Wednesday, August 19, 2015

Budget Revamp!

Long post about my family budgeting, feel free to skip over if not your thing.
TL:DR -> Family budgeting can be tricky.  I'm going to be trying something that will take about an hour a month to manage, in an attempt to remove some of the trickiness.
Anyone that follows me closely on Facebook knows budgeting is a big deal to my family.  Since making Financial Peace a goal 2 years ago, Sarah and I have made huge strides in streamlining our expenses, finding economies of scale, and crafting creative savings solutions.  We have seen large improvements in our overall quality of life.  There are two particularity sticky/annoying parts of my budget though, and those are Timelines and Managing-Multiple-Items-Being-Saved-For.

Our Family Budget is set up for a Calendar Month.  I get paid twice a month, but never on the actual 1st and 15th.  I have some additional income streams that drop in on the 1st.  Most of our bills have some flexibility on due dates, but others are hard on the 1st and 15th.  My issue isn't having enough money to pay the bills, I have 2+ months worth of living expenses in savings, the problem is getting the paychecks to match the bills on paper with respect to a calendar.

In our Savings Account (vice Checking Account), we have multiple 'bags' of savings, e.g. Emergency Savings, Car Repair Savings, Woody's Hobby Savings, Vacation Savings, ect.  Since all the money is in the same overall savings account, I've developed a way to ear-mark where funds are headed and what they can be used for.  I've been managing this by hand on pencil and paper, but it's becoming more of a burden than benefit (which is something that happens in a working personal budget).

I've been banging my head against these problems for a few months and I think I finally have a solution.  I've decided to try looking at this from a Business Manager point of view, I have plenty of cash and liquidity, it's just the timelines and data management that's a problem.  To tackle the timeline problem, I will expand my effective budget cycle and transfer this duty over to my savings vice checkings. I will set aside 1.5 months worth of Living Expenses in my Savings Account, called Woody_Holdings.  By design, this 'bucket' of money will always have enough cash to pay any and all bills due before next 2 paychecks.  The cash flow of Woody_Holdings will be that I pay into it "Pre-pay Rent" or "Pre-pay Groceries", and then pay out of it "Pay Rent Due" or "Pay Grocery Stipend".

Just prior to my payday, I will ensure that the Checking Account gets zero'd out (except for a safety buffer of $x to insure against over-drafts (this also lets me waive overdraft protection from bank which saves me on fees, yay!)).  Any cash over the buffer is essentially "Free Money", i.e. money I budgeted to be spent but for some reason didn't spend.  Those monies will be moved back to savings (and dropped by percentage into our different 'extra' savings accounts like vacation or hobbies, which a spreadsheet can easily do for me).

Upon getting paid, I will transfer the paycheck straight into savings and will let my spreadsheet do the "Pre-pay Rent" or "Pre-pay Student Loans" to Woody_Holdings as is appropriate (our current system has rent coming out of first check, student loans out of second check and so forth).

On the 1st of each month, I will transfer from Woody_Holdings, over to checking, any monies needed for either cash or debit card expenses for that calendar month.

This system will require maintenance action by me, 5 times a month. The day before and after each paycheck, and on the 1st of the month for Outgoing Expenses.  I'm estimating 5-10 minutes for each of those evolutions, adding up to an hour of budget maintenance per calendar month, which doesn't seem too onerous.  The biggest things I'm hoping to get from this are: Peace of mind that all upcoming outgoing expenses have matching funds already available, Easier time picturing where extra money is, what it should be doing, and where it could get used better instead of where it is, and a better picture of the health of all our miscellaneous savings items.  Potential drawbacks would be that the system ends up being more trouble than its worth, in which case we just revert back to how we are currently doing them.

I hope to have this implemented within the next 4 weeks.  I'll post results from the process.  I'm happy to answer any questions about the system on the Facebook thread.