So, I refactored our budget categories to be simpler and more useful. It's difficult for me to figure out the right granularity for categories. You don't want it to be too specific, or it's a real pain and not very useful in terms of reporting. On the other hand, you don't want them to be so general that you can't set useful category amount limits.
I've settled on 12 categories:
- Consumables: Food, diapers, cleaning supplies, paper products, vitamins
- Discretionary (big ticket): car, house, loan pay-off savings, income buffer, major appliances/improvements, major car maintenance
- Discretionary (small ticket): home decoration, small appliances, eating out, any small ticket item not covered by the other categories, clothing, non-consumable baby stuff
- Education and communication: schooling, books, cell phones, computers
- Giving (not t.d.): any giving not tax-deductible
- Giving (t.d.): any tax-deductible giving
- Housing: mortgage, insurance, real estate taxes, utilities
- Lisa beauty: hair cuts, etc
- Medical (t.d.): Any tax-deductible medical expense. Anything non-tax-deductible should go under Consumables.
- Recreation: Matthew and Lisa date nights, family fun, etc.
- Student loan: money for the student loan.
- Transportation: car, insurance, taxes, fees, minor maintenance, preventative, fuel. Major maintenance goes under big ticket discretionary.
The rationale behind the two discretionary categories is to allow us flexibility in purchases that don't occur on a regular basis yet also to encourage us to save rather than spend. I.e. either we can eat out once a week or we can save to buy some furniture. If we had a category for eating out, I think we'd just go ahead and use it most of the time.
For the next two years, we're planning on paying off the student loan with all the money we save in the big ticket discretionary account. We believe it honors Christ to get out of debt, so we're planning to pray and work hard until we finish paying it off as soon as possible.
Also, we're switching to a cash system (checks and debit cards; no credit cards). When I'm using a credit card, I never stop and think about whether I actually have the money. Credit cards are magical like that, but if I'm using a debit card, it's going to keep me reined in more tightly, spending only what I have. That's a really good thing.
2 comments:
Thanks for sharing your thoughts on this! Choosing effective categories is tricky, and credit cards can definitely be deceptive. Megan and I have had a lot of success using a program called You Need a Budget to help us get a solid handle on what we're doing with our money. It works a lot like the envelope system, but on your computer so you don't have to carry lots of cash around all the time. :) They also have an iPhone app (if you're into that kind of thing). It's made such a difference in the way we track our finances and make purchasing decisions that I can't help but plug it whenever I get the chance... ;)
David -- nice to hear from you! YNAB sounds great. I'll have to take a look. Right now we're using Mvelopes, which allows us envelope functionality and it interfaces with banking systems, etc. so we don't have to manually input receipts. But, Mvelopes costs a lot so maybe we'll look at YNAB.
We don't have smartphones yet...but we've just recently begun to consider them so that Lisa and I can communicate better during the work week.
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