Do you know how much money you've needlessly spent over a given period of time? I recently did the math for myself. For a period of 30 months not so long ago I took home $172,404. My basic living expenses were $80,400. At the end of that 30-month period I had a grand total of $2,740 in checking. Fuck me. Where the fuck did 97% of my extra cash go?

Managing our finances has to be one of our top priorities. Lest we desire to make ends meet till the day of our death we need to hold ourselves accountable for every penny spent. When we know our spending habits, via necessity or luxury, we can refine our objectives. By writing it down it gives us a plan. By following it, it gives us freedom.

What I'm about to tell you is by no means the one and only way to budget. If this is an area you struggle in as I have, it will give you a start. Customize to your liking. Just do it.

Calculate Your Take Home

We all know what our hourly or salary rate is. Of course, if you make $100,000 you're not bringing home $100,000 year; this is highly dependent on where you live. Furthermore, if you're self-employed or a contractor, you have additional concerns.

If you're salary you have an advantage; you already know what your take-home pay will be each paycheck. I would advise not adding in bonuses and other irregular payouts.

If you are paid hourly but with benefits, you also have an advantage. You should be receiving PTO for sick time or holidays. Your forecast should also be easy to project.

In my situation as a contractor, I had to be much more detailed. I received no PTO. If I was sick or the office was closed, well, too bad. Using this Hourly Paycheck Calculator from ADP really helps. I found it underestimates slightly which is great; I'd rather an underestimate versus an overestimate. With that, I could forecast pay for full or partial work weeks.

What we want to do is develop a schedule of pay for at least the next six months. I personally chose to do one year to get a good overview of my financial goals and all anticipated charges.

Identify your pay periods and forecast pay through your expected time period. This will be your foundation.

If you receive other forms of regular income you may choose to add this as well. Just be careful of your confidence level. If you're receiving payouts from stock dividends or child support, these payments may fluctuate due to various reasons. It's important to remember it is better to underestimate than it is to overestimate; think of anything extra as a bonus you can throw into savings or your IRA or towards a debt.

Edit: Another way you can increase your paycheck is by using the IRS Witholding Calculator to ensure you're having the minimal amount taken while keeping any return or tax owed as little as possible.

Calculate Expenses

This step can be little trickier than it would seem. It's easy to forecast regular expenses; mortgage, car, cable, etc. It's a little trickier for other bills such as utililties, gas.

Identify all of your expenses. Let's start with the basics:

  • Rent/mortgage
  • Car payment
  • HOA dues
  • Life insurance
  • Health insurance
  • Auto insurance
  • Water
  • Natural gas
  • Electricity
  • Internet
  • PornHub
  • Cable
  • Home security
  • Netflix
  • Spotify
  • YouTube
  • Barber
  • Groceries
  • Pet food
  • Medications
  • etc.

You get the gist. Do not try to focus on what you pay monthly but what you will pay throughout your forecast period. I only pay HOA once a year. I pay auto insurance twice a year. What we want is a complete itemized list of every expense we currently have.

Did you account for your car registration? Vehicle inspection? Dining out?

What I would not do is add in wants. If you're planning on taking a vacation in six months but have yet to make any payments towards it, leave it out. You can work that in later.

Let's then identify when these expenses occur. For monthly expenses I'll use an integer for the date. For others, I'll use the date due.

Bill Due Date
Rent/mortgage 1
Car payment 2
HOA dues 2020-02-01
Life insurance 7
Auto insurance 2019-06-17, 2020-12-17
Water 9
Natural gas 12

And then add the expense amount.

Bill Due Date Amount
Rent/mortgage 1 $1200
Car payment 2 $400
HOA dues 2020-02-01 $1000
Life insurance 7 $30
Auto insurance 2019-05-17, 2019-11-17 $670
Water 9 ???
Natural gas 12 ???

Some of this is easy; our rent or mortgage should be the same, as with our car payment and PornHub Spotify subscription. Others are seasonal. For example, in my household we don't use nearly as much water in the winter as we do in the summer beause of our sprinkler system. We consume more natural gas in the winter. How do we account for this?

I would recommend, if you have access, to calculate the average of your last three years of payments, by month. You can use one year's worth, sure. But you're likely to get a better monthly average with more data points particularly with utlity prices that fluctuate over time. You may also consider calculating the average over a year, and roll over any extra from one month to the next.

Unlike forecasting pay where underestimating is good, here we want to overestimate. Add 10% to your forecast expense. This should allow you to account for any market fluctuations without harming the rest of your budget.

We want to apply these expenses to the appropriate paycheck. For example, if we have a scheduled paycheck for 2019-04-19 and another on 2019-05-03, we want to apply any expenses with a due date greater than 19 and less than or equal to 3 to the 2019-04-19 paycheck. Apply any payments with a due date greater than 19 and less than or equal to 3 to your 2019-05-03 check.

You should end up with something like this:

Bill Due Date 2019-04-19 2019-05-03
Forecast Pay $2500 $2500
Rent/mortgage 1 $1200
Car payment 2 $400
Life insurance 7 $30
Water 9 $52
Natural gas 12 $21
Auto insurance 2019-05-17, 2019-11-17 $670
HOA dues 2020-02-01

Finally, calculate your remaining balance per paycheck.

