X-Ray Glasses

Now that we’re debt-free, I wanted to share some of the tools we used on the way there.

Actually, there was just one tool: Google Spreadsheets. In it, we built our budget, and kept track of everything we realized needed keeping track of. The visibility into exactly how much money we expected to be coming in and out at all times, as I’ve mentioned before, was the key to making this successful. More successful than we’d intially planned for in fact, considering the “bonuses” that came our way throughout the process that we were able to take advantage of.

In our Budget spreadsheet, we’ve got 5 tabs going at all times:

1. The overall budget – where all the money should go
2. The monthly ledger – where all the money is going (with lines struck out as things are paid)
3. Last month’s ledger – where the money went (for comparison)
4. Trigger list of possible expenses that might come up in any given month
5. Schedule of all our bills, and when they’re due (annual and monthly)

When it comes to fund allocation, one of the biggest challenges for building a budget (or any financial planning endeavor, really) is figuring out how much to put where. What I really want out of life is to walk up to an expert and say “here is a complete list of my income/assets/liabilities” and have them tell me what to do with it all. Sure, I could learn everything about finance myself, but frankly, I’m not that interested. Unfortunately, I have yet to find that expert. Luckily, for day-to-day expenses, this budget spreadsheet comes very close.

It’s from Gail Vaz-Oxlade’s website, and it helps that her attitude toward financial strategies and planning advice aligns very closely with our own. She breaks down a budget into categories on which you should spend what percentage of your income, making allowances for debt repayment, long-term savings and life in the meantime. It would certainly get tricky when you have more debt than you can pay off with 10% of your net income in 2-3 years, or are locked into paying significantly more than the recommended allotment for housing, transportation and the like – but for the average household, a bit of massaging to suit your individual needs and it should all work out.

The other thing we did was make a monthly ledger with money we knew was coming in (usually just our salaries) and all the expenses we knew were going out. Building the “out” list every month was crucial, and we did it based on a trigger list (borrowed from the GTD methodology) of potential expenses, so we didn’t forget things like celebrations, car repairs, clothes needed, personal care or staples we needed to stock up on.

Neither Neil, nor I are particularly good with writing down every penny we spend. We are occasionally careless, and succumb to impulses, so the strategy that worked best for us in the end was to align our spending based on Gail’s budget spreadsheet, build our monthly ledger to include all the money that had to go out for various bills and expenses, and take out the rest in cash in two lumps at the beginning and middle of every month (which aligns with when we get paid). Facing the dwindling pile each day meant we could always take a $20 for our wallets to grab a coffee or go out for lunch, but each of those impulses very obviously came at the expense of other things. There were many weeks we lived off of whatever was in the freezer and pantry (lots of soup, rice and pasta) because we spent our last $15 on a bottle of wine.

In the end though, it kept us on track with what we were trying to achieve, and I hope reading about our experience helps someone else get to debt-free as well.

Next Installment: how we minimized costs and “made more money” over the past six months.

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4 thoughts on “X-Ray Glasses

  1. meg

    I never comment (love your site!) but felt compelled to comment and tell you how much I am really enjoying your entries on budgeting, etc. Looking forward to the next installment! Thanks!

  2. peechie Post author

    @meg thanks!

    @Darren: We found MS Money (and similar programs) far too granular for us. We don’t much care how much we spend at grocery stores vs. department stores vs. corner stores – and our visa offers a similar service.

    And even tracking it ourselves, what we were really missing was guidance on how to sustainably budget for the debt repayment & some savings along with covering our fixed expenses.

  3. Chris

    (I’m using terms defined here)

    We’ve never really tried the zero-based or flex budget. We’ve analyzed months retroactively to get an idea of where we are and where the money’s going, but we’ve never actually put cash in jars or any of that. In general we keep to the reverse budget, or the “pay yourself first” budget. Money automatically gets taken out and put into savings, debt repayment (student loans), etc., and we get to spend the rest. Sometimes we need to make adjustments to the amounts, but for years this system has worked really well for us. That said, besides paying for the wedding we’ve never been in a situation where we’re consistently spending more per month than we’re making.
    .-= Chris´s last blog ..Twenty Questions =-.

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