分类： Budgeting Tips

Creating a family budget should be a fun time for the family where couples meet together before the beginning of each month

I refer to family budget here to those families who have kids staying home with them

When me and my wife started monitoring our spending plan during different stages of our lives

Do you know that the term spending plan is synonym to the word budget

If you feel the word “budget” brings a feeling of complexity, replace it with the term spending plan

We noticed a significant changes in our budget when we were DINK which stands for Dual Income No Kids

Compared to our situation of 2 boys with 20 months age difference between them

Every stage you go through with your child requires different spending plan

Also every stage has its significant expenses like infant and part of toddler’s stage require buying diapers and certain type of baby food like formula

And when they go to the daycare, you pay significant amount where you have to plan for it properly

Anyway, I will go through all the steps required to build a budget and I will start with

How to start a family budget

Actually I highly recommend all couples to agree on creating their family budget together even before having kids

This kind of family budget is simple with less items so practice creating one and more to it with your kids at different stages of their lives

1- Choose your budgeting tool, paper or electronically

Although I am a big fan to anything that makes my life easy

But I highly recommend to start using your budget on paper first

You need a sheet of paper and simple calculator

When you start your first budget on paper

You need to calculate the percentage of each of your income and expenses compared to your total income

After you complete your first budget on paper

You can start copying the numbers on excel sheet to get use to the electronic copy

I made it easy for you to use a ready made free printable budget in PDF

Click to download for free from my resources page

But if you want more flexibility to add/edit any budget items according to your taste

You can download the budget word document and the editable budget in excel sheet for free

For complete flexibility to modify and add any new expense

Click to download for free from my resources page

2- Collect all of your bank and credit cards statements

For those families who think it is a challenging and hard task

It is a little bit when you first create your initial budget

Later on you have a ready process that takes less than 10 minutes of your time before the beginning of the month

But first you have to collect your bank and credit cards statements for the last 3 – 6 months

Don’t be deceived by creating your first budget based on values from one month only

You have to make sure you have so many months of previous expenses to make a proper assessment based on realistic datado it one time and let it take whatever it takes and every consecutive months will be a piece of cake

3- Determine your fixed and variable expenses

This is a mandatory step

You have to determine what is fixed and what is variable when it comes to expenses

For those who don’t know the differences between them

Fixed expenses: any expense that cannot be controlled and lowered like Mortgage/Rent, Netflix, Cable, Cell phones..etc

You got the idea, of course you can change them but I mean it is feasible

Variable expenses: any expense that you completely have full control over them like groceries, clothes, discretionary expenses, dinning out

I have a free printable Expense tracker to download and start assessing your expenses

By the way, the real purpose of the free printable income expense tracker below is to determine if your income covers all of your expenses with deficit, surplus or almost zero balance

Click to download for free from my resources page

4- Determine your discretionary expenses to cut

Everyone has a discretionary items to splurge money on

It can be a hobby or your morning coffee

For myself, I know I am very week to resist buying chocolates – all different kind of chocolates

Also I am addicted to Starbucks coffee

Situation is different after having my 2 kids

I didn’t change completely but I always put my kids in my thoughts when thinking about any expenditures

Find out what expenses you can cut without even noticing that you sacrificed anything in your daily routine

5- Adjust your budget frequently

A family with growing kids makes your budget changes rapidly

One day you can add diapers in your spending and all of the sudden they go away

Always embrace this frequent changes and consider it a good opportunity to save the money you used to spend on any gone away expenses

For example, I used to pay for baby formulas more than $120 monthly

After I stopped spending money on baby formulas, I started saving a little bit of extra money into kids RESP – Registered Education Savings Plan

6- Working on paying off your debt as a priority

Nothing can beat the feeling of overcoming your debt

It is a feeling of joy as you are not slave anymore to sleepless nights

According to Dave Ramsey’s book Total Money Makeover where he put a new approach to pay your debt

He asks anyone who wants to pay debt to sort them in amounts from low to high regardless of interest rate and pay more into the lowest

By following this approach, you get a strong power of enthusiasm to continue fighting your debt as you see one debt is going away

Of course, there is an exception to this rule, if your debt is a government due taxes or any obligatory debt to pay

7- Think about all the family financial goals together

I always have this debate with my wife on how to distribute our annual tax refund between different investments

You have many savings for the future like saving for RRSP in Canada or IRA in US and saving for RESP in Canada or 529 plan in US

You have to compromise between saving for yourselves as a couple for retirement and saving for your kids’ future educations

8- Build your savings

Since educational saving in Canada for kids has a cap limit and the government match 20% of your contribution up to $2,500 so I always maximize it to get the maximum benefit

For the retirement saving, most companies match up to a certain percentage of what you contribute so always maximize your contributions

If you have the option to move any bonus to your retirement saving plan, I encourage you to do that because if you transfer your bonus to your retirement saving it will not be taxed so you add the full amount

What are the types of family budget

Deficit budget

Deficit budget when you find that your expenses are greater than your income and you are subtle to fall in debt

You will not notice it if you don’t build a monthly budget

I was once in this situation and I realized that after I managed to have a monthly budget

So how was the deficit managed without my checking account going negative

Simple answer, yes I was in deficit

But because extra income like tax refund and bonus come in during the year

Beside last 4 or 5 months of the year the take home pay is somehow higher due to finishing the deductible taxes on the first months of every year

My idea is you should manage to get out of deficit without replying on your bonus or tax refund

Surplus budget

Surplus budget occurs when you are able to cover all of your expenses and still have extra money that get accumulated in your checking account

