Second Budget

Well, hopefully you made it through setting up your real budget just fine and were able to get all your transactions entered for the first half of the month. It’s now time to examine how your second budget might look. Remember that the Savings column can look either better or worse than it really is after the first budget. It depends on when your paychecks come in. If all paychecks are received twice a month or perhaps every two weeks, then the Savings numbers should reflect reality. However, if one or more paychecks are received only once a month, then the numbers can look good or bad depending on what time of the month they are received. In the case of our sample budget for Jack and Jill, Jill receives two paychecks per month while Jack gets one during the first two weeks of each month. This made their Savings category look really flush with money on the first budget. But as you can see below, the second budget brings the Savings back in line (with a balance of over $300) because Jack has no paycheck being deposited during this budget cycle.

                                Click image for an enlarged view

Download OpenOffice Calc version of this spreadsheet
Download Microsoft Excel version of this spreadsheet

As you can also see, some other regular bills were paid during this half-month cycle. Fortunately, most budget categories held their own. However, it appears that an unexpected plumbing problem cost Jack and Jill $85 and thus put their House Upkeep category in the red. This is okay as long as no other unexpected repairs are needed in the near future. If the overall balance in their checking account remains above zero, then there is no need to panic. Hopefully, the deficit in any given categories can be made up over the next few budget cycles.

The only other possible problem seems to be in Jack’s personal money column. He’s in the red by almost $16. If Jack has at least $16 in his wallet, he is okay; but if not, he needs to watch what he spends over the next budget cycle to make up the deficit.



Notice that Jack and Jill did real well with their Food budget. They ended the month with a surplus of $34. As long as they can maintain this level of spending, all will be well. However, if they begin to loosen up too much and start eating out more, they could find themselves in trouble.

If you found yourselves, in your real budgets, overspending left and right, then all we say is that you must begin changing your mindset right now! We know it can be difficult going from freely spending money to spending a controlled amount. You must begin settling for less. It can be done. Many other people have done it. As you work towards your goal of reducing spending, one thing to keep in mind is that most of what we buy are things we want rather than things we need. If you were to cut your spending to just your needs, you would most likely find yourself spending much less than you are taking in. So, whenever you find yourself wanting to make a purchase, evaluate the necessity of the item and how the purchase will affect your budget’s bottom line. If it’s not really needed and your budget can’t handle it, don’t buy. Keep working at this until the lower spending amounts just come natural to you.

In the next post, we’ll give you a few tips about controlling spending in case you continue to have problems.

Initializing the Spreadsheet

Now that we’ve got a budget spreadsheet built, it’s time to fill in some of the initial numbers. There are two sets of values that are needed: the Starting Balances and the Semimonthly Allowances. Let’s start with the latter since we determined these numbers in a previous post when we adjusted the category expenditures. At that time we settled on the monthly amounts for each category, whereas for the budget spreadsheet we need the semimonthly amounts. These values are simply half of the monthly amounts as can be seen in this table:

So, all that needs to be done is to enter the Modified Semimonthly numbers above into the spreadsheet on row 79 for the Semimonthly Allowances. We personally like to use even dollar amounts for our allowances, so we would round up the House Upkeep allowance to $38.

Next, we need to determine how much money to allot to each category as a Starting Balance on row 3. Actually, since you are adding money to each category twice a month, the only reason for putting any seed money into a category is that you have a regular payment due during this first budget period. Because you are just starting, you do not have any money from a previous budget in any category. So, if a monthly payment is due during this first budget period, you need seed money in order to have enough money to make the payment. For instance, suppose your $500 monthly mortgage payment is due 10 days into this first budget cycle. If you don’t put seed money into the Mortgage category, then you will only have $250 for making the payment. Thus, you need to set a Starting Balance for the Mortgage category of $250. You need to do something similar for any other budget categories where a payment is coming due soon. For the purpose of this exercise, let’s suppose you also have a utility bill, a TV cable bill, and some car insurance coming due. Also, let’s assume that you currently have $500 in your checking account. Then the Starting Balance allocations may look like this:

There seems to be a problem. You don’t have enough money in your checking account to cover the seed money needed. This means you are starting with a negative amount in the Savings category. That’s okay as long as the overall balance in your checking account stays above $0. If, however, you have too many payments coming due before you have a paycheck coming in, you might need to transfer some money from a another account to prevent an overdraft on your checking account. For our purposes here, let’s suppose your next paycheck will be deposited before any large bills are due so that no additional money is needed in your checking account. Remember too that you will be adding about $140 to the Savings category twice a month, so the $100 initial Savings deficit will go away on the first budget cycle.

Now, all that remains to be done is to enter the numbers from the above table to the Starting Balance row on the spreadsheet and resave it. It will look something like the partial view below:

Click here for image of full spreadsheet.

Now you are ready to complete your first budget spreadsheet. You can download readymade copies of the initialized spreadsheet using the following links:

OpenOffice.org format (.ods):
http://www.rkaproductions.com/files/Budget Spreadsheet Initialized.ods

Excel format (.xls):
http://www.rkaproductions.com/files/Budget Spreadsheet Initialized.xls

Creating a Spreadsheet

Now that we’ve got a budget planned out, it’s time to create a spreadsheet to make it easy to maintain on a regular basis. The new year is a perfect time to begin a budget. We hope to have you in a position to start your budget by January 15, the time that the first transactions for the year need to entered into a spreadsheet.

