Everyone has routines in their life. I thought I’d share my financial routine with everyone. I budget everything month to month, and live off last month’s income. So I get to start with a clean slate at the beginning of every month. Here’s how my typical budgeting routine goes throughout the month.
Sometime within the first few days of each month, I go through each account’s transactions online and make sure I’ve got everything recorded in YNAB. I check every transaction with each bank/credit card and make sure I’ve got everything recorded. This includes all our paychecks for the previous month, as that’s what we use to budget for the current month. That way we know exactly how much money we have to spend for the month right when it begins.
Next, I check the budget for the previous month. I try to make sure we don’t have any overages in any specific category, and I shift from excess categories to fill in the overages. I could let it bleed into next month (with YNAB’s awesome Rule 3 – Roll With the Punches), but I try to prevent that from happening as much as possible. I include a category I call Buffer that I use to spread across the overage accounts. I do this for two reasons. First, I intentionally make our tempting categories (i.e. eating out) lower than what we typically spend. It’s a psychological game. If we see a higher number in the eating out category, we’ll spend more. Second, if we do happen to go over in categories, I’ve got some extra cushion to cover it. My goal is to not spend more than what we’ve got in our buffer.
Once I adjust the previous month’s budget, I look at the new month’s budget. I like to keep a “typical” month’s budget in place for the next unused month. I stress typical, because there is no such thing as a typical month. So when I get here, I copy the current template to the next month. YNAB has this cool feature to copy the previous month’s budget to the current month’s budget, so this takes me seconds. This allows me to save for semi-annual or annual purchases (like car insurance, life insurance, etc.).
Once that’s copied over, I start making the adjustments to the current month, based on what our plans are for the upcoming month. This is the part where I bring my wife in, so we can plan the month out together. That helps promote good communication, and makes sure you are both on the same page.
So now that we’ve got a budget for the month, I go through and pay off our student loan debt. All our extra income goes to one of the student loans, so paying these off first allows us to do a “pay yourself first” type of budget. If things get tight at the end of the month, we can’t decide to just pay less toward debt, because it’s already paid. It’s just another psychological move that works for us.
Once I’m done with all that, I go to www.networthiq.com, and update our net worth. YNAB has this built in now, but I’ve been doing it longer at networthiq, and I like their graph. The goal of this exercise is to try to get our net worth to keep going up over time.
That’s my routine for the beginning of the month. During the rest of the month, I just record receipts and try to stay within our budgeted amounts. Once or twice during the month, I’ll make sure everything lines up with all of our accounts, so it takes less time at the beginning of the next month. If we go over in a category, I’ll take some out of the buffer to cover it. If we get to the point of the buffer getting low/empty, I’ll shift some allocated money from excess categories to cover the overages, and the items in those categories will just have to wait until the next month before we can purchase them.
How do you budget your money? Leave me some feedback in the comments below. Do you have something formal you do every month/paycheck, or do you just spend the money as you get it?