This is not the right decision to keep your extra money sitting in your checking account

Neither deficit nor surplus with money in your checking account is right

If you are steadily having surplus then you should manage to increase your retirement contribution or educational saving plans for your kids

Balanced budget

This is the typical case where you learn from your monthly budget numbers and manage to make use of every dollar in your income

What is sample budget and how to use it

Sample budget is a budget from another household or family

You can use it to avoid common budgeting mistakes but you cannot rely on their numbers to apply it to your situation

Every family is different from others even if having the same number of kids and their ages even if they live in the same city

Also it is completely wrong to see how others spend their money and build decisions based on these spending habits

You can download for free the above blank family budget PDF to help you start with your own numbers

If you want to sum all numbers to get a proper percentage of each expense compared to the total income then you can download free the family budget sheet above

How to create a family budget on excel sheet

One of the best thing to save time for you and to make you fall in love with the concept of maintaining your family budget on a monthly basis is to use budget on excel sheet

I have discussed before on how to create a digital budget in spreadsheet, I recommend you to go and check it

I assume if you have panic from numbers just spend 5 minutes to get familiar with the steps I mentioned to create your own budget sheet and I guarantee you will definitely master it

Now your next step is to join my mailing list to stay up to date with budgeting, saving money and managing your finances

It is such a great feeling to create a spending plan for the upcoming month

A feeling that you are fully in charge and gaining control over your finances and future

As you are never worried about paying your bills and credit cards

Where you are capable of fully covering your payments especially your credit cards balance

I really feel sorry for those who believe building a family budget is complicated and not for them

Anybody can create a spending plan as long as he/she can use a calculator

I want you to continue reading below and see if you are still not able to create a spending plan for your household

Let me start with the following

What is a spending plan

When you create a spending plan, you specify a clear path for all the channels or expenses you want your income or take home pay money to go to

Instead of losing track and figure out that your take home pay money went to wrong channels or allocated more into undesired channels

Spending plan vs Budget

Spending plan is typically the same as budget

The reason I am using the term spending plan because I want you to love the concept of managing your household income

A lot of people don’t feel comfortable with the term budget as it brings a sense of deprivation, suffering and hard work

This actually reminds me of my son who refused to take the antibiotics as it is very bitter so I had to replace it with similar drug with delicious taste

So It doesn’t matter if you create a spending plan or a budget

What really matters the fact of overcoming the fears of its complexity

Once you start a speeding plan you would realize it is so simple

What are the benefits for creating a spending plan

Imagine having a genie monitoring where every dollar that comes out of your pocket go

He also stops you from overspending on something you could have controlled it earlier

And he cares about your future and keeps nagging for you to save money

That is the benefit of creating a spending plan

You want to monitor where your income is going to stop living paycheck to paycheck

And force you to save for retirement and to build an emergency fund

Also to act as a debt collector to pay your debt and save you on accumulated interests

Finally to keep you in control of your finances

What are the key concepts to consider before you create a spending plan

Be realistic when you create a spending plan that you can apply it to your family

Also be flexible to modify it when needed

There is nothing wrong if you admit you made a mistake and to correct it

Review your monthly spending plan before the start of each month as income and expenses change frequently and you need to adapt the new changes

But keep in mind the following key concepts when creating a spending plan

Income vs take-home pay

Income is not always the net pay, it is most likely the gross income before taxes

E.g. if your income is $60,000 per year

It doesn’t mean you will get paid $5,000 a month or in other word you divide your income by 26 biweekly checks assuming you get paid biweekly

That’s why you have to create a spending plan based on your take home pay which reflects what you earn after taxes

In our previous $60,000 income if we apply your provincial tax or state tax then your take home pay can be around $45,000

This is what you use when creating a spending plan

Tracking your spending

When you first start your spending plan you will be in a hit or miss position

You estimate an amount for specific expense and you get different spending result either deficit or surplus

You have to keep track of your daily spending for a month or two

Other alternative if you can go through all your credit cards and analyze your spending into different categories

For example, if you find four or five separate spending related to grocery

You sum them together and come up with an estimate amount for how much you plan to spend on grocery

What are the three types of expenses

Not all expenses are the same as you have fixed, flexible and discretionary

You have to know the difference between all of them

Fixed expenses

This is what you have to pay as is so it is the same amount every month

That’s why it is called fixed expenses like mortgage/rent, phone bill, internet subscription and cable

Flexible expenses also known as variable expenses

It is called flexible or variable expenses because you have full control over them

If you are diligent and educate yourself on how to save money on these types of expenses definitely you will get some money in your pocket

An example of a flexible expense is your spending on grocery

It is clear example on flexible expense which you can act smart to save money on grocery

Discretionary expenses

Your morning coffee or GYM membership is a clear example of discretionary expenses

What is discretionary for me can be essential for you so no judge here

Everyone of us has at some point few expenses that you can cut or replace them with cheaper ones

For example, in my post for 101 best ways to save money I saved almost easily $450 annually by replacing my cable subscription with an IPTV

What are the 6 steps to follow in the spending plan process

When creating a spending plan one of the key success is to analyze your numbers

Don’t worry if I use the word “analyze”

Because you will analyze without even knowing that you do that

You are going to subtract what you spend monthly from your earnings

You will start to get the sense of how to play around your expenses to maximize the Gain part and minimize the Loss part

Follow the below steps to be able to create a spending plan that take you out of debt

Add all your monthly expenses

One of the challenges for those who are creating a new spending plan is that they forget few expenses

This is normal, it happened to me but the good news is that once you finish adding all of your familiar expenses

