Part 2: Budgeting My Life

Keeping track of your money is one of the hardest things we do as adults. It can slip through our fingertips so easily, and that seems ok if you have enough of it – but it’s really not. 

Spending without intention doesn’t build wealth.  

Intention is the next step on our Money Mindset path. No one has the right to tell you how to save or how to spend – me included. But, if you want help, I can help you set some goals and see how you can achieve them. Just know this, you can’t save your way to prosperity. Prosperity takes risks and work. You decide how big you want that risk to be and how hard you want to work.

We’ll come back to that in a future lesson. Just hold on to the thought; for now, let it ruminate. For now, let’s keep track of your money.

But I don’t want to be on a Budget!

Budgeting has a negative connotation; it’s like dieting. No one wants to diet. No one wants to be on a budget. Remember, for our purposes, budget doesn’t mean restriction; it means information.

In business, the three specific information reports produced regularly are the Income Statement, Balance Sheet, and Statement of Cash Flows. For individuals, your budget is the Statement of Cash Flows. Your tax return functions as an Income Statement and your Balance Sheet is a necessary part of your toolbox – it keeps track of your assets. We’ll attack the Balance Sheet in Week 3.  

Today, we’re talking Statement of Cash Flows. It’s all about where your money goes.

There is no judgment here, just information that you can use to improve your financial life. Without establishing the baseline first, you’ll never have a chance to pay off debt, save for a down payment, or establish an investment portfolio. We need knowledge before growth.

Regardless of whether you use cash, check, Venmo, PayPal, debit or credit; if you are spending, you need to know what you are spending on. Tracking your spending for a week will give you a snapshot; to fully develop the big picture would take tracking for a month or even a year.

Exercise #1

What expenses do you have that are annual? Think about items that catch you by surprise.

Property taxes and Homeowner’s insurance (if not included in your mortgage)
Income Taxes due with your return
Car Registration, annual inspection
Other Insurances (Car, Life, Accident, Renter’s, etc.)
Dues (AAA, Costco, AARP, Good Sam, Union, etc.)
Vacation
Eyeglasses or Contact lenses
Medical co-pays
Pet licenses, vaccinations, etc.
Holiday gifts
Back-to-school spending
School pictures, yearbooks, lunches, etc.

Do you have Quarterly Expenses?

Estimated Tax Payments
Car Maintenance
Charitable contributions
Home maintenance projects
Sports dues, uniforms
Tuition

Monthly expenses are usually a little easier to remember because paying them is an ingrained habit.

Mortgage/rent
Utilities (power, water, heat, garbage, sewer)
Phone/Internet/Cellphones
Subscriptions (Netflix, Amazon, etc.)
Health insurance (health, dental, vision, etc.)
Debt servicing

Before we close this part, go back through your last few months’ bank statements and review for automatic payments for subscriptions you might not have thought of – things like software tools, entertainment, memberships, subscription boxes. Businesses want you on a recurring membership; make sure you have identified all of those. Personally, I’m sometimes surprised.

And then there are daily expenses – this is often the source of our most significant expenditures because it is rarely accounted for accurately.

Food and entertainment

Exercise #2

A simple notebook or your phone is enough to capture your expenses. I’ve prepared a worksheet for you HERE if you’d like a tool to use.

This isn’t an exercise for everyone; consider it if:

  • your money regularly runs out before your next paycheck comes in
  • you sometimes struggle to pay your monthly bills
  • a car repair is enough to knock you out of whack
  • you aren’t overspending but want a better idea of where your money goes

Take the time to identify the source of your spending. There may not be anything you can change, but you won’t know that if you don’t identify it.

For the next week, write down every time you spend money, even if it’s a small amount. 

  • Stop at the coffee shop, write it down. 
  • Grab a drink at the convenience store, write it down.
  • Pick up dry-cleaning, write it down. 

Don’t worry about getting it into a spreadsheet at home; just get it written down in broad categories. Before you begin, estimate what you think goes into each category.

Food/Drink
Entertainment
Groceries
Personal (think hair, nails, etc.)
Transportation
House
Kids/Pets
Other

At the end of the week, total your categories. If any of those numbers seem bigger than you expected or are over your estimate. Do it again in the next week. Remember, it doesn’t matter what tool you use to spend; if you are buying, include it.

Now that all of your expenses have been established, it’s time to develop your Statement of Cash Flows. Not everyone is a spreadsheet guru, and spreadsheets aren’t the only tool in your arsenal. If the thought of using Excel or Google Sheets gives you hives, let’s talk paper first.

I’ve prepared a simple monthly budgeting worksheet. With that and a calculator, you can get started.

The expense side is where we’ve been concentrating, write it all in. If you have something I haven’t mentioned yet, be sure you get it on the form – we’re all different. We are working on household budgets here, while the same exercise might be useful in your business, don’t include your business expenses here – even if it’s from a side hustle, we’ll address those later. However, if you find yourself spending for your side hustle, go ahead and carry two sheets with you and put those expenses on a second page.

Our Statement of Cash Flows is shaping up. There’s more work to be done here; we’ll have a second workshop this week covering different kinds of budget tools and recommendations. We’ll be adding a GoogleSheets file to capture all those miscellaneous expenses then.

Tools Used:  Daily Spending Worksheet   Statement of Cash Flows