Tuesday, January 29, 2013

Budget Budgeting

I know, you've been dying to know how I budget. OK maybe not. My budgeting process may seem ridiculously complex to some, and ridiculously simple to others. I aim for simplicity, but it may not seem that way.


Open Source Spreadsheet and Accounting Software 
My tools consist of a spreadsheet and an accounting program. Last year, I blogged about why I ditched Windows for Linux. Consequently, I use open source software mainly because it's free. For my office suite, I use LibreOffice. For my home accounting, I use GnuCash. Both of these are available for Mac and Windows users. You can download these and other open source software from SourceForge. In some instances, the non-free versions of this software (i.e. MS Office) may be prettier, but it's not worth the price tag, IMO. It's true that I did have to relearn new software and that did take some time and patience. The open source version suits my needs and it may suit yours. Take whatever precautions you take when downloading software. Or, take these concepts and use what you've already got.


1. Create a Budget Spreadsheet: Itemize Income and Expenses
I use the open source LibreOffice Calc spreadsheet (part of the LibreOffice suite) to itemize my spending. Every year, I create a budget spreadsheet listing income and expenses for each month of the year because sometimes expenses or income change. Obviously, if you have dual incomes, you'll have to add columns for the other earner's paychecks and decide which bills you want to pay with which paycheck. This example assumes a one-income household that gets paid twice a month. Please note that the examples I give are not my family's real budget. I have decided not to put my business out there because...it's my business. But, I'm happy to share my budgeting process with you.

You must list all of your expenses including those that you pay weekly,  monthly, quarterly, or annually. For example, you may pay your mortgage monthly, but your homeowner's insurance is paid annually. Here is how I figure out how much to set aside per paycheck:

Monthly expenses
If your monthly mortgage is $1600 then divide this number by how often you get paid per month. This is what you will set aside per paycheck. This example assumes you get paid twice a month:

                                  $1600/2 = $800 per paycheck 

Annual expenses
If your annual homeowner's insurance is $670 then divide this number by 12. This is how much you must set aside each month. Now divide this number by how often you get paid per month. This is what you will set aside per paycheck. This example assumes you get paid twice a month:

                                 $670/12 = $55.83 each month
                                 $55.83/2 = $27.92 per paycheck

2. Create Accounts and Sub-Accounts in Accounting Program
I use the open source accounting program, GnuCash. In this program, I set up a basic checking account, a savings account, and our two credit card accounts. I don't track investment savings - I'm more concerned with household budgeting. (Note: The picture shows a negative balance for an Imbalance account because I have not categorized my spending for this example. I don't even do this on my version. I have a bad habit of ignoring things that I don't think pertain to me. You can ignore this.)

Under Savings Account, I have sub-accounts for each of the items in the spreadsheet. Note that all of the money is still in the parent Savings Account. These sub-accounts only exist in my accounting program, not in my actual bank account. When I log on to my bank's online banking, I see only the balances for my checking account and my savings account. I have added sub-accounts to my accounting program because they allow me to allocate money toward each individual expense.

3. Post Date Transactions that are Auto Deducted from Checking Account
The exceptions to this are those items that are automatically deducted from my checking account, such as auto insurance and life insurance. I leave that money in my checking account and post date those transactions with the date that they will be deducted. For example, my auto insurance is deducted from my checking account on the 10th of every month. Even though it's still January, I have dated this entry to be 2/10/13. This reminds me that the money is already accounted for and can't be spent. I always deal with these items first.

4. Transfer Money to Sub-Accounts
After accounting for auto-deducted transactions in my checking account, whatever money is leftover from the paycheck is transferred to my savings account. Don't forget to transfer the money from your checking account to your savings account via online banking or ATM and record this transaction in your accounting program. You may choose to keep everything in your checking account. That's fine. You can create sub-accounts under the parent Checking account. I like to have my money for bills in my Savings account because it's less likely to get spent. Looking at my spreadsheet, I begin the process of transferring money from the parent Savings Account to each of the sub-accounts. I even have sub-accounts for my credit cards: American Express and Visa. Let's say I use my American Express to buy a $10 lunch. I can move $10 from the Entertainment/Dining sub-account to the AmEx sub-account. 

5. Pay Bills
When it's time to pay bills, I move the money from the sub-account back to the Checking Account. Again, don't forget to transfer money between your accounts via online banking or ATM.

The most time-consuming portion of this whole process is the initial set-up. I hate to say it, but sometimes doing the prep work is more work than the actual work. ☺ Once this is set up, it's easy to maintain. It may sound complicated, but really, it's only a spreadsheet with your budget and an accounting program with all of your account information. You probably have these already. It's been a long time since I've used Quicken, but I think it uses Savings Goals, which is a similar concept that you can use to your advantage. The year is still new, so you have plenty of time to rework your budget. Just the sort of thing you can do on a cold, rainy weekend. Happy budgeting!


  1. Thank you for sharing the ways on how you manage your accounts. It's ideal to have your business and personal bookkeeping separately. This way, you can keep track of your financial growth in each area and easily determine if you're leaning on the right track.

    The Business Bookkeepers

  2. Thank you, Shaunna. I agree, it is important to keep business and personal bookkeeping separate. I just wanted to show how I keep a budget for household expenses.



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