You can review all methods of payments like debit and credit cards and see what else you can include

Add your household net income as known as take-home pay

Add all take home pay money on your spending plan even if you have seasonal earnings like tax refund

It will be always zero for all months except the month you file your tax return

Deduct all expenses from take-home pay

If you remember earlier the three types of expenses fixed, flexible and discretionary

You have to deduct all of your expenses from the take home pay

A smart idea is to deduct only all fixed expenses from take home pay

You need to know how much money left on your spending plan to manage

If you subtract $1,960 from $7,095 then you have $5,135

Keep in mind that this is just an example

In reality you have to add few fixed expenses like cell phone bills, internet and cable subscription

Lay down your financial goals or priorities

I always say it loud to come out of debt you have to save money

But how? When you create a spending plan you see all expenses

So you can make a wise decision to pay yourself first by deducting from your take home pay a certain amount every paycheck and transfer it to your saving

It doesn’t work any other way so you have to lay down your financial goals and priorities to figure out how to manage your expenses after saving money

Allocate money to savings and financial goals

Whatever you have a financial goals on mind like planning to buy a home and you plan to save the 20% down payment

There are already existing goals you have to pursue like building an emergency fund and saving 10% for your retirement

I mentioned the emergency fund before retirement saving on purpose

You cannot save for retirement while missing emergency fund because when you start working on your spending plan you will encounter all of the sudden bills you have to pay

You have to pay these urgent bills and not get distracted from your retirement saving

But if you pay it from your emergency fund you can keep saving for retirement on a monthly basis without interruption

Review your spending plan against savings and financial goals

Always keep on reviewing your spending plan against your savings

This is an ongoing process that keeps on changing and you have to adapt for these changes

For example, one month you can get something urgent that requires to use the emergency fund

You start again to build it up or you can get 3 paychecks in one month

Yes this happens twice a year so you can add extra buffer to your emergency fund

Typically your emergency fund should cover 3 to 6 months of all of your expenses

Spending plan worksheet and how to use it

I discussed before how to create a digital spreadsheet budget

I showed you how to use a ready made spreadsheet spending plan and how to create your own from scratch

This spending plan shown below

I created for you to use before beginning of any month

The best feature I love about this spending plan spreadsheet is that it calculates any amount as a percentage according to the overall total income

Even individual income itself is calculated as a percentage to the overall total income

You can skip the estimated column if you feel it is a redundant work but keep in mind to ignore the negative values under difference column

Click to download for free from my products page

Don’t forget your password to edit data is 0000

To get the full flexibility to modify it to suit more of your needs

You can download the budget word document and the editable budget in excel sheet for $2

When comparing spending plan spreadsheet vs paper spending plan

I am not against the spending plan spreadsheet

I always stand anything than makes my life more convenient

But using a paper spending plan is one of the things that keeps you focused on your financial goals

Just hang it on your desk or your fridge and look at it every now and then

This will stir your brain to think about several ways to save money for your family

That’s why I still use a paper spending plan after finishing my assessment on the original spending plan spreadsheet

That’s why I encourage you to download this free printable spending plan

Click to download for free from my products page

Looking for extra flexibility to edit your spending plan in Word document

What about if you download both Word and Excel sheet together for

You can download the budget word document and the editable budget in excel sheet for $2

I hope I was able to help you overcome any doubt that made you believe creating a spending plan something complicated and not for you

According to creditcards.com Americans accumulated $1.0645 trillion in April 2019 on credit cards

That’s because they don’t create a spending plan to tell them where their earnings should go

Now after you are done with your spending plan what if you are living paycheck to paycheck

Or still struggling to get your spouse to commit to your spending plan

Knowing how to build emergency fund, everybody learns this hard lesson by missing the emergency fund when he/she gets into trouble paying for unexpected last minute bill

This personally happened to me in 2018 when I had to fix my car urgently

First, I consider myself clever when it comes to buying all of my used cars

Although I choose a perfect Japanese cars but the inevitable happened

I had to change completely my entire rusted muffler

In fact, I couldn’t defer it and since I went to my trusted mechanic, I had to change few other things that were about to be defected soon

I paid around $700 cash as my mechanic accepts cash and checks only

I learned from this lesson and I started to build emergency fund immediately

It is a gut-wrenching situation, I don’t want you to get into this situation

So let me talk about how to build emergency fund in less than 30 days

What is emergency fund

In very simple words, an emergency fund is a personal money you set aside for a very last minute payment which you didn’t handle when you created your monthly budget

Examples of unexpected expenses can be an urgent car repair, medical or dental bill not covered by your medical insurance, urgent renovation to your home, God forbids if you get laid off

Finally saving for emergency fund for something completely would never cross your mind like COVID-19

What is an emergency fund money used for

Don’t give yourself an excuse to use your emergency fund to pay for holiday parties or gifts

You know Thanksgiving and Christmas come to you same time every year

They are not an emergency anymore so you plan ahead for holiday seasons

Build emergency fund to cover the unexpected events where you have no control of predicting them at all

A question here to you, if after a very strong wind you start seeing few shingles from your roof blew away

Next year when most of your shingles start falling off, do you consider replacing your roof from your emergency fund

I believe you should not as you were already aware of the incident long time ago

Ask yourself the following 3 questions before you use your emergency fund

1. Is it unexpected?
2. Is it urgent?
3. Is it necessary?

If you answer Yes to all the above then you can use the emergency fund money

Do I really need an emergency fund

Let me ask you this question below and be honest to yourself

Do you think you can complete a full year without facing any unexpected expenses?

