Budget – Part 2: How we budget?

Hello again! We hope you enjoyed the first budget series and you had discovered a few reasons why you should start budgeting.

In this article we want to share with you our personal experience about how we budget.

We are very curious to hear your opinion on our budgeting, and we also want to hear from you what other budgeting methods you are using or have heard about.

Octav

I will briefly present my way of looking at income and expenses, as well as my method of budgeting.

As you can see below, I look at fixed and flexible expenses, and categorize them according to the purpose they serve—NEEDS, WANTS, and LIKES.

Fixed expenses are all about payments that have to be made monthly. For me, these must be covered first, from the income obtained. All funds remaining after payment of fixed costs are divided into:

  • Food budget 
  • Fun budget—child
  • Personal budget—x2 (me and my wife) 
  • Bonding budget —also for me and my wife (outings at the restaurant, movie, etc. in 2)
  • Transportation
  • Investment budget
  • High spending budget (everything over 50 EUR falls into this category and is always budgeted for next month)
  • Emergency Fund budget.

All of these budgets mentioned above have flexible values and can be re-balanced as needed.

As I think the best way to convey something is through a personal example, I would like to add a few things: 

With the help of a budget, your basic needs will always be covered. I divide all my expenses into three main categories: NEEDS, WANTS, and LIKES. 

NEEDS

For me personally, it includes: having a home, having something to eat, and not being cold (I speak in the first person because all points include me, my wife, and my child). Other necessary costs are the taxes we have to pay, the health insurance (compulsory in the Netherlands), the home insurance and Sven’s kindergarten. These are my Needs. 

When I think about WANTS and LIKES, I notice that there is a very fine line between them and this line is very subjective. Anyone can find enough reasons to place the same expense in the Wants category as well as the Likes category. Wants for me are expenses that, while not vital, bring a degree of comfort to my life. This includes cell phone expenses, internet, car payment, gas, etc.

The LIKES category includes everything that does not fall into the two categories mentioned above. In my case this includes: streaming services (Netflix, Spotify), restaurants, holidays, etc.

In addition to the written budget, I keep track of all expenses using an app linked to my bank account. After each transaction, I can immediately include it in one of the above categories. Unfortunately this app is not available in Romania. But before I found out about this app, I used to take 30 minutes at the end of each week and manually categorize all the expenses from the previous week, taken from the bank statement and added to an Excel.

After more than a year of budgeting, I can say that I know 100% where all my money is going, and while there are slips now and then, having something I can refer to helps me get back on track very quickly.

Another method I’ve heard about and plan to implement is to set a budget based on each month. That means that in tracking January 2022 spending, I can have a fairly accurate estimate of what spending is needed in January 2023 and so on. I’ll come back with a separate article on this method.

Florin

I want to confess how I ended up making my first budget. After about a year and a half at my current job, I hadn’t managed to save a single euro. I had a few debts from my college days that I needed to pay off, and after paying them off I spent my money for a while on clothes, a new laptop and so on.

All this until one day I realised that after two years of work I had not managed to save a single euro. So I dicided to change my situation.

Now looking back I think all this came at the right time, I mean, I needed some maturity to come to the idea of changing my financial situation. Probably if I had tried earlier I would not have succeeded because I had to go through a few more steps to take the step towards a better financial situation.

I don’t remember the context anymore, but I had discovered a website about financial education. This was a Romanian website. This was happening in June 2019. On this website, you have access to different educational materials, including an Excel spreadsheet document in which you can write all your expenses and all your monthly income. So I started doing this.

It had been a good few months before I managed to get as clear an idea as possible of what expenses I had, which category to put them in, etc. What I mean by this is that you have to be patient and not give up. By doing this, gradually you’ll be able to make the necessary changes towards a better financial situation.

I still usually enter all my expenses into an excel spreadsheet every two weeks (at the beginning of the month and halfway through the month).

I could say that this was my first step in monitoring my money and gradually I started to improve my financial situation. It wasn’t easy because up to that point I didn’t used to keep track of my expenses at all. So I knew in a big way what my money was going on.

As you can see, I didn’t have to change my job or give up other things, I just started analyzing my income and expenses month by month.

In this article we wanted to share our experiences with you and give you a reference point to start monitoring your income and expenses. You don’t have to take our examples as perfect, you have to experiment, try different methods to figure out what works for you.

If you’ve made it this far and have been tracking your income and expenses for some time, we can only congratulate you! If you haven’t done it before, now is the best time to start!

Feel free to share your experience with us in the comments, it will be definitely useful for someone in the community.

Have a great week you all!

Authors: @ostanescu & @andrewf12

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Responses

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  1. I totally relate with the ideas above.
    I started budgeting more than 5 years ago. What i found interesting about budgeting my (my family) expenses after a couple of years is that it didn’t necessarily help save more but it definitely helped me gain security on our money and our expenses.
    Besides knowing my family balance at any moment, having every expense and income put on a spreadsheet and categorized (I mean every cent/leu) helped me see if I cand afford a big expense (like over 500E) at a specific moment and how it impacts the balance. Helped me to know when it’s time to use my saving account or when it’s better to use a 0% rate credit card, what it’s the level of debt, keep track of loans if it’s the case…
    *Every expense from the saving account was carefully planned to be repaid.

    As a tool I started with a basic excel which got more complexity year by year (monthly spreadsheets / Dashboard/ saving account spreadsheet/ monthly & yearly analyzes / Crypto / ROI if it’s the case….)
    Categories have adjusted year by year (the kid appeared, the appetite for investing) so today I divide my expenses on Subscription&Utilities / Bank (like fees/ interests which I am to be 0 ) / Rent / Food&personal care&house care / Health / Beauty/ Transportation&Car / Fun or personal Events / Shopping clothes&stuff / Money for others ( presents -weddings-donations)/Holidays / Kid ( to ask them back when he turns 18 😊) ) / Investments ( ex. Books) / Vices and fines

    When I tell friends about that, some of them are like: why you struggle to do that? Is it worth? I don’t know if it helps everyone to keep track of financial part like that but I know It helped ME a lot through time to anticipate when will I have hard times and I have to prepare, when it’s the case to use financial instruments or to save money more recently. I also find interesting comparing our income and total expense year after year and see if we had economic growth, budget surplus or deficit and other evolutions…

    After that much time, now it takes me 15 minutes a week to do all that so it’s not such a struggle and i totally recomand it
    And I usually say you can not administrate a firm or a department (where for sure exists financial departments with similar tools – cashflows, P&L) if you can’t do it for yourself first.

    It’s a long comment, sorry & Thank you for sharing

    1. Hello @Rusu.A :
      First, I would like to thank you for sharing with us your personal experience and for the time you took to write the comment.
      Related to what you have written, the same thing has happened to me, at the beginning I was using a very basic spreadsheet, but now I use a much more complex one, which gives me much more data about my financial situation.
      I think this is something that I never stop improving.

  2. Dacă nu folsesc și aplic formula 20/50/30 in fiecare luna, eu nu reusesc sa investesc si am un haos creat total din cauza lipsei de disciplina.
    Am 2 voi puse la intrare in casa: una cu cheltuit iar alta cu investitii. Cea cu investitii am creat-o dupa ce am realizat cat de multe -minusuri am si nici un +plus. Din nou, cand vad banii economisiti ma motiveaza sa economisesc si mai mult.
    Pe mine personal, disciplina mă ajută și face diferența.