How (and Why) to use our Monthly Budget Planner
Before we get into “How”, let’s talk about “Why” for a moment. What makes the torquois budgeting tools different than all of those tools that automatically categorize and sort all of your expenses? It’s simple - sometimes manual is better. When an automated tool does all of your thinking for you, then you shouldn’t be surprised that you don’t understand everything! There’s a German phrase that really resonates with me: “Denken mit der Hand”. This means “Thinking by Hand” in English. The core of the principle is that when you take the time to solve a problem by hand, then you’ll also be taking the time to really engage with the topic more than you will if you just allow a machine to do the thinking for you. Because you’ve taken the time to engage with your financial situation, you’ll remember the details more clearly. You’ll be able to set up goals that make sense.
Now for the “How”. This is intentionally a little time consuming. It needs to be. You need to take the time to go through each one of your bank or credit card statements and understand how your budget works and where your money goes. That’s the only way to figure out what you need to do. I’ll be honest - I don’t do this entire process every month. After 2 or 3 months, I don’t find it super useful to keep doing it since I already know all of my details and I have my action plans at that point. I may take 6 or so months off before another planning cycle to refresh my understanding and come up with my new plans.
First things first, we need to set the budget before we can track how we are doing against it.
On day 1, you’ll fill out the budget part of the “Set Your Plan” tab in the worksheet.
You’ll predict when your paychecks will come in, and how much they’ll be. Think about what you might be able to do to increase your income. Is it time for a yard sale? Maybe you haven’t used that Peloton for 6 months?
You’ll note down all of your fixed expenses. When is your rent/mortgage due? How about your phone/internet/power/lawn bill?
Do you have student loans or credit cards or car payments? Note them in the Debt Plan section. Think about which debts you want to pay down first. Do you want to follow the snowball method or the avalanche method to tackle this debt? Is there anything else you could do here? Perhaps take a low interest HELOC loan to pay off high interest credit cards? Or maybe if you have a credit card charging 29%, you could get a balance transfer deal that will charge you 0% for the next 18 months?
Do you have savings goals? My family goes to Indonesia for 3-4 weeks a year to visit family there. It’s a major expense, so I ensure I save for it every paycheck rather than just paying for it with a credit card.
Finally, you’ll set your Variable Spending plan. This is for expenses like entertainment or dining out. Do you need to buy winter clothes this month? Perhaps it might be wise to spend a little more money on groceries this month and pack a lunch instead of eating out at work.
Do this process with your partner. Think together about your priorities and how you want to achieve your goals. Are you going to focus on bring in more income? Are you going to shop around for a cheaper phone carrier? Make these decisions together and note them in the “Money Goals” section.
Take a look at the chart predicting your cash position for the month. Do you have the cash on hand you need to get through the month? Are you going to drop below zero dollars at any point? If so, what can you do? Perhaps you might need to call someone and let them know that they’ll get paid a few days late and ask them to change the due date to avoid fees. Creditors always appreciate knowing ahead of time that your payment is going to be late and are generally happy to waive those killer late fees as long as its done in advance.
Now that you have your budget set, it’s time to track your spending. Whenever you actually pay one of the items in your budget you’ll track that in the spreadsheet. I typically do this about twice a week. First, you simply update the date at the top of the spreadsheet. Then, I’ll literally go through each of my statements and look for any transactions from the last few days and then mark those in the spreadsheets. Did I expect my phone bill to be $185 for the family and due on the 8th, but it was actually $235 and I paid it a few days early? Mark that in the actuals portion of the Bills / Fixed Expenses section of the worksheet.
Variable Expenses has their own tab in the worksheet. Each time you buy groceries or eat out for example, you can mark the exact amount you spent in the appropriate day. The sheet tallies up your actual expenses automatically and shows you where you’re tracking against the budget you set for each category. Say that you budgeted $800 for groceries for the month, and you’re half way through the month, but you’ve spent $600. You can see at a glance that you’re already tracking $200 more than expected.
Let’s talk about unexpected expenses. Last month, we had a car accident (my wife was not hurt, thankfully!), and had to pay for a rental car for 2 weeks. We did not expect that $700 expense and could not have planned for it. Obviously - who plans to have a car accident? However, we know we always have something unexpected happen. Through tracking these expenses, I know that I need to leave at least $500 or so in my budget for unexpected financial setbacks. How much do you need? I know one way to figure that out!
At the end of the month, you’ll have all your actual income and expenses entered and it’s time to look back at how things actually went. It can be surprising how close or how far off your budget was. Next time you’ll know that your grocery budget was unrealistic or that you actually typically need to fill up your gas tank 4 times a month instead of 2. This review helps you course correct and really understand your financial situation at an even deeper level.
Think about what was expected and what was unexpected. What can you take action on? Look at those fixed expenses carefully… Can you change your phone plan? Maybe bundle insurances? Take a look at your debt payments. Maybe it makes sense to give your credit card company a call and see if they can lower your interest rates. If not, then maybe it’s time to apply for a new card offering a zero percent balance transfer offer.
Like anything else, you’ll get out what you put in. So don’t simply automate your budgeting!