I would say it is almost impossible to complete 6 months without having last minute bills and unexpected expenses

You have to embrace the inevitable nature of life

How much money should you save in your emergency fund

According to some financial planners, you need to save from 3 to 6 months of all your household expenses including the mortgage/rent payment

If you have a realistic budget, you would easily know all of your running expenses for recent months

Don’t get discouraged, start today by saving as little as $100 as a start up step

According to Dave Ramsey 7 baby steps to build emergency fund

Step 1 is to save a minimum of $1,000 to protect you from borrowing money while you tackle step 2 for paying all of your debts

Is $1,000 enough for emergency fund

According to Dave Ramsey’s book the Total Money Makeover

This is step 1 which I described above

Dave Ramsey calls it the baby emergency fund plan saving $1,000 as a first step

For those who have credit cards debts or other loans to pay saving $1,000 for the emergency fund is more than enough to handle any unexpected emergencies like a repair for your car or urgent medical bill

What Is a Fully Funded Emergency Fund

I discussed above step 1 – saving the first $1,000 then step 2 – paying all of your debts

To establish what is called a fully funded emergency fund, both income household should save 3 to 6 months for their household expenses

I say 3 to 6 months of expenses, I didn’t say income

Income is what you bring from your job while expenses are what you pay as essential expenses to keep your house running

Is savings the same as emergency fund

Are you confused between savings for retirement or investment and saving for an emergency fund

If you have no previous savings, start saving the money for the emergency fund first

Keep in mind that you are saving for an emergency fund to cover sudden incidents

On the other hand, you don’t save for your retirement with a plan to break it for unexpected expenses

You should save for retirement in long term investment saving plan

How to build emergency fund with no money

Now assume you are excited to build emergency fund immediately

Perhaps because I convinced you with the idea of building a contingency plan to face the unexpected incidents in life

Or you started freaking out in time of recession and you hear stories from friends or family members about recent layoffs

Whatever the reason behind your decision to build emergency fund

1) Start by opening a saving account with high interest rate and deposit $1 into it

Make a promise not to touch it in unnecessary expenses

You know the rules and I assume you are adult enough

Dave Ramsey ‘s Total Money Makeover suggested to open a saving account in different bank other than the one you do your daily banking with

He went so far with stories of people who managed to hide the money in a frame with a sealed glass where you have to crash it to get the money

2) Begin with the baby emergency fund plan

What I mean by baby is to deposit $500 as soon as possible

I would say to complete depositing your first $500 in your first week of starting your emergency fund

3) Automate saving into your emergency fund

This step works perfect for people who build emergency fund within their same bank along with their checking account

You setup an automatic transfer for small amount weekly or biweekly

Something that really builds up over time

4) Start multiple source of funding your emergency fund

Everyone of us can really liquidate $500 worth of household products or unused electronics into cash

• You can arrange a garage sales and take all of its profit to your emergency fund
• You can sell so many things around your home using Facebook Marketplace, Craigslist or even eBay
• Cut your expenses especially for discretionary items like the morning Coffee

I know you can mimic the purchase of you Coffee to every other day

To be fair, I am a Coffee addict so I know how we all spend on discretionary things

Since I noticed a surge in spending money on morning Coffee so I limited it to twice a week maximum

Follow the 101 money saving ways and check what you can save instantly and take its money to the emergency fund saving account

How long does it take to save for an emergency money

There is no specific timeline for you to take to complete saving for an emergency fund

To expedite the process of saving for an emergency fund, consider the following to help you focus on dedicating money to your emergency fund saving account

1. Imagine you will be laid off in 3 months and act accordingly
2. What about discovering a critical illness not covered by your medical insurance
3. Imagine a severe dental pain then you discover that your dental plan does not cover that

I am not a jinx, on the other hand I am always positive but we as human beings don’t act to something unless we believe that it is going to happen

Think about COVID-19, it would have been quarantined if we had taken good measures when we noticed the first symptoms back in December, 2019 in Wuhan, China

Where does Dave Ramsey recommend to save your emergency money

For those of you who don’t know who is Dave Ramsey

Well, Dave Ramsey is an American personal money management expert and a popular radio show speaker with a multi million dollar company he owns and operates

He measures his success by the number of lives he very last minute managed to change and saved them out of debts

Dave Ramsey suggested where to keep an emergency fund

You should in invest your money in a money market account also called money market deposit account

The latter means any account that pays you the highest interest when you deposit your money

You should not invest your money in any risk account that can go down in value even if it promises high profits or any account that charges you penalty when you take the money out early like CD which stands for Certificate of Deposit in US or GIC which stands for Guaranteed Investment Certificate in Canada

What does Dave Ramsey say about emergency money

Dave Ramsey considers the process to build emergency fund as one of the essential part in the 7 baby steps towards financial freedom

You need that safety net between you and lifedave ramsey describing the emergency fund

You need an emergency fund, an old-fashioned Grandma’s rainy day fundwell I should be positive but I am positive, sure it is going to rain one day

It is human nature to want it and want it now; it is also a sign of immaturity. Being willing to delay pleasure for a greater result is a sign of maturitydave ramsey’s quote to encourage PEOPLE to save money

Pray like it all depends on God, but work like it all depends on you.for those who believe why we need emergency fund if we reply on god

Final notes on saving for emergencies

Finally I hope you realized the importance of saving money in case of emergencies

Check if you know how to build your family budget, this would definitely help you to plan for an item reserved for an emergency fund

I cannot push you to save money unless you have a vision and plan for your future

All I can do is to provide you with an emergency fund tracker free printable

Click to download for free from my products page

A lot of common budgeting mistakes occur because a lot of people don’t realize that building a family budget help them to manage their finances

