budgeting

Is there anything more sexy and exciting than budgeting? Oh, I wish I were joking, but I'M NOT. I love budgeting, I really do.

I never used to! I would make a half-hearted attempt at working out how much I needed for shampoo and electricity and shoes, try to smoosh it together with my income, and then... what? I have a budget, I guess? Well, that's done! Now to go put some stuff on my credit card.

Not surprisingly, I ended up with a bunch of debt. I had to ask my parents for a loan, because the credit card interest was killing me. My dad gently but firmly suggested that he sit down with me and work out a budget. I didn't see what use it would be, but I didn't feel like I was in a position to refuse.

Guess what? It turns out that there is a way to use a budget so that it actually works. And the purpose of a budget isn't to constrain you; it's to set you free. Your income already constrains you; you do not have infinite moneys. But if you face up to that fact, decide exactly where you want your money to go, and make a few simple changes, you will be free. Free from that sinking feeling in the pit of your stomach when a bill comes in; free from having to put off having your car serviced until you save up the money; free from throwing money in the pit of credit card interest.

This is how my husband and I manage our money. It's easy to adapt to one person: before we married, I did the same thing except with only one income coming in. (Or you can add more incoming money and adapt it to your commune, or your polyamorous household. This budget is inclusive!)

The trick is to segregate your money. This should be done as soon as it hits your bank account. The easiest way to do this is to do all your banking online (which is really easy and kind of fun, if you're a dork) and have lots of different accounts. Most banks now will offer free Net accounts (no charges, good interest, but you can only manage the accounts online-- you can't take money out at an ATM, for example). Think of them as envelopes, compartments you use to sort your money, and set up a bunch of them. Now you can set up automatic payments into these different accounts.

Expenses are the costs you can predict throughout the year. This is the lifesaver: when your car battery dies, when the gas bill comes in, when the rent is due, you don't even have to think about it, because the money's right there. Here are some things you might want to put under expenses:

• Rent/mortgage repayments
• Electricity
• Gas
• Water
• Insurance
• Repairs/replacements (ie washing machine, vacuum cleaner)
• Lawnmowing
• Landline
• Mobile phone (if you have a fixed plan or regular habits)
• Regular medication
• Physiotherapy
• Gym membership or regular exercise classes
• Dental
• Pet medical 
• Transport (bus/train)
• Regular charity payments
• Union dues
• Car, including:
• Licence
• Registration
• Insurance
• Servicing
• Repairs
• Tyres/battery
• Roadside assistance

Housekeeping represents the amount of money you will spend on consumables during the pay period (let's say a fortnight). This means groceries, petrol, pet food, and non-regular medication (aspirin, antibiotics etc). I use a debit account for this, so that I get unlimited withdrawals.

Savings is self-explanatory. You might have a specific goal in mind, or just want to put money aside. This money is not to be touched except a) when that goal needs to be paid for or b) in extreme emergency.

Travel & fun is useful for us, but it might not be for you. It's for fun stuff we do together. It pays for holidays, things we decide to buy together (such as a games console), fancy dinners, and whatever else we agree to use it on.

Pocket money is just that. We use this for buying things for ourselves (books, games, fun stuff) and presents for each other, as well as for incidental fun stuff that's not covered by housekeeping (a coffee with friends, for instance).

Debt money goes directly to the loan or credit card you are paying off. I am very happy and proud to say that the amount we now put into the debt fund is $0. To work out how much you should be paying, first work out your interest per pay period. You need to be paying that off as an absolute minimum, and then as much more as you can afford. Paying off your debt is the most important thing, because the more you pay off the less interest you will pay. Working out how much you're paying in interest is definitely a good motivator to pay off debt!

Does that make sense? Do you have any questions? How do you manage your money? Let's talk budgets!