Friday, April 24, 2009

Where are we at?

The first thing we needed to do when we started this mission was to figure out where we were at.

I pulled together all of our bank statements, credit card statements, etc and created a spreadsheet with outstanding balances. The total was really scary!

I then created another spreadsheet where I entered all our transactions for a month - incoming and outgoing. Those totals were scary too. How could we possible be spending that amount of money every month? The good thing about this was that it made me even more determined to find a way for us to live within our means (the old spend less than you earn thing).

I knew that the next step had to be putting some sort of budget in place. This was quite tricky as the Optimist (my lovely husband) has an income that fluctuates every month - working on commission can be lucrative but, obviously, not all the time. Regardless of this we had to put together a budget. What I worked out in the end was that our fixed income each month was enough to live on - all commission could then go straight into debt repayment / emergency savings.

The key thing that makes our budget work is to re-set it every month. At the end of each month we sit down and work out what will be happening within the next month that we need to cater for. For example, any planned trips away, birthdays and other special occasions. We also have a good idea at this stage of the amount of commission we can expect to be paid. If it's been a slow month then the amount to pay off debt is low (we haven't had a month yet where we couldn't make a payment at all).

I don't use any specific tool for our budget other than an Excel spreadsheet. In this I enter the budget amount against each category and then, during the month, I enter in the actual spend. I leave our credit card payments until later in the month so if other unexpected expenses come up I can jiggle things around. I'd rather do that than tap into our emergency fund.

The other thing I learnt from putting a budget in place is that we were paying for lots of "stuff" that didn't seem to be critical to us. The next step was to work through all of our outgoings and decide if we could live without the service or product. That will be the subject of my next post.

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