Creating a budget is a very personal process. It is a reflection of the values you uphold. Joe Biden was quoted as saying:
“Don’t tell me what you value, show me your budget and I will tell you what you value.”
How true indeed!
Since I started to seriously track my spending, I realised the importance of closing out my budget at the end of each month. It is a process that shows me exactly what happened with the money I planned out from the beginning of the month, what categories I should be using for my cash envelopes, and assigning a realistic amount for each budget categories.
The most important thing of all is that it clearly shows if my budget is aligning with my money goals and if I am making some progress.
Simply put, you do not create a budget just to carelessly and unreasonably follow it. You should be able to dissect what the numbers mean to you. You must understand the reasons behind your money choices and if it is still aligned with your goals.
Where Did My Money Go?
In doing the process of closing out the monthly budget, I extract the information from my expense trackers and organise my spending into various categories. I have been doing this for quite a while now so I know which budget categories I will need to use that suits our family’s lifestyle.
If you haven’t been tracking as yet, please realise that this is the core in budgeting in order to know where your money goes. It might take a while for you to get a total grip of this as it requires time and a little bit of tweaking.
I find it more effective to track my budget performance utilising percentages instead of dollars.
Please take note that I do zero-based budgeting process which only means that our budget is just the sum of our family’s income. This may fluctuate depending on how much income we get for a specific month. The percentages at the end of the month gives me a clear visibility on how I allocated my money.
I completed the No-Spend Challenge and it was a big success! I saved up a total of $165 out of my shopping money. I allocated it towards my sinking fund for my August budget.
I am happy to share that we did not go beyond in any of our budget categories for this month.
The Starting Balance a.k.a Cushion Fund
The starting balance at the beginning of each month is an amount I have allocated as a “cushion fund” and is always a part and parcel of my budget. I have mentioned in my previous post that this is not allocated for anything in particular and only sits in the checking account waiting to rescue me when something occurs unexpectedly.
A cushion fund is specifically important when you are doing zero-based budgeting because technically, all your money must be used up at the end of the month; there should be $0 left in there.
However, based on my experience, I am not comfortable and happy seeing a $0 in my account when I start out the month. In truth, I’d be frantic! I make sure that I have a cushion fund and its job is to rescue me whenever necessary.
Mind you, I have been rescued 3X in a span of 3 months:
- Unexpected bill from a video subscription by Mr. Budget Tipster; this was not allocated in the budget
- I mistakenly processed a payment twice for 2 consecutive months: May and June respectively.
Fortunately, my cushion fund did its job like it should and it simply eliminated the stress and the drama that goes along with it. I include this amount in my income and is categorised as savings.
You see, we will surely commit some blunders along this journey. But we need to realise that we learn from our mistakes. It is about having some progression, not perfection.
How much went to debt and savings?
As you can see, I dedicated 36% of our income to savings. These are composed of the following:
- Emergency fund is 11% which will be spent for anything unexpected.
- Sinking fund is 9% for any planned and future expenses.
- Cushion fund is 11%.
- July savings is 5% from my No-Spend Challenge.
All up, my savings for July increased by 58%.
These savings are my saving grace and will always make me feel at peace and sleep soundly at night knowing that we are on track with our financial goals and that we are doing it good.
The biggest chunk of our income went to Bills and Utilities at 37%. This is still our most significant expense as I always want to make sure that our four walls of budgeting are well covered. It is important to highlight that our Church offering is also included here.
While I am hell bent in getting rid of our credit card debts in full speed, paying off 20% of it was giving all the best we could. We paid a total of $7814.82 in two months.
These credit cards have a maximum limit of $6100, $6000, and $3000 respectively.
We also cashed in some money from lose change; it wasn’t much but we were able to add it in our sinking fund in the amount of $54.
My Learnings and Insights
It is true that we have made a lot of progress from where we started. I can’t wait to see more growth in the coming months and I feel excited of the impact this journey may bring into our lives.
You may have noticed that I am not a hardcore “babystepper.” I am paying off credit card debts intentionally at the same time, putting so much in savings too. I was once asked why I haven’t shared the baby steps to financial peace on my page. I haven’t for a reason. I am making it only as a guide and a good resource but I was tweaking it based on what I deem is best for our family and what method and realistic budget will suit our lifestyle. However, I am happy to share it privately if you wish to know further.
So far, I have learned that:
You can not box yourself in terms of handling your money. There is no right or wrong. What you think will work and is best for you and for your family will always be the right way. No matter what the financial gurus will tell you about they key steps of achieving financial freedom, i.e 50-20-30, 70-30, or what have you. At the end of the day, you will have to do what works best for you. Again, budgeting is a very personal and unique process. Do not be afraid to do it your own way as only yourself knows what is going to be the best for your very unique life.
Committing financial mistakes in the past doesn’t mean financial habits can’t be changed. We have unlearned the bad habits that does not add value to our lives. We have never been seriously committed in tackling our credit card debts in the past. Knocking off 3 credit cards in a span of 2 months is a sure feat! But it’s not all about paying them off but making sure that we do not fall prey to the debt trap all over again and commit similar mistakes. It is a total overhaul of habits for us and for sure, never again!
Indeed, once you know better, you do better!