Stop lying to yourself.
… About your expenses that is.
If you are constantly finding yourself short on funds every other month, or if you have to keep dipping into your life savings just to keep the checkbook healthy, then something is wrong.
That was a harsh realization I had recently. Even after all the budgets and spreadsheets I’ve made, we were forecasting a huge deficit for the year. The only solution? It was time to get real about our household expenses.
Getting Real About Your Household Expenses:
What do I mean about that? Simple.
What will we realistically spend on household goods and other expenses this month? I don’t mean what I “wish” we’d spend. I don’t mean to simply use the maximum amount that we spent last year or last month. I mean what is realistic?
This sounds simple, but it is really important. Really, really important.
My greatest failure in budgeting: I was setting a limit without basis. It’s pretty easy to look at your fixed costs like your mortgage, car payment, utilities, and other things and get a snapshot of what you spend in a month. But those things are usually not the problem. The problem is usually buried somewhere in your variable expenses.
For example: For years I’ve always said that our total credit card expenses cannot exceed $2,000. But that was a lie. It was a lie because I don’t think we’ve ever actually spent anywhere below that in years.
I always felt like raising the limit would show some kind of failure. Or perhaps it would lead to lifestyle creep. For example: If I raised our limit to $3,000, what guarantee do I have that our spending wouldn’t increase to $4,000? You get the idea.
But that was dumb. The whole point of setting an annual budget, adding up our income, and accessing our household expenses was so that I had confidence that I WOULDN’T have to dip into our savings or struggle to make ends meet throughout the year.
So by not getting real about our home expenses was doing myself and my family a great disservice. It was time to face our problems head on by seeing them for what they are and getting prepared.
The Past Can Help Reveal the Future:
When it comes to proper budgeting, using history should be your foundation. You know that you already know the answers. You could probably guess in the beginning of the month to within 10% of what the actual amount of expenses spent will be at the end of the month.
The first thing I did to attack this was to download all our credit card information into Excel. This was actually pretty easy because all three of my credit cards allow you to download all your transactions into an Excel ready file.
Once they were in there, I simply assigned a category to them and tallied them up for each month. Quickly I started to notice trends in our spending.
- Places where we spent too much.
- Places where we could probably cut back.
Another thing I had to do was identify something I’ll call “outliers”. These would be things within your household expenses that came up only once and will not likely ever come up again. Mandatory car insurance coverage you pay bi-annually doesn’t count, although you should compare and find cheaper rates every year anyways. I did and lowered my premiums by 38%.
However, a good example of an “outlier” was the crazy $2,000 auto expense we spent to fix a leak that shorted out the entire instrument panel in our SUV. Hopefully (fingers crossed) we won’t have that problem again.
Talking About It – The Most Critical Element:
Once I had all the information sorted out and in one place, there was one last thing I need to do:
- Talk to my wife about it.
I think one of the biggest mistakes couples make is NOT to talk about their problems with money or complications that may be developing. If you don’t, how can you ever expect to fix things?
When I asked my wife to sit down with me, it was just talking. There was no blaming. There was no telling each other what to do. It was plain and simple to see that we would be heading for trouble if we didn’t modify our spending, and so we both knew we had to do something about it.
My goal was simple:
- Talk about what our past expenses were
- Discuss what they should be going forward
And so that’s what we did. We looked at the monthly average for each category, talked about a few of the outliers, and then decided how much we actually should spend in a given month.
But the difference was more practical – these were numbers that we both set. Not just created by one person. When both people have a say in what these numbers should be, they both have a vested interest in making it work.
Only the next six months will tell if we actually stick to our modified budget. But one thing is for sure: I feel much more confident in the numbers we came up with together than I did in the numbers I had in there previously. And that can only mean a better prepared budget and less chance for failure in the future.
If you haven’t already, I encourage you to do a deep dive into your monthly expenses. Knowing what they are may only be half the battle, but it definitely comes first in the sequence of events. If you don’t know you have a problem, then how can you treat it? Get your head out of the sand. I feel better knowing I did.
Readers – How realistic are you about your household expenses when it comes to your budget? Who else has really taken a deep dive and tried to understand what is eroding your savings every month? Any tips?
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