They give up quickly and never consider budgeting their income again

Let me take it this way

What would make you stick to your monthly household budget is that

You noticed you stopped living paycheck to paycheck

Your budget sorted your priorities into saving money for retirement and building an emergency fund

What is most important you stayed in control to pay off your debt

I recommend you read my common budgeting mistakes below if you are about to start or already started budgeting

It is never too late so let me start with

1) Keeping a rigid budget all year round

It doesn’t make sense to treat all months during any given year with the same allocations for different expenses

For example, in Summer expect your kids to ask you for vacations and weekends activities that require to book for hotels

Even if kids are not pushing you or you don’t have kids at all

You cannot ignore the fact that when summer comes you have to enjoy the weather and pay more to for entertainment

I live in Canada, so I have only short period around 4 months from May to August for the outdoor activities

I have to enjoy every moment as winter arrives fast and I get stuck at home again

To avoid rigid budget mistake

List all expenses you do or don’t pay for on your budget and carry them over from one month to another

Who knows an expense like outdoor activity in winter is zero but in summer you would definitely plan for it

Same for holiday gifts assuming you separate it from birthday gifts

In December you should plan for Christmas or Hanukkah and keep it as zero in all other months

Same concept applies to some expenses like grocery, expect to allocate different amount for each month

For example, in summer you may invite friends and family to a barbecue in your backyard or if you host a specific event like thanksgiving or new year

2) Building a strict budget

I know you may have plans to use the leftover from your income into saving for your retirement or building an emergency fund

It would be appropriate if you plan a lean budget with real allocated amounts to your expenses than a strict budget that can disappoint you later

For example, if your grocery is on the high end of $500 and you create a budget of $450 monthly

How you would expect to meet the $450 grocery unless you already analyzed your numbers and figured out what was causing your grocery to spike

To avoid building a strict budget

One of the common budgeting mistakes not adding wiggly room for expenses and allocate emergency expense to use its money to cover any deficit

Don’t copy any expense amount from previous month as is but do your due diligence for possible things that can happen that would change your numbers

Always track your spending on a weekly basis to spot any deviation

3) Not sharing your budget with the family

If you are married with or without kids, one common budgeting mistakes is not creating a family or household budget not a personal budget

At least spouse should agree together that all values are allocated properly to expenses

According to Dave Ramsey’s book Total Money Makeover

He describes one partner as nerd while the other is the free spirit

This is true as I always debate with my wife on setting the right amount

I act as the nerd and she acts as the free spirit, surprise she is always right

To avoid keeping budget away from family contributions

Always remember that no matter what you cannot handle all the expenditures by yourself

All family members should agree on the approved budget to meet the final goal and all of you should be transparent to each other

Ask your kids if they have any unexpected amount for school activities to include in your family budget

4) Missing setting up your budget before beginning of the month

Why you think your budget fixes your monthly finances

Simply because you agreed to make few sacrifices before the start of the month

For example, let’s say it’s December where holiday gifts are at its peak

You are willing to reduce few expenses like your clothing expense and morning coffee since you will definitely get gifts

It is a common budgeting mistakes as you have to plan ahead before you start the month

To avoid missing your budget before beginning of month

Make it a habit to work on your new monthly budget the last weekend of current month

One common budgeting mistakes not using reminder apps like Any.Do on your Andoird or iPhone

5) Guessing your monthly expenses

One of the common budgeting mistakes is to guess your expenses based on a quick calculation you make

Or maybe based on weekly spending for a particular expense and multiplying it by 4 to get the monthly amount

For example, if you do you grocery weekly and you paid $74 last time

You take $74 and multiply it by $4 so you get around $300 later on you discover you spent $550

I know why? some weeks I go to grocery stores to buy everything including meat and poultry and sometimes I buy fruits and vegetables only

Rule of thumb, not all weeks will be the same as I discussed under rigid budget

To avoid guessing expenses and get right expenses amount

Avoid taking any spending for a short period of time and multiply it to get the monthly expense

If you want to predict a precise amount of any expense or close to the right value

Go back to the last 6 months on your credit card statements and track all of your spending for this particular expense

If you are not using credit cards and you are paying cash then keep the receipts but make sure to remove any items not considered of this expense type

For example, if you go to Walmart for your grocery shopping and you buy a pajama then deduct the amount from the total amount

6) Not using a digital budget

Although I am a big fan of anything and everything that makes my life easy

That doesn’t mean I completely replace paper budget with digital one

Paper budget is great way to enforce holding yourself accountable

But also digital budget instantly calculates all numbers for you with a click of a button

To avoid using paper budget only

Before the beginning of any month, you need to complete your budget assessment

There will be a lot of scratches and recalculations, it is a tedious job and can take a lot of time even when using a calculator

Why don’t you use a digital budget when putting up the numbers before you commit yourself to your budget

Then you can use the paper budget handy to look at your numbers and compare your spending to actual amounts

7) Not tracking your daily spending

The key to keeping your monthly budget on track is to track your daily spending

To avoid not tracking your daily spending

I have an easy spending sheet it can be used as daily or weekly spending

you can use an app like spending tracker on Android and iPhone

8) Cutting entertainment completely

Whether you have debt or loans to pay and you want to take it seriously

I don’t know your current financial situation but I know one thing

We as humans can’t survive without hanging out and spend some money on entertainment such as vacations

One common budgeting mistakes is to cut any kind of entertainment from your budget completely

To avoid cutting entertainment completely think about

It is almost impossible to budget your income without considering entertainment as an expense in your budget

