The Science of Budgeting

I've finally gotten our family's budgeting system down to a science. I've used a zero-balanced budget since graduate school and have tried multiple different ways of working it. The biggest roadblock I found was expenses that were not regular- that came up twice a year, or every three months, or here and there. Things you knew you needed money for but didn't know exactly when or how much. It was stressful to have an expense come up that you suddenly had to scramble and find money for. I used to try to save money for different varying expenses but it was always hard to keep track of how much I saved and for what without my eyes crossing.


I didn't want to do a new, or updated, budget every month. I wanted one budget that we could use all the time, and only needed to update if something major changed. The question was how to make a catch-all monthly budget with expenses that weren't monthly expenses (say, a quarterly utility bill, or Christmas).


About 6 years ago, we took out 8 separate savings account- our 'sinking funds', from a primarily online, high interest-earning (for a savings account, that is) bank. Back then it was called ING Direct; since then it was bought out and renamed to Capital One Direct. Anyway, these were no-hassle savings account that you can transfer money to and from your regular checking account online (ours is Bank of America), there aren't monthly fees or rules, and you can set up automatic transfers. We designated each savings account and named it for a different purpose (e.g., travel, gifts, insurance).  I estimate how much we spend on each category per year, and divide it by 12. Each month, that amount is transferred to its savings account. Whenever the expense comes up (say, a car tag fee), then I transfer the money from its saving account to my checking account. It is a great way to keep track of how much money you have for what areas, to save up for something down the road, and to keep your budget from running you over.


For things like travel, car maintenance, gifts, etc. we have to guess how much we think we will need each year. Just because we have a fund for it doesn't mean we always have what we do need. For example, our medical fund never has what it needs because it's always being depleted. And Ben still drives his 96 Oldsmobile because we can't replace it (and he likes having a ghetto-rigged bumper, let's be honest), BUT it helps us keep things sorted out and gives us goals. So, for example, we try to spend no more than $300 at Christmas. That includes family, friends, kids, gift exchanges, teachers' gifts, etc. So divided by 12, that's $25 a month. Then I figure we have approximately two baby showers/birthday parties/weddings each month (lots of baby showers among our group), so that would be another $40-50 or so. Soooooo each month we transfer $75 into our 'gift' fund. Does it mean we always have money for what we want? No. But it does help us balance things out a little bit better, particularly around the holidays.


These are our sinking funds. Remember, regular monthly expenses can be figured into your monthly budget without these. Our regular monthly expenses include our mortgage, gas, groceries, personal items, children (diapers, clothes, etc.), power/internet/gas bills, life insurance, and money that we gift to missionaries/ministries/churches. The sinking funds are specifically for expenses that vary or that we don't use each month:




1. Travel (family visits, vacations, etc.)
2. Car (oil changes, repairs, replacement, etc.)
3. Insurance (car insurance, property insurance, tag and registration fees)
4. Gifts (weddings, showers, birthdays, Christmas)
5. Home Maintenance (calling the plumber, furniture, etc.)
6. Emergency Fund- Dave Ramsey-style.
7. Medical Expenses- medication, doctors' visits, ridiculously high family deductibles that you have to meet every year (*cough).
8. Miscellaneous expenses: this includes as many extra expenses that we anticipate will come up each year- things like school supplies, our quarterly garbage bill, Homeowners Association dues, our computer backup program, haircuts, school registration fees, Continuing Education for my license, etc. Everything I can think of- even if they are not big expenses. Anything that might stretch the budget a little bit. We add up the total predicted cost for the year (for all expenses) and divide by 12. Then each month that amount is transferred into the "Miscellaneous" account. So when I need a haircut, I already have that amount set aside and I don't have to figure out where to take that money from. I have labeled on my spreadsheet what 'Miscellaneous' includes, so I don't forget what we actually budgeted for and what we didn't. We have something like 10 different miscellaneous expenses included, and it's easy to forget how much you saved and for what.


Like I said before, our budget is monthly. In graduate school I used to get paid monthly, so it worked out perfectly. But most people get paid bi-weekly, and at first that REALLY messed me up. So I found a system where each month's paychecks are deposited into our savings account, and then at the end of the month, that total amount is transferred to our checking account to be used for the next month's expenses. So on February 1st, I transfer all of our paychecks from January to our checking account, and we use this money for the month of February. This has been the most effective budgeting method for us. Mentally, I feel more comfortable using last month's paychecks for this month's expenses.