Friday, January 30, 2009

Budgeting and the GFC

The GFC is casting its gloomy spectre, and is threatening to become the LFC: Local Financial Crisis. It’s an opportune time to audit our expenditure in preparation for a battening down of the hatches.

Fortunately for the sake of marital harmony, Action Man and I have a similar outlook on how we deal with money. We only ever spend what we have. We save to buy big ticket items. We have never countenanced the idea of going into debt to buy consumer goods. We pay our credit card in full every month. On the other hand, “budgeting” as such is something we haven’t done overtly to date. We kind of keep a mental tally of where the money goes each month. We thought that having a clearer idea of where our money goes would help in the event that we need to cut expenditure in the future. It’s been an interesting exercise to say the least!

Action Man bought a ready made Excel spreadsheet from http://www.easy-budgeting.com/ for AUD$5. The package includes income and expenditure spreadsheets where you plug in figures you anticipate for the year ahead, a monthly tracker and for those of you who like whiz-bang graphics, a whole suite of pie, line, and bar graphs outlining your anticipated and actual spending and saving.

Because I am the one who probably has more idea of what we spend, since I do almost all the shopping and pay the bills, I sat down the other day and plugged in everything I could think of that we spend in a year. Some areas like the kid’s expenses and medical expenses (of which we hardly have any, touch wood) were a bit hard to estimate, but I stuck in figures that will hopefully be overestimates rather than underestimates.

I tried to be as honest as I could with the expenditure estimates. For example, when it came to estimating books and magazines, I thought oh, $x will be about right. Then I really thought about it and had to admit expenditure on books alone was probably about $2x so the total was probably closer to $3x. That went in, even though I was sorely tempted to put in a lower figure to make myself feel better.

At the end of this process, you come out with a total expenditure for each month and year. Then, you start entering what you actually spend, and the macros in the spreadsheet do their thing. Areas where you overspend come up in red, underspend is in green. Percentage of estimated expenditure comes up next to the actual figures, so you know how much breathing space you have.

Anyone with any financial background would probably think, yeah, sounds like a normal spreadsheet to me. To someone like me, though, with no financial background, playing around with the spreadsheet was pretty interesting. Over the next few months at least, I’ll keep plugging figures in to see how we track.

So what has the exercise proved to date? Well, it confirmed what I already knew: we are living within our means. More than that, though, it threw up into relief potential areas where we can cut back our expenditure should push-come-to-shove. Handy information to have.

A lot of the frugal blogs out there talk about the value of budgeting in relation to those who have gotten themselves into a bit of a financial hole. To me, though, I think anyone can benefit from going through this process, in a hole or not. What do they say? Knowledge is power!

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