The whole idea of living simply is buzzing around lately. I'm sure we are definitely not on that bandwagon. We buy things we want, when we want them, and don't feel guilty about it (for the most part). But, of course, that is a decision we've made, for good or for bad. The trouble most people get into when they have this attitude is that they don't actually have a budget to work within. Both Arthur and I are serious budgeters. We have been since we got married. We've done it a few different ways but always come back to the Quicken method where we put every penny that we spend into the computer so we know exactly where our money is going and if we are staying within our set budget. The other method that has worked for us is the cash only method where we get out cash for the week and set a certain amount aside for each category and when the money is gone you don't buy anything else.
So, what happens if you want to live simply, or even live within your means, but you don't know what exactly that means because you don't track your spending? It means that if you are indulgent, as we are, you probably over spend. The most important thing is to be on the same page as your spouse. Sit down and do this together. The first thing you need to do to is to find out how much money you bring into the house each month, after taxes and benefits are taken out. Then you need to write down all your fixed expenses like your rent, mortgage, loan payments, insurance, non-negotiable utilities like electricity and sewer. Don't forget things that you pay for every 6 months or every year, like insurance or maybe taxes. This amount is something you can't really budge so subtract that from your monthly take home income.
Still with me? The next important thing (and some would argue this is the first step though it doesn't really matter where you do this as long as it is before the discretionary spending portion) is to figure out how much you want to give away to church or other non-profit organizations and how much you want to save for yourself and kids for a later use.
Next, figure out how much credit card debt you have. If you carry a balance you NEED to pay this off as soon as possible. Paying this off should come before any discretionary spending you have. It is totally great to use credit cards, but if you have a problem over spending it is time to give them a rest. If you are using a credit card you should be able to pay it off EVERY month.
Now figure out how much you spend on all of your "discretionary" expenses. This is the tricky part. Chances are, if you haven't been keeping track of your spending, you don't actually have a good idea how much you spend in each category. I would guess that most people will underestimate how much they spend on food, phones, dining out, entertainment, etc. Little things add up! It doesn't matter if you don't know how much you spend now because there is a really easy way to figure this out- write down what you spend! Use a a notebook or Quicken or whatever works for you. If you don't know what you spend, keep track of what you spend for a month and look at your old bills to see what you spend monthly on your cable, internet, phone, garbage (yes, garbage!) etc.
Once you have an idea about how much you spend in each category, decide how much you want to spend. See the difference? If you have $1000 to work with you might want to cut your phone bill somehow or cancel your cable and get a smaller garbage can, among other things. Make a list of all the spending categories you can think of. Some examples are groceries, gas, auto expenses, household miscellaneous, etc. Some people find it really helpful to have a set amount each person can spend each month on whatever random things they want like clothing, books, games, etc. If you don't want to spend it you can save up for bigger things. This worked well for us for a while that way nobody gets upset when the other persons splurges on things because it is coming out of their portion of the budget. Make sense? This is especially helpful if one of the two of you is really into video games or designer jeans and the other person sees it as a waste of money.
Another helpful "tool" we've implemented is an account for "special expenses" like furniture or vacations or iphones or whatever you think to be special, out of the ordinary expenses. You can save a little money in this category every month to save up for big purchases.
There are entire sections of book stores written explaining budgeting but this is just my two cents. What works for you? What hasn't worked for you? If you are just starting this process let us know how it goes.
