Budget planning and spending control

Outsource memory effort

My overall goal in setting up a budget and associated reminders is to outsource memory effort — to make it so that I don’t have to think much about money once I have the system in place and running. I make a monthly savings deposit that puts away all the money I will need to make regular payments, including payments that don’t come around very often (and so are easy to forget, thus the reminders). This approach means I don’t have to remember to have money ready for those future expenses: it’s already taken care of by the time the expense comes due.

When an expense does come due, I get either a bill or a reminder notification, so I don’t have to remember to make the payment. I am notified, I pay using money already in my savings account, and it’s done, no muss, no fuss. Moreover, this method requires almost no attention once you’ve set it up.

I developed the method through my usual approach of experimentation, experience, and revision, and it lets me plan, track, and control my finances with minimal thought and effort. Admittedly, my finances are simple, but others are in much the same situation, and I thought the approach I worked out could be helpful to them — in particular, to those who haven’t yet worked out a method — for example, those starting their first full-time job — and thus can build on my experience.

Since individual situations vary a lot, anyone using this method will probably have to adapt it somewhat to fit their situation — and for some, it may not work at all. (The workbook described in this post is an evolutionary step beyond the previous method I used — pared down and enhanced with, for example, a clear display of the current week’s situation vis-à-vis the budget.)

Why this method works well for me

This method works particularly easily for me because:

I have a regular monthly income. People whose income is irregular (tips, commissions, sales of their own work) perhaps can use averages, but if you get a regular paycheck, the method works better.
I have my checking account, savings account, and credit card at the same bank, and I can easily transfer money among those accounts. Transfer transactions are free so long as I keep a bank-specified minimum balance in my checking account (and so I do that). Some banks limit transfers from savings accounts; in that case, a second checking account could be used instead of a savings account. (Money in a checking account does not draw interest, but — at least in my bank — interest on a savings account is negligible: 0.05% (5/100ths of 1%). At that rate, it should be called not “interest” but “boredom.”)
I don’t use cash at all — and the pandemic has made that easier since nowadays many places would rather accept credit cards (“just tap”) than cash. If you do use cash — or if you have multiple credit cards — you can adapt the method, but having a single credit card simplifies things and makes life easier. Visa seems to be the most widely accepted credit card. Update: I used Apple Pay instead of my credit card until I learned how much it cost the merchant. — see this post.
I live alone, so it is only I who am receiving and spending money. Those who live together and share income and expenses will have to modify the approach. If each has income, each can have a separate workbook and transfer money to each other as needed (for example, one person can transfer to the other each month his share of the rent — a simple way to do this is to set up one joint account: if A wants to pay $100 to B, A transfers that amount from his or her own savings or checking account (depending on the type of expense) to the joint account, and then B transfers the amount into one of B’s own accounts). I leave to you how to modify the workbook method for that situation. Clearly, if two or more people are sharing, they must communicate and work together to ensure that their income/spending plans are in synch and completely account for their monthly and daily finances without duplication or gaps.

The particular virtue of this method is that with it you accumulate money as you go — month by month — to pay foreseeable future expenses. The result is that when those expenses finally come due, as they inevitably will, they arrive not as an unwelcome surprise (again) but as a nothingburger that has no effect at all on your daily life. You already have the money ready, so you just pay them. No drama, no tension, no worry.

Elizabeth Gilbert, in her article “The surprising psychological effect of tracking your expenses” at Big Think, describes some benefits from tracking your expenses and also offers some simple strategies you can adapt.

Sticker shock

When you first populate the Overall Plan worksheet with your own actual information, you may be taken aback by the monthly total of the “implicit spending” you’ve committed yourself to. If you are surprised by the total, you will understand why you seem to be repeatedly short of money. It’s because spending money already committed for a future expense will inevitably put you in a bind when that future expense comes due.

This workbook offers a way out — a way that, in my experience, clearly works. Try it for one calendar quarter — 3 months — and evaluate it after that time.

The reason for the extended trial is to allow time for you to get some experience with the method. If this approach differs significantly from your current budget/spending habit patterns, it will at first feel awkward, but as you learn it, you’ll find that it works well. When you have to adjust habits, it’s important to allow time for the new habits to be learned and become familiar. It’s like what happens when you move to a new city. At first, it’s difficult to get around and find your way, but after a few months you no longer even think about how to get to places, you simply go there.

