Alright so it’s not really up there with one of Lord Blackadder’s dastardly schemes. But my plan is to renumber my future budgets so that I can easily tell which year each one is for. For 2017 I’m going to call it version 17.0 which shares the same number as the year. Cunning or what? I may need to modify it in six months, in which case it’ll be revised to 17.5.
Last year’s Budget 4.5 was for $3,900 a month. I’m starting 2017 with the projected amount from my Goals for Financial Independence. That means Budget 17.0 will be $3,970 a month, or a 1.79% increase.
$3,970 a month works out to be $47,640 a year which covers most expenses (needs + wants) for Ms. DL and me. The only major expense not covered here is my monthly car lease payment which is paid out of Savings. I don’t mind taking out debt to improve cash-flow but I like to have the money in my Savings to back up the debt. So instead of paying the lease upfront at once, I’m stretching it out with a monthly transfer from my Savings account.
Not your standard budget
I call it a budget, but it’s not a strict implementation. The World Will Not End if I over-spend in a month. That’s because the monthly amount is designed with the expected yearly amount in mind. Let’s take the electricity bill as an example.
I estimate that I’ll pay a total of $1,466 in Electricity bills in 2017, which is $124 a month. Therefore $124 is added to the Electricity category each month.
Now our electricity bill tends to be lower in the summer, than in the winter. In fact, for January next month the bill is $102.90 and for February 2017 it’ll be $122.96.
No, I’ve not invented Time Travel – actual payment of the bills from my bank account is delayed since they’re paid through my credit card.
Anyway, I digress. Lower payments for some of the year build up a credit which is offset by higher payments in the rest of the year. Since I keep several months of living expenses in my bank account, it’s okay for the category to go negative for a while, as it’ll eventually be paid back up, and vice-versa.
I can also shuffle money between categories if I need to. This is a last resort option if I really screwed up the estimate. I prefer to revise the figures in a mid-year Budget revision (due to new property taxes, new insurance premiums etc.).
The amounts in each category are tracked in that great Personal Finance software called Microsoft Excel. I don’t use Quicken for this as I prefer the flexibility Excel provides. Quicken helps me reconcile the numbers in my Excel sheet however.
Covering Additional Expenses
Now come closer and I’ll let you in on a secret…
In any given year, I’ll almost always exceed my budget.
Oh, the Horror! But it happens. For example, this year I’ve had a lot of medical expenses. We repaired our deck. And paid for a tree to be removed in our yard.
Note to Self: No more raking leaves = best return on investment ever!
But any additional expenses come out of my Savings. And each month I Save a total of $1,300 from my pay check ($900 in cash and $400 in VWELX for paying off the mortgage in the future).
Where possible I try to save for large expected expenses. But I have some savings put aside for frivolous things too e.g. a new computer or phone. I can always repurpose that money if something more important comes up. My Savings acts as a kind of Planned Emergency Fund in some respects. It’s one of the reasons that I repurposed my designated Emergency Fund and put it to work in my Income Fund.
But isn’t this all smoke and mirrors … aren’t your real living expenses equal to your monthly budget plus savings?
I get this question all the time! Just kidding, it’s never come up before. I rationalize it the following way.
We currently have a mortgage payment. Eventually we won’t have one. When it’s paid off I’ll keep my Living Expenses the same as before. The $1,200 principal payment then becomes the spare money for rainy-day expenses. Likewise, we won’t always need two cars, so there will be extra savings there.
So, I figure that it’s best to keep track of expenses and allow small cost of living increases based on my personal rate of inflation. It allows me to do all future planning based on a known amount, knowing that some additional money will be freed up in the future.
Whew! That was a lot of typing. Time for some tables!
|Utilities: Electricity||110||124 (+)|
|Utilities: Water||42||40 (-)|
|Utilities: Phone||118||105 (-)|
|House: Property Tax||450||454 (+)|
|House: Insurance||130||132 (+)|
|House: Security||46||42 (-)|
|Auto: Insurance||287||305 (+)|
|Auto: License||15||19 (+)|
|Subscription: Credit Cards||46||50 (+)|
Hopefully the categories are all self-explanatory. They’ve not changed from Budget 4.5 where I described them in more detail.
I broadly categorize everything in one of two groups – Mandatory (aka Needs) and Discretionary (Wants).
Let’s go with the good news first!
This year I expect an overall lower Water Bill as my estimate last year was on the high side. I changed our phone plan to save a bit of money, and replaced ADT’s security service with Digital Life from AT&T.
The internet subscription includes Cable TV and is unchanged. As soon as AT&T’s Direct Now has a DVR function I’ll be cutting the cord. Hopefully they’ll have fixed the issues they’ve been having by then too.
But I’ve increased some categories too.
Our electricity bill looks like it’ll be higher next year judging from this year’s bills.
I’m putting a little more aside for Medical, Property Taxes and Insurance. I won’t know the final amounts until later next year so we’ll have to wait and see for those. We increased our Grocery allowance which includes other house incidentals. Auto Insurance and License increased as well.
I didn’t make too many increases on the discretionary categories. Music went up a bit as we splurged on concerts last year. I switched back to a more expensive credit card this year so the subscription category increased. Finally dining went up a bit so we can have an extra meal or two a year.
And that’s about it. I’ll start out 2017 with these amounts and adjust it if necessary in June for the remainder of the year. I’m very reluctant to change the total amount of $3,970 however since it pushes Financial Independence further away.
Quote of the day
Everyone wants to be thin, but nobody wants to diet. Everyone wants to live long, but few will exercise. Everybody wants money, yet seldom will anyone budget or control their spending.