“Where Does the Money Go?” Ensign, June 1985, 51
Like dieting, budgeting sounds hard. Who wants all that agonizing self-restraint? It sounds about as fun as washing dishes. But the payoffs are high, and a budget doesn’t always have to mean scrimping and no dessert. I have personally found budgeting to be a rewarding and enjoyable source of stability in our home.
Although budgeting may seem complicated, basically it just means planning ways to live on less than you earn. It means writing down what you think you’ll spend and what you actually do spend, keeping a record of money flow in order to control where it goes.
When you know where you’re spending, you can set wise priorities for the limited funds at your disposal. You don’t have to live as one of those who “earneth wages to put it into a bag with holes.” (Hag. 1:6.)
Buying on impulse may sound like freedom, but the resulting debt is not. As President N. Eldon Tanner points out: “Many people think a budget robs them of their freedom. On the contrary, successful people have learned that a budget makes real economic freedom possible.” (Ensign, Nov. 1979, p. 82.) Paradoxically, budgeting can allow you to splurge sometimes without feeling guilty—simply because you know you really can afford it. Controlling money earns the freedom to use it wisely.
I didn’t worry about a budget until I felt I had to, when my husband, Rich, and I were married. Suddenly I wanted to know exactly where our money went. With some suggestions from our bishop on how to get started, we outlined a budget that has worked for us. You can get a good start on budgeting by following some of the same steps we did.
First, you have to know how much you will earn during the year. That amount should be divided by either the number of weeks or the number of months in the year to give you the maximum amount per week or month you can budget. This was simple for us. Rich was a graduate student, while I worked in a local law firm and received a regular semimonthly paycheck. Other than gifts, interest, and Rich’s stipend, which we put into savings, this was our major source of income.
Next, estimate the amount of money you need. Here is a list of categories you may need to consider when estimating your expenses. Rich and I found we had to budget money for all of them: Church donations, rent, insurance, medical expenses, car maintenance, gas, personal allowances (which gave each of us our own spending money), entertainment, books, household expenses, and savings. These categories had to be broad enough to cover all our expenses, yet specific enough to identify different types of purchases.
If you usually write checks for your purchases, going through the checkbook is an excellent means of determining how much you need to spend in certain categories. If you’ve used cash, however, and have no records, you may need to make some rough estimates and then revise them later if you need to. There’s nothing quite so frustrating as deciding you probably need $100 a month for food, only to realize later that you actually need $150. If you don’t already know what you’re spending, it’s easy to underestimate expenses.
The key to making a budget work is recording expenditures. The easiest technique for us is to write checks for as many items as possible. This makes recording the date, amount, and type of purchase almost effortless. To keep track of cash and credit card purchases, Rich uses a three-by-five inch card in his wallet and I keep a small notepad in my purse.
I find it easy to write down what I spend just as soon as I buy an item—at the checkout stand if possible. Others find that recording expenses every evening works well. But waiting much longer invites “money evaporation.” Cash can filter away in small amounts so quickly that large sums vanish before you know it.
Next, fill out a budget sheet that realistically reflects your needs and accurately records your expenditures. We use a chart for each month with columns for categories and rows for each date of the month. At the start of the month, I prepare the budget sheet by writing category titles across the top and dates down the side of the page. Underneath each category heading I enter the amount we can spend.
Each week I gather our checkbooks and cash purchase records and write down on the budget sheet the amounts we spent during the week. Each expenditure is matched to a category and date. For example, if I bought a paperback book for $2.50 on 11 November, I place $2.50 under the column “books” in the row for the eleventh.
By quickly tallying each column every week, I can see if we need to start economizing in the food category or if we have finally saved enough for the coat Rich needs.
At the end of the month, I make a final tally for each column, and subtract it from the month’s allotment. I then enter the leftover amount (or amount we overspent) underneath the next month’s allotment on next month’s budget sheet. If we overspent by five dollars, for example, we subtract that five dollars from the coming month’s amount; if we underspent by five dollars, we add that amount.
We know that if we set aside fifteen dollars for books and overspend by five dollars this month, we can only spend ten dollars for books next month. On the other hand, if we plan on making a major purchase for our apartment—new shelves, for example—we know we need to save for several months.
As time goes on, some category allotments need fine-tuning. You may end up consistently over-spending in some categories, yet underspending in others. Provided you spend within your income and can honestly admit you’re not overindulging, your budget will still work. Simply realign the categories to better match your needs and spending patterns.
For example, we discovered after a few months of working with our budget that we didn’t spend as much for food as we thought we would. At the same time we noticed that we had completely left out a category for school expenses. So, with our leftover food money we created the needed category.
Sometimes our spending varies because of differences in the season or circumstance. We leave those categories alone, recognizing that they will soon balance themselves out. Our heating bill increased during the winter, but instead of realigning categories, we used savings to buffer the increased expenses until summer could even it out. If we consistently needed to spend more in certain areas, we looked more closely at our budget to see what adjustments we could make to accommodate the extra need.
One potential trap for beginning budgeters is overzealousness. When I sometimes feel guilty for overdrawn categories, Rich reminds me that our budget is a tool, not a straitjacket. “Even though a budget should help control spending,” he says, “we’re the ones who decide how it will accomplish that goal.” A budget is by nature dynamic. Changing category allotments doesn’t necessarily mean spending is out of hand.
We have found that a budget can become a monetary mirror. It reflects our financial frivolity or frugality. When I’m in a spendthrift mood, the budget keeps me in line. After one particularly long stretch of scrimping and saving, I teasingly warned Rich, “I’m going to go out and spend a hundred dollars.”
Pitying his anguished expression, I backed down a bit. “How about fifty?”
Knowing as we both did that I would soon be hunched over the budget, reconciling the pluses and minuses, he replied, “Sure, go right ahead.”
I spent $25.83.
A budget charts progress toward goals. With a budget we know exactly what sacrifices are necessary to reach our financial goal. Shortly before we were married, Rich said, “Let’s save enough money this year for you to go back to school.” Neither of us recognized how attainable that goal was until we mapped it out on the budget. We could see exactly how much we needed to save each month, and each month we could see how we were doing. Our budget is at least partially responsible for my going back to school.
A budget also provides instant feedback on financial status. When I want to know if we can afford something, the first place I look is the budget. When we were deciding if I could go to school, one look at the budget told us two things: we could afford it if we continued living on our monthly allotments, and we could stick to living on a certain amount each month.
A budget need not be inconvenient, time-consuming, or confusing. The hour or two it takes each month to record expenditures is a profitable investment of time. Like any worthwhile habit, it may be frustrating getting started. But when you budget, you have more—more money, more freedom, more peace of mind.
It is true that money does not guarantee happiness, but we have found that controlling it certainly helps.
After reading “Where Does the Money Go?” individually or with your spouse, you may want to discuss the following questions and ideas.
1. How could you and your spouse benefit from a budget?
2. In what general areas do you spend money each month? How much do you spend in each area? Use this as the basis for creating a budget.
3. What “small purchases” do you make that might cause you to run out of money at the end of the month? What budget categories do these expenses fit in? How will you control these purchases?
4. Devise a convenient way to record even small purchases as you make them.
5. Take a look at your categories. Which ones are the most essential? Could you reduce spending in non-essential areas in order to pay for items in the essential areas or to increase your savings?
6. What major purchases do you plan to make? How can your budget help you plan for them?