After using this method for 3 months, take stock, and decide then whether to continue and what you might change to make it better fit your situation and needs.

I use Google Sheets for spreadsheets, though obviously, Apple Numbers or Microsoft Excel, or another spreadsheet program would work equally well. You can download the example spreadsheet to modify it. (In the Google Sheets menu: File > Download > [choose format].) Because the sample workbook has formulas and formatting in place, it will be helpful as a starting point. I found that if I download it in Microsoft Excel format (.xlsx), I could easily import it into Google Sheets, or you can just make a copy (File > Make a copy).

The Seven Worksheets — and Reminders

The workbook for this method uses six worksheets, and I will discuss each in detail under its own heading. Each worksheet has a tab in the workbook, and the tabs, from left to right, are labeled:

Daily — This worksheet records all money in and out, so it is the most active worksheet, and thus it appears first among the tabs.
Groc & Misc — This worksheet records expenditures for food and other supermarket purchases (toothpaste, toilet paper, paper towels, dish detergent, and so on) — that’s the “Groc & Misc.” Also in this worksheet, I record (in its own column) Discretionary expenditures (books, liquor, restaurant meals, and so on — purchases I make from desire rather than necessity). This worksheet is the second most active.
Weekly — I added this worksheet at the start of 2022. I found I needed a better way to track my weekly G&M spending vs. budget. This worksheet adjusts each week’s budgeted amount by including the amount over- or under-spent from the previous week. The downloadable workbook (in the worksheet’s own menu, File > Download or File > Make a copy) now includes this new worksheet, with a blue highlight on its tab.
Groc Avg — This worksheet summarizes, one line per month, amounts spent on (a) Groc & Misc and (b) Discretionary, compared to budget. The worksheet also includes annual averages.
Monthly — On the first day of each month, I enter a line that has (a) the amount in my checking account, (b) the amount in my savings account, and (c) the balance on my Visa account (negative if I owe the amount, otherwise nonnegative). The sum of the three is my available cash at that time. This worksheet also includes some averages.
Overall Plan — This is the first sheet I’ll discuss in detail since it lays out the overall plan (thus the name). It’s the fifth tab because, once it’s complete, it’s not used so often as the others, though occasionally I make additions or revisions, as I’ll describe.
Scratch Sheet — This sheet is used to figure out various things as needed. Each of these ad hoc calculations typically takes a few lines. I date each entry and leave it in the sheet since sometimes it’s useful to refer back.
Reminders — Though not part of the spreadsheet, Reminders are an important part of the implementation. If you use macOS and/or iOS, the app Reminders is ready to go; Google Calendar has a Reminder function; and you can also set Reminders in Windows. In the final section of this post, I describe using Reminders in this plan.

As I describe the first 5 worksheets in detail, I’ll indicate where you may have to customize them.

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Overall Plan

The first spreadsheet to create is the Overall Plan. It’s the most complex worksheet because it identifies all income and expenditures and organizes them by category. After this worksheet has been completed, some of its totals are carried into other worksheets — that’s why you create this one first.

The Overall Plan uses categories to organize income and expenses. Each category will be discussed in detail in the sections below, but first, let’s take a look at what they are. The first category is:

• Monthly Income

Monthly Income is the starting point because that’s how much you have to work with. My own monthly income is deposited directly into my checking account, which is convenient. You might have to make the deposit yourself if you’re paid by check. Your Monthly income is your take-home pay: the amount of money you get to spend each month.

Next are expense categories. Expenses in these categories do not include day-to-day expenses — those are handled separately as (a) Groc & Misc, and (b) Discretionary.

• Monthly Expenses
• Periodic Expenses
• Subscription Expenses
• Auto Expenses
• Replacement Expenses
• Gift Expenses
• Tax Expenses
• Savings

Money in these eight categories is not available for day-to-day expenses (that is, not available for Groc & Misc and Discretionary expenses). With this approach, each month you deposit into your savings account an amount equal to the total of the eight expense categories. That removes the money from your checking account, which you then use for day-to-day purchases. The money in your savings account is thus safely set aside to be available for expenses listed in the eight categories (your implicit expenses).

