Annual Budgeting for 2016

This is a bit of a long post so you might need to get a coffee and hope that I can explain my simple method of budgeting that I have been using for the past 15 years or so.

I can tell you that I have been doing a budget for myself for many many years and I enjoy playing with numbers and spreadsheets.  I don't enjoy seeing how much the cost of  current "overheads" are ie insurance, electricity, rates, water etc. which are essentials going up each year in crazy amounts.  These days there are so many more things that have to be added to the family budget that were not around years ago.  We have mobile phones (luckily there is only one user in our family me) then there's internet costs and a home phone and don't start me on how ridiculous I think the cost of home phone line rental is.  There is so much more that is "normal or standard and/or required" in today's world than there was 15-20 years ago.

I do go through my plans and bills each year and ring up to see what the best deal is and/or to change plans with my current service providers.  I only upgrade my mobile phone after the phone is not current in the market eg I've got a iPhone 4S and they are up to the iPhone 6.  This doesn't bother me because I don't want to pay $800 for a phone so I wait and upgrade but I don't have to add anymore $$ to my monthly bill.  I would love to upgrade my phone for more storage and the better camera however I know that this is a "want and not a need" and know the difference so I wait.

I did try to change my house and contents insurance about two years ago and you have to set the time aside, get yourself a coffee, make sure the kids are at school so you are not interrupted and then go through all their questions in order for them to give you a quote.  The last time I did this I was on the phone with them for about an hour and their quote was way more than what I was currently paying so I stayed with my current provider.  I think I rang a couple more as well but stayed put.

Often when you are on a plan for things including phones, medical insurance etc, newer customers get better plans than the existing loyal customers and this is something that particularly annoys me because unless you go through all your providers every year and check what you are currently paying or receiving in terms of value for money you may end up on an old plan.  You have to ring them every year and follow up what they can do for you.  So if you are paying $35 for your mobile phone and in a year's time you get a quote and the plan is still $35 you may get more calls included for free.  So whilst you may have the same costs you get more for your money and the only way to find out is view what plans are around on the internet and then call your providers.  I've been given $10 off a month for 12 months because I rang up and even though they couldn't change that particular plan they did offer me a $10 month credit for 12 months thereby giving me $120 over the year for making my one 25 cent call to them.  I think even if it took 1 hour for that call you have earnt yourself $120 for that hour....totally worth it.   

So starting with the budget mine is pretty simple and I have been following this method for years using an "excel" spread sheet.  You want a cover sheet with the main items and a 2nd page for the "bills" so I use two worksheets within the spreadsheet.  You will want Mortgage/rent, food, petrol, personal loan/credit cards, car loan, entertainment, holiday and/or any other thing you have that you regularly pay for.  The "bills" amount will be automatically be picked up from the 2nd spreadsheet which has a huge list of all the bills for the year down the side and then across the top are the months of Jan, Feb, March etc. through to December.  (if you don't own or know how to use excel I would suggest buying just an exercise book to use instead so you can keep the information altogether).

Any bill that you have to pay during the year goes in this spreadsheet. Car Registration, Mobile Phones, Home Phone, Internet, RACQ, car insurance, Car Repairs, Electricity, Water, Rates, Birthday Presents, Birthday presents when the kids attend birthday parties, Christmas Presents, Mothers Day & Fathers Day Presents, Credit Card annual renewal costs (this annoys me) Annual Pest Control, Home delivery of newspapers if you get that.  School Fees/Costs, school camps, School Shoes & Uniforms, School Books, Sporting Activities for the kids.  Any subscriptions you may have, house maintenance, house & Contents Insurance.  Medicines, Dental, Hair Cuts, Clothing anything you know you have to pay in a given year.  Last year my Drivers Licence came up for renewal after 5 years and that was $120 or so and if you wanted another 5 years it was more.  Anything that will have to be paid goes in this worksheet.  So if your total bills came to (lets use a number to make it easy) say $12,000 and you get paid monthly you need to put away $1,000 per month to cover all those "bills".

We know that some months you will have more than $1,000 worth of bills and some months you will have less however you just need to set aside the $1,000 per month into a "Bills" bank account preferable one of the on-line high interest accounts and when you need to draw on it to pay a bill you just transfer the amount as and when you need it.  If you get paid fortnightly you would divide your $12,000 x 26 so it would be $462 per fortnight to put away or if you could spare a little extra as a buffer just put $500 a way into the bills account.  Also I would recommend that you put in a "buffer/contingency" amount into the "bills worksheet" at the bottom to cover those unexpected repairs or things that may break down.  If you could start off with a "buffer amount of $$" in your Bills Account that will get you started but if you can't just start off with your weekly, fortnightly or monthly bills amount.  At the bottom of the spreadsheet it's totalled and underneath that I would put $1,000 underneath each month and total under that so that you can see which months you are over or under eg. so say in January when all your quarterly bills might be due along with other things you may have $1,300 worth of bills so it would say $1,300 underneath that it would be $1,000 and then underneath that it would be $300 in the red (meaning you've gone over the budget) that month. Month two might have $1,000 and bills might be worth $700 so you have $300 left over.  Provided there is money going into your "Bills Account" and even better if you can start with a buffer.  The thing is at the beginning of the year you know much much your bills are going to be and you need to put money aside for them either weekly, fortnightly or monthly.  If you need $1000 per month but only want to budget $500 a month and spend the rest you won't have money in your account to pay your bills.  You need to leave that month two $300 in the account...it's not free money to spend on something because it's sitting there left over at month two.  Does that make sense.