Think about your spouse and kids if you have

If you can do it, they cannot do it especially kids so entertainment is essential core in your budget

9) Not writing down your financial goals

Just write down your financial goals and keep it in front of you

It is as simple as that

Most people don’t see any benefits for writing down their financial goals

They think why they would write their goals down, they don’t forget it

Well, I did not say they have a short memory

It is just that when they write their financial goals, it keeps themselves focused and motivated to achieve their targets

To avoid not writing down your financial goals

I made it simple for you and created already a financial goals roadmap

10) Not building emergency fund

Imagine you already setup your monthly budget and you started to put it into action

All of the sudden, your car stops in the middle of the way and you call a towing company to get your car to the mechanic

It is one of the common budgeting mistakes that can mess up with your monthly budget even if you have taken all of your precautions

To avoid emergencies that mess up with your budget

You have to build an emergency fund by saving $1,000 as a baby step

11) Skipping saving for retirement

Did you ever ask yourself what is the main core for doing your monthly budget?

You may say budgeting is a way to control your spending, pay off your debt and control your finances by making sure you make the most out of your income

All the above are correct but if you don’t include saving for retirement as one of the monthly budget goals

You have to think about your retirement saving plan seriously with at least 10-15% of your income

To avoid skipping the saving for retirement

Keep in mind that when you contribute to RRSP in Canada or IRA in US, it is considered a tax deduction to your total income

This means you get a tax refund when doing your taxes

A lot of companies match your contribution up to 6% so if you contribute 6% that’s 12%

It will not hurt you as it will be deducted from your gross income

Just budget your take home pay after your contribution

12) Forgetting seasonal expenses and tax income

Seasonal expenses are something that come up where you totally forget about them or based on mails you receive

It is better to keep track of them if they are recurring like summer camps for kids, car license plate renewal, regular oil change, annual car maintenance and AAA/CAA membership renewal if applicable

The positive side is the tax refund income when you file your taxes

To avoid forgetting seasonal expenses

Brainstorm on top of all the listed below seasonal expenses and add them to a sheet that contains the expense name, amount and due date to be paid

Put the due date even if the renewal is coming in 5 years or more like Passport renewal

• Occasional clothes like school uniform, a suit or dress for attending a wedding or engagement
• Hobby supplies e.g. my Siteground web hosting annual renewal
• Office supplies e.g. my printer toner around once every 2 years or based on your consumption
• EZ pass in US or 407 in Canada, any other used toll
• AAA in US or CAA in Canada if applicable
• License plate renewal
• Car maintenance and emission test
• Driving license renewal
• Passport renewal
• Doctor’s appointments and any drug you refill every 3-4 months
• Software renewal like your antivirus or Office membership if applicable
• Amazon prime if applicable
• Professional degrees fee like PMP or CPA if applicable
• Property tax or HOA stands for Home Owner Association fee, I recommend to ask your bank to deducts a small percentage with every mortgage payment

13) Giving up too early

If you give up too early or after a while that your family budget is not for you for any or all of the following reasons

• You believe creating a family budget does not benefit you at all
• Working on your monthly budget takes lot of time and you cannot handle that
• Family budget does not save you money
• It always goes out of your control and all of your estimations are wrong

To avoid giving up on your family budget

I will answer the above reasons in order

You say your family budget does not benefit you

I smell one of the spouse does not want to commit to a budget

Please read my post how to convince your spouse to commit to a budget

If your concern that budgeting your monthly family income takes a lot of time

I agree that the first 2 or 3 monthly budget would take more than 2 hours but it should decrease significantly in time every month

Because you have all numbers from previous month and what works for you and what does not

You just need the commitment to stick to realistic amounts that you set on

If you believe family budget does not save you money

I know what is wrong, your income does not align with your expenses

Let’s assume that you stick to your amounts but the root cause is that your cost of living is not aligned to your income

e.g. your mortgage/rent is eating up your take home pay

I discussed that it is highly recommended not to exceed 25% of your take home pay on mortgage/rent

You have to work on a side hustle to increase your income

I recommend to read how to avoid living paycheck to paycheck

Last thing, if your monthly budget always goes out of control and your estimations are wrong

Please review all the above common budgeting mistakes and figure out which mistakes you commit

If you set an amount for certain expense then you will have to commit to that amount

Your family budget is not a commitment tool, it is just a guideline

Finally I hope I covered all the common budgeting mistakes

Now I would like to discuss what to do if your spouse won’t participate in your budget

I wish I would have known the cash envelope method in 2011

I was laid off in September of 2011

My wife’s income was the only source of income at that time

Anyway I know it now and I want you to know about it

I will discuss it below and I will start with the following

What is cash envelope system

The cash envelope method or system is a mechanism you follow to force yourself to stick to your budget

You replace all payment methods which you use to pay for your expenses

Like debit or credit cards with a carry on envelopes loaded with cash

You cannot use it for paying mortgage/rent and utilities as those already get deducted from your bank account

Why the cash envelope system is successful

The cash envelope system or method is successful

Because it forces you to use the cash inside any particular envelope with great cautions

Also it raises your awareness and concern to always count your cash to track your progress during the month

For example, if you assigned $450 for grocery envelope and in the middle of the month you find that you have spent $275

This means you have $175 left for the remaining 2 weeks

First, you would learn to track your spending more frequently like after every purchase

Step by Step to use the cash envelope system effectively

Before you start using the cash envelope method you have to prepare a plan to use this method effectively

This will lead me to discuss the following steps below

1- Start with a budget

This is what we call it to create a personal budget to know if your income covers all of your expenses with almost no leftover of any cash

