After writing about money for three years you’d think I’d have my own finances on auto pilot by now, but I don’t. I still have a household budget and track my expenses every month, and I don’t pay myself first (gasp!).
While I can appreciate the forced discipline of automatic saving plans, I’m not a big fan of ‘save 10 percent and spend the rest’ advice. My budget is a living, breathing document that I’m constantly fine tuning.
Running your household like a business
I treat our finances like a business, to the extent that I take a broad look at our projected income and expenses for the next 12 months and use that as a guideline for planning our savings goals and big ticket purchases. Then I record our actual expenses for the month and adjust the ‘big picture’ budget accordingly.
This type of budgeting is more tedious than a ‘set it and forget it’ approach, but it helps us manage our cash flow and maximize our savings.
The cardinal rule of personal finance is to spend less than you earn. But if your income and expenses fluctuate wildly from year-to-year, it’s easy for spending problems to emerge when you’re not accounting for the vast majority of your income.
If I’ve learned anything from tracking my spending for five years it’s that change is the only constant from year-to-year.
In that time we’ve had two kids and now my wife stays home full time to look after them. I’ve changed careers and started an online business to pick up some of the income slack.
Related: How A Career Change Improved My Life
Our income has gone up since 2009, but the cost of raising a growing family means expenses have kept right up.
We sold our 2-bedroom starter home and moved into a bigger house, where we had to deal with all the expenses that come with a new home. We’ve had to put up a fence, landscape the front and backyard, and we’ve just started work on the unfinished basement.
We leased a car shortly after we got married, bought it out last year, and then purchased a new car when we found it too onerous to share one vehicle.
At the beginning of last year I had hoped to add an extra $600 per month on top of our regular mortgage payments. I bumped that up by $100 in April and again in July – all because I found a couple hundred bucks in our budget throughout the year.
Related: How To Pay Off Your Mortgage Faster
That’s money that surely would’ve disappeared had I not been paying close attention (spend the rest, right?).
I hope to achieve financial independence soon. Every dollar I can squeeze out of my budget – without sacrificing quality of life – gets me that much closer to financial freedom.
I’ll gladly put my finances on auto pilot once I get there.