Once you have your "Bills" worksheet I total the columns at the bottom and also have a total across the columns so if for instance I want to put $120 for both my kids to attend birthday parties and we need to buy presents I would just add $10 to each month on the line of "kids birthday parties" and it would total $120 for the year next to the title "kids birthday parties".  Other bills like rates, water, electricity which are quarterly just go into the month they are due.

So your cover workbook/spreadsheet would look like this:-

Mortgage/Rent                        $  xxxx

Bills                                         $  xxxx (Note this figure is picked up by the 2nd Bills spreadsheet)

Car Loan or Personal Loan     $  xxxx

Credit Card                              $ xxxx

Food                                         $ xxxx

Petrol                                        $ xxxx

Entertainment                           $ xxxx

Holiday                                     $ xxxx

                                                  ______

Total Monthly Budget             $  xxxx   (or weekly, fortnightly depending upon pay days)

                                                 _______

It's a simple system and each pay the amounts are exactly the same.

I do have a few more spreadsheets next to these which have a worksheet for each one of those headings above and when the monthly pay went into the bank account then you add a line to each of your worksheets with the amount above and then you know exactly how much money you have in each area.  You can have all your money in one bank account or a line of credit as long as you are operating from your worksheet and you know if you have $5,000 in the bank that xx is in your "bills" account, xx is in your "food" account xx is in your "entertainment" or "holiday" account.  eg the date and January Pay $xxx and you will have a total in that worksheet.

I also then have another cover sheet which links all these spreadsheets to a summary account so at a glance I know how much money is allocated to each of these headings.  If I spend $80 at the supermarket I will put the date and the name of the supermarket in the "food" workbook less the $80 and it will give me a new amount.  The front summary is linked so that changes by itself.

I also have a summary of the actual figures in the bank accounts above the summary of the items listed above and they both should equal each other.  So in my bank account I should have a certain amount even if I only have one bank account with all my money in.  With the other spreadsheets you know you have put $250 aside towards your holiday, you know you have $500 for your car payment when it's due, you know you have $200 for the months petrol, you know that you have included some family entertainment money to see a movie, get an ice cream or do something fun. You know you have some money set aside for mortgage/rent and to pay down debt.  Sometimes if you see a figure in a bank account and you think I'll just take $100 out there's plenty more left however if that $100 needs to stay their for some bills when the bills are due you won't have it.

There's a lot to take in however in summary, it will look something like this:-

Monthly Pay Distribution (or weekly, fortnightly etc)  (this has the breakdown above)

Bills Spreadsheet (this has every bill or expense you can think of that you will have to pay for during the year and this is summarized by month and at the bottom you divide your total annual bills amount by the pays ie if you get paid monthly divide x 12, fortnightly x 26 and weekly x 52.  This figure is then linked to pop into the "bills section" from the Monthly Pay Distribution Spreadsheet above.

These are the two things you need to work on first...go through all of last years bills to get figures, think of anything you have coming up in 2016 gifts for weddings, do you have friends having babies and you need to buy a gift for etc. new tyres for the car etc.  All of that goes into the 2nd spreadsheet which is your "Bills".

Those two things are basically your "Master" budget for 2016.  To further keep track of the actual money in your bank account and how much you have in these "headings" (or you can call them "moneybags") you will need to create more workbooks within the same spreadsheet.  I have mine altogether with tabs at the bottom in excel.  

Monthly Pay Distribution

Bills Spreadsheet

Summary Spreadsheet (linking all the amounts from the following workbooks)

* Mortgage/Rent

* Bills

* Car Loan or Personal Loan

* Credit Card

* Food

* Petrol

* Entertainment

* Holiday

When you get paid you "distribute" the money (via typing a line in excel) to the "moneybags or the names of your accounts".  So the pay goes into the bank and you go to excel say to the "mortgage" worksheet and put the date eg 01/01/2016  January Pay $1,500 and then you have a total underneath this.

The $1,500 is linked back to the "Summary Spreadsheet" so you can see at a glance how much each item has in it (remember this is just a tracking system in a spreadsheet).  So under your mortgage/rent you will have $1,500 in there until your automatic payment comes out of your bank account (if that's the way you've set it up) and you will go to your Mortgage/rent worksheet and put the date and Pay January Mortgage/rent ($1,500) and you will then have a total of $NIL.  You can actually have all your money in one bank account if you like but I would advise having a separate one to have your bills money in or something that is not just a "savings" account.

To further ensure everything goes into the spreadsheet and doesn't get missed you can list your bank accounts by name and/or number so that if you have 4 bank accounts and the total of this money is $2,000 then the total of your other "moneybags/workbooks or headings" whatever you would like to call them should = $2,000.  If it doesn't then you have received income which has not been entered and/or you have paid for something that has not been recorded.

If all of that sounds really complicated...start off with the two spreadsheets or just use paper and write it all up you can do the same.  List your bills eg Rates x 4 = $xxx total per annum, Water x 4 = $xxx = $xxx x 4 = $xxxx.  It can just be a simple lined piece of paper if you don't know or have excel.  I used a paper book (you could use an exercise book) for many years before I transferred it to excel.

Start small and work on your two spreadsheets (Bills + the Monthly Pay Distribution).  You will feel so relieved to actually know where your money is going and in fact I have done this for a few friends and to be honest once you put all those numbers of your bills down you will be shocked how much that actually adds up to each year.

I hope this system may help you as much as it has helped me for many years.  Knowing where your money is coming and going is being in control and not wanting to actually know doesn't change the fact that you have to pay these bills....it's better off actually taking the time to find out where your money does go and working out where you need to allocate more or tighten the belt a little bit more.

Next week I'm going to be looking at ways to reduce my weekly shopping bill as this figure needs to come down and I've been reading tips and tricks and ways to do just that so stay tuned.  If you have any questions about this budget method just leave a comment and I can try and explain it further.