Preparing The Household Budget For 2010

Posted on December 23 · Comments

At this time of the year, busy at it is, there are two things that I do in preparation for the coming year. One is setting new goals, of which I’ll write more about next week, and the other is getting the household budget ready.

I get pretty excited about this task (ok, I admit I don’t get out much and find this stuff fun), because I love the hope of new beginnings and the unrealised potential of ‘next year’ (silly as that may sound – a blank spreadsheet has a lot of potential) and I love crunching the data on the past 12 months of spending.

There are a few tasks I do in preparing our budget. These include:

Estimating income and expenses for the coming year

As we’ve been keeping a budget for a few years, this doesn’t take very long, I usually add about 3% for inflation to some of our expenses or more or less depending on the expense.

The other thing is predicting what we’ll spend our money on. DH plans on studying and we’ll have baby costs, extra medical costs so I try and factor those things into the budget.

Predicting when expenses are due

This is pretty easy for most expenses, either the expense is similar every month (sometimes we spend more, sometimes we spend less and it evens out) or yearly bills like the car insurance are due at the same time every year. Other expenses I try and plan around events like birthdays where we might dine out.

Making adjustments and setting limits

Usually, once I fill in the the budget, I then look for practical ways to shave money off it. I find it’s better though to over budget a little than under budget. The challenge for the year then is to ‘beat the budget’. For example, we spent much less on clothing than I allowed for in the budget this year.

Setting savings goals

I’m not sure what the focus of our savings will be for next year just yet, besides saving for yearly expenses and boosting our emergency fund. I have a feeling that that might be all we manage next year.

Evaluating 2009

As we track all of our actual income and expenses, I look at how we did over the course of the year. Firstly, I look at spots where we went well, and spots where we didn’t go so well and could do with some improving. These areas of spending become our focus for 2010. My cash flow variance sheet comes in handy here, because it compares budgeted expenses to actual so I can make an evaluation on each spending category at a glance as well as see how much we were above or below our estimated monthly cash flow.

Some of the problems lie with how well we predicted expenses, not our actual spending, although I’ll usually adjust the budget throughout the year if I see that it’s way off.

Inserting comments on certain expenses during the year help with evaluation. If we have a major blowout in one month, it helps to be able to go back and see the comment like hot water service repair or bad case of the flu or whatever it is that has affected our spending.

I like to compare our expenditure with the previous year to see if we’re improving. Some things go up of course – can’t fight inflation, but many expenses we’ve managed to reduce, like how much I spend on STD telephone calls.

Transferring data to our Progress Chart

As I didn’t work much this year, it really feels like we’ve kind of stagnated. But putting this year’s data into a progress sheet that goes back to 2005 shows that we actually haven’t been standing still financially after all.

This progress spreadsheet is where I track and compare savings and emergency fund balances, investment balances, debt levels, superannuation balances, liquidity and net worth for each year and chart some of these balances.

Despite feeling that we’re “not getting anywhere” it’s nice to be able to see that for the most part, that’s not true. Actually looking at data (especially in a nice little graph) can be extremely informative and it often contradicts assumptions and can be quite motivating.

Do you keep a budget? What’s your budget process?

Have you read these posts?

Category: budgeting and finance · Tags: budgeting and finance