The first decision to make is what spreadsheet software to use. There are many different programs varying widely in price that will work just fine. If you already own a copy of Microsoft Excel, we recommend that you use it. We currently use Excel 2007. However, essentially any version will do. If you already own another spreadsheet software package, it will most likely be acceptable since a budget spreadsheet does not require any fancy or complex processing. If you don’t already have spreadsheet software, we recommend you download the free open source OpenOffice.org (OOo) suite of productivity software (http://www.openoffice.org). One of the products in this suite is Calc, a spreadsheet program. It supports many of the same features included in Microsoft Excel and should work fine for budgeting. For our current purposes, we will be using OOo Calc just to show how a free product is more than capable of handling our budgetary needs. We are using OOo version 3.3.0. Its native file format's extension is “ods”; however, files can also be saved in Excel format (“xls”) should you ever decide to switch to Microsoft’s product.

There are a number of different ways a budget spreadsheet could be laid out, but we like the layout shown below.

It is not our mission to give instructions on how to use spreadsheet software. There are many existing books and Web sites that do a great job of that. Our mission is to show you how to set up an efficient budget spreadsheet. With that in mind, please note some of the features of the sheet above. Cell A1 shows the current year and the budget number for that year. If you follow our recommendation and update your budget twice a month, then you will be generating 24 sheets over the course of a year. The first budget sheet for a new year will be generated mid-January. The second one will be generated at the end of January, and the final one for the year at the end of December. Cell A1 should read 2012-02 for the second budget of the year. When the final budget sheet for the year is generated, cell A1 should read 2012-24.

Cells A2 through C3 show header information. Column A is formatted as Text and will be used to enter Transaction Numbers, thus its heading. A transaction number can be a check number, an online bill pay sequence number, or text like Deposit, Transfer, Debit, etc. Column B is formatted as Date (MMM DD) and will be used to enter the transaction date. The M-D-12 indicates that all the dates are months and days in the year 2012. Column C is formatted as Text and will be used for entering where the transactions took place, such as Best Buy, JCPenney, or Amazon.com.

Note that the date for the Starting Balance is Jan 01. At the bottom of the sheet in row 80 you see that the Ending Balance is for Jan 15. Once this budget sheet is complete and preparation is being made for the next semimonthly budget sheet, the Starting Balance date will be changed to Jan 15 and the Ending Balance date will be changed to Jan 31. We will discuss how to determine your Starting Balance for each budget category in the next post, as well as how to fill in the Semimonthly Allowance values in row 79.

Columns D through U contain the headers for the budget categories determined in previous posts. Below the appropriate headers will go the monetary amounts of each transaction. Therefore, rows 3 through 80 for columns D through U are formatted as Currency. Row 80 for each of these columns sum up all the amounts in rows 3 through 79. Thus this sum, for each column, represents the Starting Balance minus all the transaction amounts plus the Semimonthly Allowance for that column, resulting in an Ending Balance for the budget period.

Row 82 shows the overall balance for your checking account in column U (not shown in figure). This is simply a sum of all the Ending Balances from columns D through U. There is nothing magical about the number of rows that are allotted for transactions. We use a budget sheet with a total of 82 rows (includes the Total row). Over time we determined that it was rare for us to have so many transactions during a budget period as to exceed this number of rows. Also, it was about the maximum number of rows that would fit on a single landscape 8.5”x11” sheet of paper and still have text large enough to read. If you find that you need larger text, you can either use fewer rows or plan on printing the spreadsheet across two sheets of paper.

Notice that the headers are various colors to separate them. This is nice if you are using a color printer to create hardcopies of the budget sheets. If you use a black and white printer, then this is unnecessary.

Please download the blank budget spreadsheet using the links below so you can see the entire sheet on your computer:

OpenOffice.org format (.ods):
http://www.rkaproductions.com/files/Budget Spreadsheet Blank.ods

Excel format (.xls):
http://www.rkaproductions.com/files/Budget Spreadsheet Blank.xls

In the next post we’ll discuss how to initialize the blank sheet with Starting Balances and Semimonthly Allowances.

Introduction

Hello everybody and welcome to our new blog. Our names are Randy and Kathy Finch. Back when we got married over 29 years ago, Kathy said she wanted us to start a household budget. Randy was a bit skeptical at first since he had been managing his money as a single guy fairly well without a budget. Fortunately, she was insistent because she had heard that many of the marital problems couples faced were money related. She did not want us to ever have a conflict over money. She wanted us to create a budget and only make changes that we both agreed to. So, Randy finally gave his consent. In the early 1980’s computers were just beginning to make their way into people’s homes. They had very, very little power compared to today’s multi-gigahertz multi-core processors and were quite expensive. So, our initial attempt at a budget consisted of a ledger book, a calculator, and a pencil. It turned out that our concept of how to do a budget was very good, but the pencil and paper implementation was a chore. We can’t tell you how many times our numbers just didn’t match our bank statement. Finding errors in entries or mistaken calculations were a real pain. However, when we eventually did get to switch our budget to a computer, things really got better.

Over the coming weeks we are going to be passing on to you the knowledge and skills that we have garnered over the past 29 years of budgeting. We will also talk about how to set up an easy-to-use spreadsheet to maintain your budget. Even though we now use Microsoft Excel for budgeting, any spreadsheet software will do, even some of the popular free ones. Our first electronic budget was accomplished using Microsoft Multiplan on a Commodore 64 computer. Later we bought a Commodore Amiga computer and switched to a program named Analyze. Then when we bought a PC, we began using Quattro Pro. We finally settled on Excel since it ultimately ended up being the standard spreadsheet software used at our places of work. So, as you can see, home budgeting can be done with limited computer and software power.

We will try to update this blog at least once per week. We will start with the basics of budgeting and build up to using software to accomplish this task. We will also eventually share with you the spreadsheet that we currently use for our personal home budgeting. We think you will find it very easy to use.

Randy & Kathy

P.S. Check out Randy's new novel, "Passion is a Harsh Taskmaster." It's currently available as an eBook at Amazon, Barnes & Noble, Apple iBooks (via iBooks app), and Smashwords.