Creating a budget is not hard. In fact creating a budget is easy with online tools such as Personal Capital which will automatically categorize your expenses.
It’s the balancing part that remains a problem. It doesn’t matter if you make $50,000, $150,000 or $500,000, without substantial effort to fight lifestyle inflation, your expenses will grow into your budget.
The Federal Reserve showed that 53% of Americans would have to borrow or sell something to cover an emergency $400 expense.
You might be in this situation right now if you haven’t gotten your financial house in order. The good news is that almost any financial disaster can be fixed in less than a decade with good habits, perseverance and time.
Budgeting is a Necessary Evil
As much as I dislike budgeting, it is a necessary evil for financial beginners and anyone with uncontrolled debt. A tight budget is like training wheels for your personal finances.
Earlier I wrote about 11 financial metrics you should be following. The daily and weekly metrics are what we began tracking to keep ourselves on a budget and improve our financial picture.
Until you prove to yourself you can consistently spend less than you make, you will need a budget to keep yourself on track.
Here is My Free Guide: Budgeting for High-Income Professionals
Most of our human failings happen not due to a lack of knowledge but due to poor design and a lack of resolve to fix it.
Big Ticket Items Blow Budgets
If you want to be able to keep yourself on a budget, you need to give yourself a fighting chance. We managed to paint ourselves into a corner with big ticket spending.
It’s not the small treats but the big budget items that drive your spending. Don’t get me wrong, spending $6 on coffee every morning and $10 on lunch adds up over time.
The problem is, if you overpay on your house by a mere $30,000, you just wiped out years of sacrifice you had been making each day.
Our budget is no different. Four major expenses comprise a significant portion of our budget.
Below is how our budget stacks up each month and where the money all goes.
#1 Housing Budget
We have the same problem as most coastal cities. High single family home prices.
Neighborhoods with low crime, good schools, and walkability are few and far between. People have figured out it’s very nice to be able to walk out your door and run errands an entire day without having to get into your car.
Limited buildable land and limited numbers of single family homes within the cities help drive prices higher. As the population grows, more families are competing for the same homes each decade pushing up prices. Look at the census data; we do not have a shrinking population.
Our housing costs are at the upper end of what is considered affordable.
They are pretty high but flexible and are self-inflicted. The self-inflicted part is the 15-year mortgage we have. The flexible part is the HELOC that we used to renovate the home.
Ideally, we can pay both off within 15 years. Refinancing out in duration may increase our total costs but may help our cash flow problems in the short term.
We committed to this maximal house budget and aggressive repayment terms without anticipating a small drop in my income as a physician and increased education costs as our family has grown.
#2 Education Budget
Education is a big budget item for us. Despite all the debate, education remains one of the few things today that is worth the investment. The difference is the return doesn’t kick in as soon as it used to with the higher up front costs.
I am grateful for my public education. Public schools carried me all the way through medical school.
I might not be setting the curve, and my grammar might need some work, but that is why I use Grammarly to proofread my blog posts now.
We are making a different choice for our children today.
We live in a city where we have the choice between using an underperforming public school system or paying tuition for private schools. We have chosen the latter, and it’s a budget buster.
At a time that we should be thinking about college savings, we are focused on finding ways to pay for our kid’s tuition through high school.
The way it looks now, college might mean a pay raise for us because we will at least have a chance for scholarships to offset the tuition payments.
#3 Transportation Budget
Transportation used to be a bright spot in our budget for years. We finished fellowship with a single paid off car and a couple of dependable bicycles.
Then came an accident, a lemon and after school activities.
Our old reliable car was totaled in an accident, and the used replacement we bought ended up being a lemon. We fixed that by replacing the lemon with a new car with a warranty. But it was still just a single car. The rest of the commuting is by bike.
Then came the after school activities and what feels like the after school shuttle service. We broke down and purchased a second used car with cash to help get our children to various practices and lessons each day.
Now, we are a two car family with an auto loan that we are paying off ASAP. It’s not terrible, but transportation still makes up a significant portion of our budget.
I don’t’ even want to think about what insurance will be like when the kids hit driving age.
#4 Food Budget
Food is a routine budget buster for many people, and we
do spend handsomely on food. The difference with our philosophy is that we invest in healthy whole foods.
Today, food makes up less than 15% of most American’s budgets. Compare this to an era a generation or two ago, when you worked all day to put food on the table for that evening, we have come a long way.
Our family focus is on putting nutrition on the table each day. We separate out our restaurant/on the go meals into an entirely different category.
By investing in proper nutrition and exercise now we hope to save on healthcare costs in the end.
Here is our most recent budget.
I have not been graphing it all out in a worksheet but will have a summary of 2017 data at the end of the year.
It took me a while to work up the courage to put this budget online mostly because I am slightly embarrassed that we manage to spend more in two months
then many people make in a year.
I felt that opening up about this would be an excellent teaching point. Our budget is the way it is not because of a lack of personal finance knowledge but a lifestyle of our making.
I think this is something that others may struggle with as well. We are spending a tremendous amount of money on homes, autos, education, and food. Except for autos, the other three are in my humble opinion worthwhile investments.
That being said, we still have a lot of excess in the budget to cut which we may address with a lifestyle redesign.
However, a significant portion of our budget is fixed unless we decide to move, send the kids to public school or eat cheaper processed foods.
What do you think? How does your budget compare?
This post was proofread by Grammarly
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