Home > New year and new normal = new budgeting strategy

New year and new normal = new budgeting strategy

December 9th, 2020 at 01:49 am

I'm gradually retiring my previous budgeting system and gearing up for a new one that will hopefully be flexible for our new income situation yet still enable us to maintain control, so I wanted to share it with you.

I'm excited and hopeful but also nervous because we've done things the same way for several years. It worked when we had two fixed incomes and one variable, but it won't work for one fixed and two variable. And there are other unknowns in our future as well, so I'm hoping this flexible format will work even if our income situation fluctuates over the course of the year.

So for the past few years, we've used two main tools for day-to-day budgeting: the Number Crunch (which I also call Future Checkbook) and the Weekly Spending Tracker. And big picture budgeting is mainly handled in my Annual Budget spreadsheet. Number Crunch starts with our checking account balance, lists out all the upcoming expenses and incomes for the next couple months, and ends with a balance of zero. I update the checking account balance and delete things that have already happened, so it always only shows things that are in the future.

I would factor in the predictable income and expenses based on the Annual Budget, which broke things out by month as well as having a 12-month snapshot tab. Every month or so I'd paste another month's worth of projections so that the Number Crunch was always looking ahead at least a month.

For the variable income (AS's freelance business), I usually put some of it in savings, set some aside for tax and retirement, and dumped the rest into the Weekly Spending Tracker sheet. This sheet shows each individual's spending and available money (or deficit), plus there was an extra column for shared spending stuff that didn't fall easily into any budget category. Subscriptions, random drugstore purchases, family fun or date nights, etc. I would have the starting surplus (or deficit) at the top, add and subtract things throughout the week, and the bottom would show the ongoing surplus (or deficit). Every week I cleared it out, updated the top line and started over.

Well, with only one fixed income, we can no longer be as cavalier with our variable income, which is over half of what the household needs to bring in to make things work. So I adjusted each month's tab in the Annual Budget sheet. Now it lists fixed income, fixed/necessary expenses, and variable/nonessential expenses separately.

The fixed income (my income, the duplex rental) doesn't quite cover essentials, so I wanted to make sure that we covered those first with variable money before we started funding the less essential things. We met as a family and arranged the variables in order of importance, so if we can't fund every item, we'll at least start with funding the more important ones.

Boy this got very long-winded! Anyway, I'm slowly shifting over to the new system. When I pasted the January budget into my Number Crunch, I marked the things in red that aren't funded yet. Now, as we get more variable income, I can fund each item in order of priority.

OK, I realize I have no idea how to upload pics of my spreadsheets with the new system. Darn! Oh well.

Other changes to our budgeting: We didn't have fixed intentional amounts for certain things like Vacays/travel, Home improvement and Giving. And we were putting very little away for the kids' college. I did some calculators and $500 per month seems like a reasonable amount. I'm going to start one of those tax-advantaged college accounts, I forget what they're called, through Vanguard soon and put the money in there.

There are still some random expenses that won't fit under any of the categories I've set up, so we'll just deal with them as they come. AS and NT will have to be a lot more diligent about telling me when they make a purchase and letting me know how they think we should pay for it. I've just been funding random stuff through variable income but now our variable income will be put to such specific uses, there won't be much left over (if any) for randomness, so we need to be much more intentional about incidentals.

6 Responses to “New year and new normal = new budgeting strategy”

  1. KPA Says:

    If you plan to set up 529 accounts for your kids' college savings, you should check out what Minnesota offers. States usually offer some benefit to residents who contribute to their state plans. I did a quick search and it looks like you could get either a deduction from federal taxable income for Minnesota income tax purposes or a tax credit on contributions up to $3,000/year.

  2. ceejay74 Says:

    Thanks! Yes, I checked the rules (and verified with my tax guy) and MN gives the tax benefits regardless of where the 529 is housed. So it'll be OK to use Vanguard.

  3. My English Castle Says:

    Good job, as usual, ceejay. The earlier and more regular you can be on the 529, the better. We started small, but increased DD's significantly when our financial situation got easier.

  4. ceejay74 Says:

    Thanks MEC! Yeah, it's kind of the final frontier of finances, the one I've been avoiding. Well, I suppose I also avoid thinking about what I should be doing for life insurance and long-term care. But other than that, college is the big looming one. We're behind, no doubt, but I'm hoping we can get a good amount socked away and then help the kids figure out the rest with scholarships, work-study and loans.

  5. LivingAlmostLarge Says:

    Because you live in MN I think the 529 is good. I personally do a coverdell esa and an 529 and taxable. I'm pretty much done with 529 and coverdell. I want to make sure I have flexibility. We've done $2k/year into covederdell since birth and 529 we opened this year $6k. Total college savings is $44k and $34k for 10 and 8 year old. About another $35k in taxable account. We don't get a tax break for 529 so it doesn't seem worth it. Also since i'm not sure what we are going to do I think have a balance college and taxable account seems wise.

  6. ceejay74 Says:

    Phew yeah, we're way behind! We too have a 10 and 8 year old, and we have $12K total among both kids in UTMAs (which I haven't contributed to in several years because I found out they were bad ideas, whoops) and $2K total just set aside in our checking account (I'll use this to start the 529s but we need a $3K minimum for Vanguard). I don't think it's realistic to try and fund the kids' entire education but hopefully we can offset the cost enough to not bury them in student loan debt.

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