Managing Household Finances // Set Your Budget & Savings Goals {series, part three}

This is Part Three of a 3-part series about the Home Finance Binder System. Check out Part One here.

This post was updated on June 14, 2020

How the Home Finance Binder System Changed Our Life

Hey there, friend. I’m Jessica.

I’m a 30-something wife & mama of two on the path towards financial independence as part of our family’s journey to simplify our entire life and ultimately, do less.

It’s been 6+ years since we started this journey with the Home Finance Binder System as our home base.

With it, my husband and I have been able to:

Pay off 100% of our student loans.
Buy a beautiful, right-sized home with a very low mortgage interest rate.
Pay off our first car, and intentionally finance a 2nd car at 0%, while quickly increasing our cash cushion every single month!
Gut & remodel our master bathroom with cash.
Consistently maintain a credit score of over 800 (even hitting 850 at one point – didn’t even know that was possible)!

There are quite a few layers in our home finance management process.

In this post, I’m teaching you how to Develop Your Budget in Part 3 of my 3-Part Series.

My hope is that you’ll discover energy & momentum to dive right into a better home finance management system for your family today.

You can start for free on a No Spend Challenge with this starter kit.

OR, if you’re already convinced you need to take action to budget, then I invite you to invest in your financial future with immediate access to the Home Finance Binder System here.

Everything you need is in the playbook and worksheets, including everything you see in the post below, plus so much more!

DEVELOP YOUR BUDGET

Document Historical Spend

All good budgets begin with a review of historical spend.

Surely, you can find all the fancy graphs and charts recommending a specific percentage of your budget go to X, Y, and Z. But none of that matters if it isn’t what your circumstances call for in this season. Those are great guidelines for bench marking, but it’s important to assess your actual life and actual goals first.

So, grab your bank and credit card statements, then funnel all “one-off” charges into the Historical Spend worksheet into specific categories. This will provide you with excellent visibility into your spending habits.

If you already went through Part 2, then you know we summarized all of the recurring charges separately. You don’t have to repeat that on the Historical Spend sheet since we already know those charges.

Create Your Budget

In the Home Finance Binder System, it’s at this point when we pause and reflect on expenses and decide what should stay, go or get reduced. There’s a simple workflow chart in the included Playbook that helps you make these decisions without stress.

Once expenses are culled to your desire, dive into the following steps:

Add Recurring Costs to the Expense Budget Worksheet

Take the Bill Schedules (both of them) that you filled out in Part 2 and drop each expense into the Expense Budget.

Pro Tip: IF you want, you can split recurring expenses that occur less frequently than monthly into a monthly charge and include that amount on your budget. That’s called a “sinking fund” and it’s a great way to budget without varying fluctuations each month. Example: $90 quarterly expense = $30 per month, paid every 3 months. You still have the money for the first two months, but it’s earmarked for payment in the 3rd month. Try it out!

Add One-Off Costs to the Expense Budget Worksheet

From the Historical Spend worksheet that you filled out in the prior step above, transfer an appropriate budget amount for each category in the upcoming month. It may not necessarily equal the amount you’ve historically spent. That’s up to you to decide for the current month.

Don’t forget to add amounts to any category you haven’t reviewed for historical spend, but know you need to budget money for in the upcoming month.

Total Your Expenses

Once the entire budget is filled out, total up each category: Home, Auto, Essentials & Discretionary.

Total Your Income

Grab your Income Record, where your income from last month was recorded. Total it up so you know how much is available to budget in the upcoming month.

NOTE: In the Home Finance Binder System, I talk through my “3 Budgeting Rules to Live By” and budgeting last month’s income is one of them.

If you’re not quite there yet from a cash flow standpoint, you can still shift your mindset to using last month’s income for this month’s budget. However, you’ll need to manage your cash flow tightly and ensure you don’t budget for more than you expect to earn in this current month. That is, if you got some birthday money last month, or unexpected income, ignore it for the purpose of budgeting if you won’t be reaching that level of income again this month.

Update the Monthly Calendar

Calculate the Total Income minus Total Expenses from the Expense Budget.

If this is a positive number that you’re happy with, then you’re ready to transfer both totals to the Monthly Calendar.

If this is a negative number, you’ll need to go back into the Expense Budget to reduce some categories.

Once you’ve created a positive value, transfer to the Monthly Calendar.

Finalize the Gap & Pay Your Future Self First

That positive number that you calculated in the prior step now needs a job. You can either send it to savings or use it as an extra loan payment, depending on your circumstances.

If you choose to send the money to savings, I suggest transferring to your savings account right away.

If you choose an extra loan payment, highly recommended waiting until the final budget numbers are in before paying that amount. You can’t get it back once it’s sent to the loan company!

NEXT STEPS

Hey there, mama. HOW does it feel to have a completed monthly budget right now?!

Complete visibility on your home finances by working your way through this series?!

If you’re wondering what comes after seeing the budget (like actually figuring out if it worked in 30 days!) then you’ll want to jump into the Home Finance Binder System.

In it, there’s an entire 4th Phase devoted just to home finance maintenance steps. There’s also a detailed checklist of steps to take at each interval: weekly, monthly, quarterly & annual.

Managing your home finances doesn’t have to be difficult.

Complete money clarity awaits, friend! I’m so excited for you.

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