One Simple Trick to Hit Your Budget Every Month

You're so proud!  You finally made a budget for your family!

It's probably really pretty.  Maybe you battled the malevolent computer gods to learn the ins and outs of Quicken, maybe you took the insane amount of time it takes to input all of your account information into one of the delightful little personal finance apps (more on that later), maybe it's on a drool-inducing spreadsheet.

You finally did the hard part!  Right?

But then your victory dance happened too soon.  You miss your budget the first time, but no worries!  You just had to adjust a few categories.  Beginner's mistakes.

Then you miss month two, but it was Christmas and that's always going to be a horrible time for budgeting.  Your budget isn't bad, you'll get them next month.

Then you miss month three.  But again, it was totally understandable!  Two of your kids have January birthdays.  Just a one-off.  You'll be fine.

The next month one fo your kids gets braces, then the dog has an allergic reaction to your newly-planted bushes and incurs ridiculous vet bills, then you have to pay travel expenses for your annual spring break, then it's time to book summer camps, and so on, and so on...

A year ago, my husband and I were in this exact same boat.  We were insanely diligent with our budget.

I categorized our transactions on PocketSmith (my personal finance app of choice and the best thing that ever happened to my inner finance nerd) every day on the app while I was waiting in the carpool line.  We had monthly budget meetings and raked ourselves over the coals for minor budget infractions.  We followed Dave Ramsey's envelope system vigilantly.

What was going wrong?  It's not like we could not get our child braces when they needed them.  And you can't anticipate things like sudden vet bills.

What follows is a butchered description of real estate transactions:

When you're buying a house, you have a period of escrow where the money you're spending on the house goes into a separate account, held by a  middleman, not the buyer or the seller.  It hangs out there until you finish all the paperwork, when it finally gets transferred to the seller.

(My husband is actually in real estate and could explain it much better.  As could Google, if you're curious, but the previous hack job was good enough for our purposes.)

What does this have to do with our repeatedly-failed budget?  Everything.

After years of month after month of failed budgets, we struck upon the solution that instantaneously changed everything.

One day, in desperation and probably the dead of night, I decided to try something new: we were going to make an escrow(ish) account to take care of our yearly expenses.

I went online at Chase* (where we already have our checking account and several linked savings accounts) and opened yet another savings account.  I named this savings account "Yearly Expenses" and I love it the most of all.  (Yes, that was a Wizard of Oz reference in a financial post.  You're welcome.)

The next step (which was probably taken at 2am and next to a snoring husband, mind you) was to make a list of all of these blasted "one-off" expenses that kept derailing our beautiful budget.

Keep in mind that this was done in a middle-of-the-night fit of rage typing, so my list was very detailed.  I put down everything from holiday travels to birthday gifts, summer camp tuition to property taxes.  I included estimated yearly totals for things we couldn't know exactly, like medical or vet expenses, back to school shopping, and other things that would surely happen but we didn't know just how much they'd be.

I figured out how much each of these little buggers was going to cost us for the whole year.  Then I added them all up and divided that number by twelve months.

The result made my head spin a little.  I almost couldn't fathom having to take that much out of our collective paychecks each month, but the math was right and the numbers were all based on what we had actually spent in previous years.  So, like the stubborn swot I am, I decided to give it a try.

Starting that month, we put this amount into that "Yearly Expenses" account each month.  It hurt and we had to tighten our belts a little bit (okay, a lot bit), but then something majestic happened.

The next month, another one of those annoying, one-off expenses came along.  (I think we had to book our annual trip across the country to see my husband's family for Thanksgiving.)  I was just about to mourn yet another month with a blown budget when I looked at my spreadsheet and saw that we had already saved the money for it.  What?

We booked the tickets, transferred the exact amount we spent out of our "Yearly Expenses" account, and made our budget with a few hundred dollars to spare. This was completely unheard-of back then, as we usually missed by a much larger margin.

This couldn't have worked, could it?

Apparently, it did work.  This kept happening.  I would be sure we were done for when medical expenses, school trips, house repairs, and other mumbojumbo would pop up.  But, each month, I was astounded that our pre-saved money was there to take care of the random pop up expenses.  

As it turns out, we were spending quite responsibly after all!

We've been using this system for a little over two years now.  It's definitely required some tweaking.  After the first year I had to redo my estimates on almost half of the items on my list because I'd underestimated just how much we were spending on some things.  (Yes, this number made our monthly "yearly expenses" savings amount go up even more.  No, I did not cry...much.)

I also added a "miscellaneous" category with an extra $500 that we could pull out for expenses we didn't forsee or if (for some reason) we really needed it one month.  This little guy has saved our neck more than once, I'll tell you.

Overall, we are now at a point where the system works!  We only miss our budget on months where we really do spend irresponsibly.  This still happens (we are human), but it is far rarer than it had seemed back when we were missing by a large margin every single month.

Because this helped me so much, I want to share my spreadsheet (on the lovely Google Sheets) with the team.  It's been sanitized of our personal information (because I want no one seeing how much we spend yearly on continuing education courses between the two of us), but this is the exact spreadsheet that saved our budget from monthly obliteration.

I've also written up a step by step instructions sheet so even those of you who aren't technologically inclined can use it with relative ease.

Just click the button below to get a free download of my exact spreadsheet.

Take a look, give it a try, and let me know how it works!  I'd love to hear how this system (that saved our financial necks) works for other families!