The categories shown are typical of expense types, but you may need to add other categories. For example, you may have a category “Motorcycle” for expenses related to your motorcycle, or a category “Boat” if you have a boat, “Art Expenses” if you are an artist, and so on. By identifying a particular category and using it to group all expenses associated with that category, the costs associated with that category are clear (and you will have money ready to pay those costs without having to tap Groc & Misc or Discretionary funds).

Update: A recent article discusses some expenses that should be included among these categories and also provides some ballpark estimates. The expenses in the article will not necessarily apply to you — for example, home-repair expenses apply only if you own your own home. If you rent, those expenses vanish — but OTOH, a renter might want to have an emergency fund to cover a move and the funds necessary for a new rental situation (first and last month plus security deposit — call it an amount equal to three months’ rent at your target rate — in case you abruptly have to move (building damage, landlord eviction, whatever.) /update

When some category expense comes due — for example, a subscription renewal or an insurance premium or a gas & electric bill — you pay it with your credit card, and then immediately transfer from your savings account to your credit card account the amount you just charged, which pays the charge you just made. In this way, your credit card balance remains close to zero.

Note that payments for category expenses don’t use any money from your checking account — that is, they have no effect on your routine day-to-day spending.

Keeping your credit card balance close to zero — and always paying off the balance when the credit card bill arrives (and usually before that) — means that you won’t be charged interest on the account balance. My bank charges 19.99% interest on the unpaid balance — 400 times the interest it pays on savings — so not having to pay interest on my credit card is important. (My card is a no-fee card, and I recommend that you use a no-fee credit card. If you must use a card that requires an annual fee, that fee will be included as a Periodic Expense, discussed below.)

Money for category expenses does not reside in your checking account, and so it will be available (in the savings account) when it’s needed — because it will not be inadvertently chipped away for daily purchases. Once the workbook is set up, you don’t have to think about category expenses at all. You just pay them when they come due, transferring the amount from your savings account. The only expenses that require any of your attention are day-to-day expenses. Those also are paid by credit card, but for those, the credit card charges are paid by a transfer from your checking account, not your savings account.

Update: I changed the way I handle my Groc & Misc and Discretionary budget. On the first of the month, I transfer from my savings account to my Visa account the total amount budgeted for those expenses. That gives my Visa account a positive balance, and I pay down that balance over the course of the month. When I receive my monthly paycheck, I put that entire amount into savings. I don’t need any of the monthly paycheck, since I already transferred from savings to Visa the amount of money I need for the month to live on (Grocery & Miscellaneous and Discretionary).

When I use my Visa account to pay an expense listed in the Expense accounts — for example, an electricity bill or a phone bill or other expense shown in an Expense category — I immediately transfer from savings to Visa the amount needed to cover that charge. Thus the only charges that decrement the Visa account day to day are Grocery & Misc and Discretionary expenses.

You will occasionally have to revise your plan — your rent or insurance bill might change, you might add or cancel a subscription, and so on. The way the workbook is built, when a figure in the Overall Plan is revised, that change is reflected in all the worksheets. When you add a subscription, for example, your weekly discretionary income and thus your weekly budget will shrink by a small amount — enough to cover (from savings) the subscription payment when it comes due.

You might occasionally move some purchases from your Grocery & Miscellaneous budget to a Periodic Expense — so that your grocery budget doesn’t take a hit when the expense comes around. Instead of using Groc & Misc money, you will use money from your savings account to pay the expense.

For example, after using this plan for a while, I noticed that when I ran out of some vitamin or supplement, I didn’t like paying that from my grocery money, since I generally had other plans that week for the money. So I put vitamins and supplements in as an expense section, along the lines of Periodic Expenses (but as a separate section, so I could see the total monthly amount), and in that way, I included money for vitamins and supplements in the monthly savings deposit. Now, when I run out of some vitamin or supplement and must buy more, I pay from my savings account, not as a Grocery & Misc purchase (from my checking account).

I also treat Costco as an Expense, with a running average of the amount spent per month, and I put that amount in savings. Thus I pay a Costco trip from savings but I enter each trip’s total cost and the date in my Costco page, and that page computes the running average of the amount I spend per month — and that amount goes into savings each month so that it will be available to cover Costco expenses.