This means you have to think about a way to save on your expenditures

Or your income covers all of your expenses with some cash to save

But again you have to plan to save for your retirement and to build an emergency fund

2- Choose the expenses to spend as cash

Look into your budget to see all expenses you have control on

And where you spend them by yourself with any payment method

3- Figure out your bills

This step is very important as not all the bills go out on the same day

You can have the rent on the 5th of the month while your cell phones on the 27th

This means you have to deduct the bills from your paycheck which is almost biweekly for most of us

Now check to see how much cash left in every paycheck

Add the contributed amount to the cash envelope based on the percentage to your paycheck

For example, if you earn $1890 income biweekly and you pay $900 rent as a one time payment

This means you can contribute less money to your cash envelopes until your next paycheck which does not have that big bill

4- Divide your cash envelope system by your paychecks

In simple words, if you assign $450 for the grocery then you have to contribute $225 from every paycheck

Actually that is not the ideal scenario

I mentioned earlier due to the fact that you have bills due that can deduct automatically from your bank account

This leads to have your paychecks net amount not exactly the same during the month

One paycheck can pay the rent so you have to compromise the contributed cash to your cash envelope method

5- Prepare your cash envelopes

I mean by preparing your cash envelopes finding a way to distinguish your cash envelopes from each other

If you bring white envelopes and you write on each envelope the name of the expense

This approach is not practical as you have to check your envelopes every time you pay for an item

I recommend to get a different distinct color for every cash envelope

After some time you will start building a habit to recognize the expense by its color

For example, when you spot the green envelope in your bag, you instantly realize it is for paying your grocery

Advantages of cash envelope system

When using the cash envelope system you have a surefire technique not to exceed your estimated budget

Because you force yourself to meet it by paying cash from your envelopes

You associate it with the saving habits

And so you save easily without worrying you have to deduct money from your planned saving due to an expected amount you have to spend

Disadvantages of cash envelope system

1) Getting started with the cash envelope method can be confusing and discouraging at the beginning

2) Cash envelope method always keeps you worried because of carrying a lot of cash in multiple envelopes

3) It is very hard to convince your whole family carrying cash is the only way to stick to your budget

4) You have to go to the ATM machine frequently unless you cash out the lump sum amount in advance

5) You will not collect any credit card rewards at all

Experience of those who used the cash envelope system

The cash envelope method is not for everyone

But for those who followed it to adjust their bad spending habits and put themselves back into following their budgets

They noticed the following below benefits occurred to them

1- Spend less money

Of course they spend less money because they can never exceed what is inside the envelope

Assuming you don’t take money from another envelope

Even if you manage to spend less from the other envelope which you have withdrawn cash from

2- Save more money

Saving money becomes easy now as you can deduct your savings from each paycheck in advance

This happens before you distribute your cash in every envelope

3- Become more analytical

The fact of not swiping your credit cards make you more analytical

It forces you to calculate your spending before you go to the cashier

Also it forces you to drop some items from your cart to adjust the planned cash you intend to pay for this expense during your shopping trip

What to do if you have spent all the cash

I am a practical person

I would say blatantly that when following the cash envelope method It can happen to you that you finish your cash in one of your envelopes before the end of the month

If you manage to spend the rest of your month without spending from this particular envelope

This will teach you a lesson to properly manage spending your cash wisely

if you break your budget I hope you learn from your mistake

And find out what went wrong and promise yourself not to do it again

Keep in mind I assume you have properly selected a reasonable amount on any particular expense

And have not gone unrealistically crazy assigning an impossible amount to achieve

Like assigning $150 for grocery and forcing yourself to do it

Where should you keep your cash envelopes

One of the frequently asked question is where you keep your envelopes

If you are using a carry on bag, you can keep your cash envelopes inside

Don’t worry nobody expects that you carry a cash inside your bag

If you are the man and you carry only a wallet

Anyone of us knows in advance where you are heading so you should only pick the envelope you are going to spend the cash from

Can I use my debit card instead of cash envelopes

I am not against using your debit card instead of carrying your cash envelopes

But I would assume you show some responsibility following the cash envelope method first for 2-3 months to build the habit of spending wisely on every shopping trip

Then you can switch to the debit card spending

But please use a budget app like Goodbudget which is based on cash envelope method

What to do with the extra cash

In my humble opinion

You can get a sense of getting extra cash on any envelope based on your spending habit during the month

For example, if you are on your fourth and last week of the month

And you have $200 left from your $450 grocery cash envelope

This means you almost 45% left and likely you will save money

The decision is yours to reward yourself for a dinning out with your spouse or to save the money

Summary of the cash envelope method

Between me and you

I cannot follow the cash envelope method

Not because I teach something hard that I fear to apply it to myself

Simply I haven’t gone to a level of breaking my budget

A level that required me to go through using the cash envelope method

I always practice austerity and I spend wisely especially when planning for a family budget

I hope you stick to your budget and avoid any common budgeting mistakes

Where you don’t end up using this cash envelope method

Now if you need to learn more about budgeting and saving money tips, join my mailing list

Forget about budget commitment and managing your finances for a while

Ask yourself before trying to convince your spouse to stick to a budget commitment

Are you happy in your marriage?

Do you really love your spouse?

Is your spouse happy with you?

