we’ll need the skills first.”

    This is definitely the case for me, too. Knowing that I will have to enter the transaction in our software is a good way for me to stay accountable. At first, I thought that a system where we could download our transactions would work, too – but then how would that work when you have a $150 transaction from, say, Superstore, but it was for things that fall under several budget categories (e.g., groceries, clothing, toiletries, etc.)? It takes some time, but entering each receipt really gives us a very clear view of our spending.

    • Hoping to be frugal by default someday but not there yet. Entering purchases is really working for us. We also don’t find it that time consuming. Most of our regular bills and even regular purchases are entered as recurring bills in the Home Budget app. Also a big help: we don’t shop that often :)
      Nice to hear someone else is thriving on a similar system to ours – congrats!

  • I love that you are Canadian! I love that you are so open and honest about things. You are really inspiring me to get moving and purge!


  • I agree with EcoCatLady’s comment–I would very quickly go bonkers if I tried to track every penny. I’ve found that simply having a joint credit card with my husband keeps me in check–I know that we will both be looking at what each other purchased at the end of the month, so we keep the dollars in line and discuss larger purchases first. We were quite in debt with our kitchen renovation last year, so for a few months, it forced us to seriously tighten our belts on any new purchases, and to hold off on buying any bigger things until the debt was finally paid off. We’d still like to get a generator (too many power outages with recent storms!) but we’re holding off until we can accumulate more of a nest egg again. In the end, the kitchen renovation taught us to live much more frugally.

  • I think the important thing is to find a method that works for you. I’m a nerd, so I get genuine satisfaction out of my excel spreadsheet. We run all our spending through one credit card, so I log in to its website periodically and copy over the transactions. Pending charges are colored in yellow, cleared charges white. Once I week I add up all the white boxes, submit an e-payment for that amount, and color the boxes in green. (This helps me keep track of the occasional check, too, cuz otherwise I would completely forget.) My husband’s method is mostly me telling him, “We’re running out of money in the $Fund, so try to be frugal there,” and him going, “Oh okay.”

  • What worked best for me is paying cash only in stores (not that strange in this country either) and really only withdrawing my set amount of money weekly from the bank. Of course, monthly bills are paid via bank transfer seperately, but all food, eating out, entertainment etc. is paid in cash. I give myself a budget and it works quite fine, no matter how tight that budget is: if I see that there’s only that much left in my purse, I go for the cheaper things and if a little is left in the end of the week, we’ll have coffee and cake in town, if not, we just go for a walk. It works fine for me.
    I used to have these seperate budgets for clothing and other needed but irregular expenses as well that added up through the year, much like your transportation budget, but I have managed to become “frugal by default” in these areas, so I skipped budgeting these things. We only buy what is needed and go for an economically and environmentally smart choice.

  • We don’t keep close track of spending per se, but I do keep a list of everything we buy for the baby – in part out of curiousity and in part because it helps me avoid buying that very-cute-whatever that I see in the shops… Here in Denmark, the baby gear is amazing and I can find it a bit hard to resist! So, keeping track means we buy what we need but largely keep the rest at bay. It is amazing the effect that the idea of writing something has on one’s willpower…

  • Oh, I can so relate to this! I used to “kind of” budget, but I was kind of passive aggressive about it. I felt guilty about including things that weren’t strictly “needs” in the actual budget, so I would leave them out…but spend the money on them anyway. February was the first month that I really hunkered down and did a proper budget that included everything my husband and I could possibly think of wanting to spend money on, including fun stuff like going out to eat, some beer brewing supplies for him, etc. I was happy to see that it all fit, and knowing that heading into the month made me feel so much more at ease! We didn’t do perfectly–we were over budget a bit in some categories that I guessed incorrectly, but under budget in others, so it all worked out. Saving (a lot of) money is in our budget, too, so even though it seems like we’re spending a ton, the reality is that a good chunk of it is going into savings.

  • Hi Rachel, I totally get what you mean about how physically recording your spending keeps you honest. I feel the same way, and I too, actually think it’s kind of fun. With programs like Mint, it’s too easy to forget about what you’re spending because it’s all automated.

    We still love our pencil and paper method, but your app sounds great. Thanks for sharing your new goals and plans.

  • +1 for Mint here. Works on your web browser, Android, iPhone and even has an quickview app for the Mac.

    I used it to help my boyfriend pay off $15k in debt. First we consolidated all his accounts in one easy way for him to look at his overall financial picture instead of going to each bank and credit card website. He gave me the Mint account info so I could advise him as time progressed, but not to his actual bank accounts. We first figure out how much he was spending in each category and I helped him re-think his spending.

    It sums up to – spend money on what gives you the most value in life. Not on cheap thrill shopping experience on items you only use once, twice (or get frustrated with) and never again, or thinks that break so fast. It’s about cost per-use. Spend more money on high quality items that work well & that will also encourage often usage, and give you the most thrills. (We’re also gradually dumping the low value items to live with less as we’re planning to go travelling for an extended period of time.)

    Figuring out spending in each category, we found out over $15,000 annually went to the truck! (Capital expense – vehicle financing, gas, insurance, parking, maintenance.) We make decisions to do without it less – like doing a weekend overnight bike-touring on Salt Spring Island without the car ($66.50 in savings from not bring a vehicle on the ferry!).

    Mint really help us identify the areas where we can ‘trim the fat’ in the expenses but keep spending reasonable amounts in areas that mean most to us. You can set a budget in the categories as well as see the trends over time. I love not having to pull out the info from 7 different accounts; it’s all automatic and you get alerts when you reach close to your spending and weekly reports to help you stay on track. The best things of all is that it’s FREE and it works really well.

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