The final heading in this worksheet covers two tables:

• Expenses paid from Savings — a summary list of the totals from the eight expense categories; and
• Expenses paid from Checking — for Groc & Misc you specify the weekly amount; Discretionary is computed by the worksheet — it’s what’s left over.

Now for the details of each of the boldfaced categories above in the Overall Plan worksheet.

Monthly Income

As mentioned, this is the amount of take-home pay you receive each month. Deductions for withholding, FICA, health insurance, pension or 401(k) contribution, and so on are not available for you to spend, so there’s no need to think about those. The focus in this workbook is on tracking and controlling monthly and daily spending (and saving), and that is done totally with take-home pay. (In general, it’s good to make the maximum possible contribution to your 401(k) plan or other retirement plans that include employer contributions.)

Enter the title of the worksheet (“Overall Plan”) and below that enter your total monthly take-home pay. Then on the line below enter “Available Income,” and set that at 0.95 times your total monthly income. It’s prudent not to live on the edge, so you plan to use just 95% of your actual total monthly income. The 5% cushion thus created will often prove helpful, particularly during the first year of using this method, when you are likely to encounter expenses that you forgot to plan for (and which you then add to this worksheet in the appropriate categories).

Update 15 Feb 2022: I have now been using the plan for a few years, and over that time have gradually added to the various Expenses lists described below all my recurring and planned expenses. In the first couple of years, things that I had overlooked would pop up, but they’ve now been added, so unplanned/unexpected expenses are rare. Moreover, at this point my savings account has grown so that it offers a substantial cushion. So when this morning I had an unforeseen (and one-time) medical expense, I just paid it out of savings (rather than out of my daily expense money (Groc & Misc and Discretionary, described below).

That made me realize that the 5% cushion provided by budgeting only 95% of my income is no longer needed: the savings can be my cushion. So, although initially it was quite helpful to budget only 95% of my actual income, at this point, I’m covered (by the monthly deposit into savings to cover all expenses other than those daily expenses). So today I changed the Overall Plan to be for 100% of my income, which gave a nice increase in my daily spending amounts (Groc & Misc and Discretionary), which were the beneficiaries of the change, the expense amounts remaining unchanged.

BUT — important point — I did not take that step until I had a few years experience in using this plan. The knowledge from experience and the now-complete list of specific expenses I must provide for, along with my current savings balance, made the step feasible.

Thus I suggest you wait for four years before you start budgeting 100% of your take-home pay. /update

The example shows income from two sources — for example, one a primary job and the other a side hustle. List each source of income separately. If the income from one source is irregular, just enter a conservative average — you will probably adjust this figure as you gain experience and track the actual amounts over time (and to do that it would be helpful to have a separate worksheet: the amounts your receive, entered as you get them, and the running average, which would be the amount you enter as income — or perhaps only 95% of that amount, since with irregular income it’s good to be conservative in your estimate).

You use conservative estimates because it’s much better to have more money than you estimated rather than less.

Monthly Expenses

Under this heading, you list essential expenses you pay every month: rent or mortgage, water, gas, and electric bills, telephone, internet service, and so on. Although you may pay streaming services like Netflix each month, enter those expenses later (under “Subscriptions”) because they are not essential expenses but expenses that you can cancel if you want to or need to. The Monthly Expense category is for essential services that you really must keep — the core monthly expenses.

Regarding rent: If you get your income on the first or shortly thereafter, you will have already paid the rent for the current month. So when you get paid, you put rent money into your savings account, and when you pay your rent at the end of the month, it comes right out again — but in the meantime, it’s safely parked (away from your checking account), awaiting the date of rent payment. My rent is due on the first of the month — say, the 1st of September — and I pay it (using money from my savings account) on the 25th before it’s due — the 25th of August in this case. I believe it’s a good practice to pay rent a few days early. A happy landlord is a loyal landlord, and I gain no real benefit from holding on to the rent until the very day the rent is due (0.05% interest!).

Most utility companies offer a budget plan, where they bill a fixed amount each month, and then at the end of the year or calendar quarter, they bill an amount to cover any differences between budgeted and actual. I recommend using the budget plan if it’s available since it simplifies budgeting.

A car loan is an essential monthly expense, but don’t enter that (or any other auto-related expenses) in this category. Instead, put those into the Auto Expenses category. By using a separate category for all auto expenses, the costs of having a car are evident. Thus, if you pay a monthly parking fee, that would also go into the Auto Expenses category rather than into Monthly Expenses.

