Financial Geekdom

From poking around, I'd venture to guess that the average feedback rate for non-profit blogs is less than 1 comment per 500 visitors. And so with the typical blog reader having a serious aversion for leaving comments, it's usually difficult to assess who is reading your posts, which entries people find interesting, etc. Granted, there is plenty of software available to track the number of visits to a given website, and even how long they stay on the website. But besides direct feedback, we'd never know the difference between those who haphazardly peruse our website and those who actually take an interest.

With that said, I have to admit that I was quite surprised to find out how many people actually took an interest in the Stanley Johnshon series in December. Since then it has been kind of cool to go different places and have people just randomly start telling me about their financial plans, strategies, blunders, etc. Long story short, for those who fall into that category, I am glad that you found the series provocative and I'm certainly happy to contribute even a little food for thought as you contemplate your personal financial goals and strategies.

In the past week or so, I have had a number of people ask me about creating a budget in MS EXCEL. And being the nerd that I am, I thought it might be worthwhile to share my latest rendition of our family budget with those who are looking to start one of their own. So with that, you can click here to download a template of what I've come up with as we try to sort out the financial scrum that we call a bank account. However, I must warn you: I'm still working through this new format myself, so it is a work-in-progress and may still be running rampant with errors. If you find some, let me know! As I make changes I will try to keep this online version updated.

Enjoy.

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Details...

Advanced vs. Basic
There are two worksheets in the linked file (see the tabs at the bottom of the worksheet). The first is the Basic Budget. This is an easy way to keep track of your finances on a monthly basis. The Basic worksheet is not very sophisticated, but is all most people will need to get started. The second worksheet (Advanced Budget) is financial planning on steroids. It is based on an annual planning horizon, rather than a monthly one and involves a lot more formulas and data collection than most people are willing to put up with. So unless you are an EXCEL / Math geek like me who revels in the details of number crunching and gets excited over the inclusion of "if/then statements" in a spreadsheet, I suggest that you delete the advanced sheet and pretend it never happened.

Overall Format
Our format lines up with what Dave Ramsey calls a "zero budget". To account for every dollar of your typical monthly income we have 2 major sections: INCOME and EXPENSES. The total of each section is given in the yellow boxes. So when you're balancing your monthly budget, the goal of this "game" is to make sure that INCOME - EXPENSES = ZERO. The cell called "Budgeted In - Out" checks this for you automatically. If this is not zero, then either you don't know where your money is going (you'll get a positive value for the amount left over) or you've spent more than you have (you get a negative value and beat with a shoe). In the end, the two yellow boxes should be identical for every month.

Also... Things happen. So plan on them. The "buffer" box is simply our "catch all" category which accounts for everything else that we forgot to include (medical co-pays, postage, gifts, etc.). I think the biggest downfall of most financial plans is that they don't incorporate room for those invitable and forgotten items. There's just no way to think of everything ahead of time, and that is where the buffer category comes into play.

Blue Boxes
The boxes shaded in blue are the categories for which we use the envelope system. Our "dining out" envelope for example, has about $200 in it every month. That includes everything from Carrabbas to vending machines. If we spend that entire amount by the 12th day of the month, then oh well; we better have a nice set of tupperware for those brownbagged lunches. But seriously, the envelope system in my opinion is the main staple of our financial strategy. This is the first month that we have implemented it, and I can already see how it has changed our entire spending philosophy. I feel about a ten times more likely to pass on a given purchase knowing that I will only have $72.84 left in that category until the 1st of the month rolls around again. It is forcing us to consider and prioritize EVERY purchase more carefully, and to operate with a totally different (more wholistic) perspective. It's a constant reminder that our spending in every category has predetermined hard limits that cannot be compromised from month to month. Otherwise, those nonchalant ATM withdrawals and credit card swipes will nickel and dime us into poverty everytime, leaving us on the last day of the month wondering, "Where did it all go?"

Some people literally put cash in envelopes and use it as they go through the month, so when it's gone so is your spending ability. Meanwhile, others (such as us) just keep track daily via receipts. The latter is much more convenient, but takes more discipline. Either way, you have to be committed to staying within the contraints of the envelope limits. Otherwise, it simply will not work. It will probably take a few months of trial and error before we get all of our envelope limits right (eventually they should all be fixed amounts). But even after a couple of weeks we are already getting an idea of how we may need to tweak the numbers for next month. Click here for more info on the envelope system and how it works.

By the way, at the end of the month, once you input the actual amounts spent in every envelope category on the worksheet, the formulas will automatically carry over the surplus amount to the next month's income category.

Advanced Budgeting
The Advanced Budget includes a summary section and also accounts for extra income and unusual expenses (i.e., unexpected and/or non-monthly items). It also includes our annual envelopes, which are for items that we keep track of on an annual basis rather than a monthly basis; such as travel and home improvements. Since I think most people will start with the basic budget, I'll spare you the details of the advanced budget. If nothing else, you can browse the second worksheet on your own to see if it provides you with any additional mental fodder as you tweak and perfect your own financial plan.

Last words...
If nothing else, whether on the computer or with pen and paper, I challenge you to come up with a budget of your own. I've sat down and done this with a number of people over the years, and without fail they have been surprised to see either how much of their money is not accounted for, or how much more they spend than they actually have and why. And I will warn you in advance... having a zero-based budget will force you to look at your money situation literally EVERY DAY of the year. If that seems like too much to you, then just think of the countless other things you will spend time on today that will ultimately reap zero benefits in your life. I'm just asking you to replace one of them with something that will matter in the long run.

Any Questions?