Bill Due Date 2019-04-19 2019-05-03
Forecast Pay $2500 $2500
Rent/mortgage 1 $1200
Car payment 2 $400
Life insurance 7 $30
Water 9 $52
Natural gas 12 $21
Auto insurance 2019-05-17, 2019-11-17 $670
HOA dues 2020-02-01
Remaining Balance $900 $1727

If you're remaining balance is at an uncomfortable level, you will need to make modifications (more to come).

If you're an Excel or Google Sheets guru, you may find it easier to do a simple list such as,

Bill Due Date Expense
Forecast Pay 2019-04-19 $2500
Rent/Mortgage 2019-05-01 $1200
Car Payment 2019-05-02 $400
Foreast Pay 2019-05-03 $2500
Life Insurance 2019-05-07 $30
Water 2019-05-09 $52
Natural Gas 2019-05-12 $21
Auto Insurance 2019-05-17 $670
... ... ...

In this format you could easily recreate the pivot table format above along with other summary tables for monthly, quarterly, etc. Just be sure to validate that you've added all of your expected pay and expenses.

Identify Areas of Improvement

One popular budget plan is the 50/30/20 budget; 50% of your take-home pay goes to necessitites, 30% to luxuries, and 20% to savings and debts. Let's assume this is your budget plan. You tag each expense into one of the above-mentioned categories and run a monthly analysis. You find you're exceeding your necessitites budget by 5%. Knowing the exact amounts of each expense will allow you to cut some fat to bring the expenses back within your preset allotment.

For example, let's say you're average water expense per month is $90 and you need to bring it to $85; a reduction of ~5%. You may choose to cut your sprinkler time by 1 minute per cycle, take shorter showers, or run the dishwasher once a week instead of twice.

If you need to reduce your electric bill, you can invest in energy-efficient light bulbs, raise the AC by one degree or use a smart thermostat and apply a schedule.

Some of these ideas may sound ridiculous. You don't have that luxury. You're the Captain, and one of your duties is maintaining fiscal responsbility.

One thing I found really helpful in my household was minimizing the food budget. My wife is already fiscally responsible; it was I that was the money-retard. She was quick to jump onboard when I finally put a dollar amount on our weekly food expenditures. I found we were spending approximately $300 every pay period to food. I applied a ~17% cut and, since she does the grocery shopping, asked her to make it work. Not only did she make it work, she actively sought the challenge to spend as little as possible! She goes to two, sometimes three grocery stores to find the best price in items. Many times she'll come home bragging, "I saved $0.50 getting bananas from Store B instead of Store A." Or, "I only spent $90, $35 shy of my budget!" High fives, "good girl"!

The point is that you have now taken what was a mess of numbers and given yourself the ability to quantify - and justify - each expense. It is now on you to bring the ultimate objective to reality by identifying areas to attack.

Set Deadlines

Most of us here will have some type of debt that we want to resolve. Or, we may want to get the family the fuck out of Dodge. Now that we know exactly where our money is going over the next six months to a year we can get a better idea of what we have to work with.

Let's say you decide to put 10% of every paycheck into savings. Perhaps one objective is to have six months of savings. You find that you will achieve this goal on August 2, 2019. Wouldn't it be nice to take the family to Florida for Labor Day weekend? As it turns out, you will have an additional $2,000 in savings by that time. You now have confidence you can begin planning for that vacation.

A painstaking process my algebraic-retarded ass went through was targeting an end date when I would have all of my credit cards paid off. I identified the cycle end dates for all cards as well as the annual percentage rate (APR). I then calculated how much interest I would have to pay on a monthly basis assuming no other charges and approximately the minimum payment due.

I analyzed different payment plans forecasting what I could pay on each card and when, and identifying how much interest I would end up paying in total versus when the cards would be paid off. You may just choose to tackle the highest-interest card or that with the lowest balance; whatever works for you. My point is that I chose a path, did the math and identified the exact dates each card would be paid off.

For credit cards and other variable-interest loans, this will fluctuate as your APR changes. You may want to round your APR up to some extent to account for this and, if your APR is lowered, consider it bonus funds you can apply to the balance.

With any loan, read your details carefully so that you understand how your payments are applied. Nothing will frustrate your budget more than planning to have $5,000 remaining on a loan by September then realizing in September you were off by a few hundred or thousand. And do you really want to have to cancel Labor Day vacation because your retarded ass didn't properly plan? There are plenty of methods available to help you understand the terms of your loan. It's on you to master the task.

Using Apps for Assistance

Many of you may be inclined to use a spreadsheet for the tasks above; it is my chosen route as well. I would also recommend finding a service such as Mint or YNAB to help establish your budget in addition to monitoring any additional spending that may arise.

I personally use Mint as I can link all of my accounts together, get notifications if a budget is exceeded or what bills are due, and either use their tools to view trends and expenses or export the data and view by other means.

I have not used YNAB only because it is not a free service and I could not justify working the expense into my budget. They do offer a trial period so give it a shot.

The important part here is that creating a budget is only the first step; ensuring you are following your budget is equally critical. By being able to access previous spending and categorize that spending you can easily identify if you are sticking to your plan. For example, you may have budgeted 10% of your check to savings. But, if you have to transfer from savings to checking, you're not sticking to your budget. Adjust accordingly, and either develop a better budget or better discipline.

Now, go set your budget, Captain.