The same thing applies for monthly expenses in other identifiable specific categories you might have, such as Motorcycle Expenses or Boat Expenses or Art Supply Expenses: assign all expenses to an appropriate category.

Use the spreadsheet SUM function to compute the total, and I recommend that you put the Total line at the top and in boldface, as shown in the image. That visually associates the total with the category, and having the total at the top also makes it easy to add later some essential monthly charge you overlooked. (When you do that, you must adjust the range of the sum — or you can insert a row in the middle of the expense list and enter the new expense there. In that case, the spreadsheet automatically includes the new row in the range of the sum.)

This approach — putting the total at the top — is used for each category. The total is the significant number, so it has pride of place.

Periodic Expenses

Periodic Expenses are essential expenses that fall due on some schedule other than monthly. The image shows some examples:

• Apartment (or house) insurance, paid annually
• Another annual fee
• A fee paid quarterly
• and so on

The quarterly fee in the example is not large — $20 every 3 months — but enter all regularly occurring fees. Since you have to pay them, you’ll need the money to do that, so set it aside and you’ll have it in your savings account when the time comes. In effect, when you agree to a quarterly fee of $20, you accept an obligation at the rate of $6.67 per month, so recognize that obligation in your monthly finances. When the time comes to pay the fee, use your credit card, and then immediately transfer the fee amount from your savings account to the credit card account to cover the transaction. The money’s available in the savings account because you put it there.

Of course, the periodic expense might not be on an exact schedule by month. My test strips for blood glucose (I’m a type 2 diabetic) come in 100-strip packages, which for me is a 100-day supply since I test my fasting blood glucose each morning. So in the “How often (months)” cell for that item, I enter =100/daysinmon (using the constant “daysinmon” — see next paragraph) and the spreadsheet does the calculation.

When calculations were done by hand rather than automatically by a spreadsheet, certain simplifications were made — for example, a year was taken to be 52 weeks and a month 30 days. But now spreadsheets do the work, so it’s possible (and desirable) to be more precise and more accurate. So for the basic calendar numbers, I recommend the following. You can refer to cells by name, and I show the names I assigned for the computed average values. The values are displayed to two decimal places, but the cell contains the average as computed by the spreadsheet, which is more precise.

Again, the total of the monthly amounts appears in boldface at the top, just under the title.

Subscription Expenses

Subscription Expenses are payments made for regular (or on-demand) delivery of a product or service. Subscriptions can be renewed (sometimes renewal is automatic) and also can be canceled if you want — they are not essential expenses.

As with Periodic Expenses, you enter the item name, subscription cost, and length of subscription in months, and have the spreadsheet divide cost by length to get the monthly set-aside amount. I also add as a note to myself the subscription renewal date so I’ll know when an auto-renew will hit. (If you want to cancel a subscription, you can cancel at any time, and the subscription will then not renew.)

In the example, one subscription (Netflix) is paid monthly, but the rest are paid annually. In general, I choose to pay annually because it’s cheaper. Medium, for example, charges $6 per month (which is $72 per year) but an annual subscription is only $60 — so for Medium, I “pay” (set aside) $5 per month. Magazines, though, generally offer only annual subscriptions, and digital-only is cheaper than digital+print. Newspapers offer a monthly option, but a monthly subscription is more expensive than an annual subscription, so again I set aside a monthly amount for the annual payment. I have one subscription (for the Intego anti-virus package) that turned out to be much cheaper if I subscribed for two years at a time so that one is 24 months.

Auto Expenses

Auto Expenses follow the same pattern: you enter item name, total cost, and frequency in months, and the spreadsheet calculates the cost per month.

Note that in the example shown, two items (loan payments and parking fee) are monthly expenses. They are entered here rather than in Monthly Expenses because they are specifically auto expenses — if you had no auto, you would not have those expenses. By entering all auto-related expenses in this category, the category total shows the cost of having a car.

For the same reason, tire and battery replacement costs are shown here rather than in Replacement Expenses. In Auto Expenses you should also be accumulating money to replace the Auto — so after you pay off the loan, you set aside a monthly amount to replace the auto, based on your estimate of the cost of the replacement car and how much life remains in your current car. So eventually the loan entry will be replaced by a “next car” entry.