If there is at least one No to any of the above questions

You need a marriage counselor if you really want to save your marriage

But if your answer is yes to the first two questions and you get yes from your spouse on the last question

Great, you have a good basis with your spouse to start working together as a team on your monthly budget

There can be a real damage to your marriage because of money issues

Not being able to fulfill the basic household expenses and paying essential bills are really devastating

This happens when a husband couldn’t resist buying his Harley Davidson motorcycle or a wife getting dresses from Nordstrom

Anyway if you still have love to one another

Let me help to establish a budget commitment between both of you

Open your heart to each other

This is the best part in the whole article that can really turn your spouse to agree for a budget commitment

But remember you have to do it the right way

This can only happen by sacrificing and turning your ego off for a while

The key success to really get your spouse to open his heart to you is to stop defending yourself

If you feel your husband is not responsible please pay attention to his answer to the below question and don’t interrupt him or defend yourself

Ask him if you really fulfill his desires emotionally and more important physically

Same thing applies to you as a husband when you ask your wife the above question

Don’t rush for budget commitment until you resolve any issues between both of you

As it doesn’t make sense to ask for budget commitment while she is retaliating for neglecting her emotions and seeking attention from you

Or on the other hand side, he is retaliating for not fulfilling his physical desires

If you love each other and your relationship is built on mutual understanding

Then it is perfect time to open discussion why your spouse is reluctant to help in your household budget

Do your best to understand his reply back

Is it because he has personal spending that you want to cut?

does he view the whole budgeting as nonsense? perhaps due to previous budgeting mistakes that pissed him off budgeting

He is not into numbers something like Mathematical anxiety?

Use “We” instead of “Me”

The first step towards convincing your spouse who refuses budget commitment is that you have to trust each other

I hear real stories of couples who don’t have a joint bank accounts

If you want to manage your finances together and agree on a budget plan it would rather be better to switch your bank accounts to a joint one first

Always use “we” instead of “me” especially when talking about building a family budget

It’s OK to reassure him that both of you are in the same boat and you will never drill it as you will drown together

Same thing with Budget, you have to confirm with him that it is a “we” problem

Stop saying “you are not willing to stick to a budget commitment” or “you are responsible for what we are now”

Speak about the current situation as if both of you are responsible where you stand now

Understand the weakness in both of you

We all suffer from selfishness and love to possess discretionary items and that is normal

What is inappropriate when you blame your partner for his weakness towards something you don’t crave

Remember money means different things to all of us but the core purpose of money is for fun, investing and giving

We are all born with different perspectives when we think about money

For example if me and my wife get extra money like tax refund or bonus

I tend to think first about saving money and investing like increasing the emergency fund with this money while my wife thinks instantly about giving some money away to the Church

She has more faith than me but I put my trust in her decision

The good thing is that we both don’t think about using the extra money in the fun part unless it is really something that has been waiting for long time

My point here is to understand the weakness in you and your spouse

This can help address any issues that may arise when trying to convince your spouse to stick to budget commitment

Any conflict in finances where one is a saver and the other is a spender is one of the top common reason for divorce according to Huffpost

Create separate plans and review them together

If you opened your hearts to each other and addressed your money issues with the “we” scenario followed by fully understanding his weakness in how he perceives money

You can move to the next step by asking him to create a separate plan on how he allocates your combined income into the fun, investing and giving criteria

Keep in mind that fun includes all the fixed, variable and discretionary expenses

Also you have to create a separate plan for you as you have to compare your allocated amounts to his amounts

To make this exercise practical and interesting

Skip all the fixed expenses like mortgage/rent and all essential bills

Ask him to create a plan for all variable and discretionary expenses you can control after making sure that you already deducted all the fixed expenses from income

Now compare your spending plans together

The interesting part comes when you read how much your allocated amounts for his discretionary items against what he allocated to himself

Same thing applies to your own discretionary expenses which you allocated to yourself and what he assigned to you

I will say it again you should not taunt him for allocating high amounts for himself or for low amounts for yourself

Time to be more specific

This is a good time to compromise and come up with how to setup a reasonable amounts and ask him to stay committed to this budget

Budget commitment will not happen if he believes you slashed his amounts

Sit together and make sure any deduction you have to do it together

Best practice is to check percentages of what both of you spend on yourselves

I always believe you should attempt to smartly deduct from biased expenses that both of you don’t care if they got changed

See if you can get few savings to be added to his amounts to support him

If you want him to respect this budget commitment then show him that you can lower your own discretionary amounts in favor of keeping his amounts

Finally come up with a plan to pay off your debt and go for money saving challenges together

You can use the ultimate budget bundle to help you manage your budget

Let us compromise together

Even if you are the one who sacrificed to satisfy him

Make it clear that he should be content about what you both allocated to his discretionary amounts

It is time to state that you cannot manage your household budget alone

Be clear that you definitely need him dedicated for this budget commitment

Encourage responsibility

Now it is a good time to encourage him that he can work on his spending to keep it close to what you both agreed upon

Tell him that you will do the same for your spending

Ask for a weekly meeting to review your amounts and make sure there are no discrepancies from what you both planned for

If your husband shows any sign of budget commitment encourage him to keep up the good work

But if he is not showing any interest attending your weekly budget review or your monthly budget plan

Take it easy as long as he is following your plan

I would ask you to make to summarize your assessment and review it with him

Show him that you really miss his feedback and you expect him to join you next time

We can work it out

Remember focus only on what you can control like your spending and sticking to a family budget but not your spouse

Give him the space when it comes to the idea of living on a budget

Do your best to keep the communication open and never leave him and walk away

Be patient and understanding with how you present the budget idea to him

Show him how important to have a budget commitment for both of you

Definitely following the above advice will get him on board on your budget

Now it is good time to read how to manage your budget on low income and what to do if you are living paycheck to paycheck