Note that this budget prudently accumulates $500 because this person’s auto policy has a $500 deductible — the policyholder must pay the first $500 of repair costs. This spreadsheet reflects an estimate/guess that the $500 deductible will be required every 5 years (60 months). When/if something happens that requires a $500 payment, the savings account will have the money on hand to pay it.

Replacement Expenses

Once again you make the usual entries — the item name, total cost, and lifespan in months (that is, how often the item must be replaced) — and have the spreadsheet compute the cost per month. You then transfer that amount each month to your savings account so the money’s available when replacement is required.

A homeowner might have quite a few Replacement Expenses: carpeting, roof, exterior paint, hot water heater, dishwasher, washer, dryer, lawnmower, and others. You can search online to find the average lifespan of various items. For example, searching “hot water heater lifespan” turns up the information that a water heater’s lifespan is typically 8-12 years. I would thus take 10 years (the average) as the estimated lifespan and enter 120 (months). The national average price is $1176, so the spreadsheet would compute the replacement expense as $9.80 per month, and that amount will be put each month into your savings account to be ready for the fateful day. You should also include the estimated cost of installation in the water heater price.

The idea is to set aside small monthly amounts that will provide the money that you will inevitably need when replacement time arrives. Replacement time can arrive abruptly, as an unpleasant surprise. If that happens, having on hand the money to pay for the replacement is soothing and avoids a “crisis” feeling.

In effect, this method uses a “pay as you go” approach, which means you avoid the financial hit of having to suddenly pay for a replacement. Regardless of how you manage your budget, when an item fails, you’ll need money to replace it. With this method the money you’ll need with be ready in your savings account.

Obviously, an apartment dweller has a noticeably shorter Replacement Expenses list than does a homeowner.

You’ll find that you occasionally must add an item that you overlooked but is worth including. For example, my Sonicare toothbrush recently failed. I bought a new one (using money from my savings account) and added “Sonicare Toothbrush” to Replacement Expenses — $65, 36 months lifespan (apparently), and now I set aside $1.81 per month in my savings account for replacement. That’s a trivial amount — I won’t even notice the change in my monthly Discretionary income — but when the new toothbrush conks out, I’ll have the replacement money ready in my savings account, and the expense won’t affect my weekly budget at all.

Gift Expenses — Presents/Celebrations

You undoubtedly know who will expect you to provide a birthday present, a Christmas present, an anniversary dinner, a graduation gift, and perhaps even a wedding. You can figure out how frequently those occasions will arise (or in the case of the wedding, an estimate of how many years away it is), and again divide the estimated cost by the number of months to determine the monthly amount to set aside. The size of this list depends on family size, the closeness of relations, and so on, but take some time to think through what those obligations are so you can be prepared and rest easy when they roll around. And when you find you have forgotten or overlooked a gift/celebration occasion, just add it to the list so you will be prepared when it comes round again.

Tax Expenses — and Savings

You may or may not pay estimated taxes, and you may or may not use tax preparation assistance — but if you do, be sure to include the usual entries — item, cost, and frequency — so that money can be aside each month to be ready when needed.

Money specifically designated as “Savings” has two categories. Cash Reserve is one, and the usual recommendation is that your cash reserve should equal six months of your take-home pay. You can set your own goal as to how soon you want to have that much in reserve, and once you reach that goal, you no longer have to set aside money each month to reach the goal. (Of course, if your take-home pay increases, you’ll want to top up your cash reserve to the new six months’ total amount).

The other category, Savings, is ongoing and is a matter of prudence — at some point, you will no longer be working, and having a good amount in savings is a great benefit at that time. Once you accumulate a few thousand dollars in Savings, you might look at putting the money into a Vanguard fund to get the benefit of a higher return. I mention Vanguard specifically because Vanguard index funds have extremely low fees and good performance.

Category for future purchases

In addition to the expense categories already listed, you might also have a category for future purchases. Suppose, for example, you want a really nice bicycle that costs $2800. Your regular daily purchases will not cover that, so you can add it as a (future) expense item, and use monthly transfers to your savings account to accumulate the money. If you want to buy it in 2 years, then your usual monthly transfer to savings would increase by $116.67 per month ($2800/24 months), and as a result, your monthly Discretionary income will drop the same amount (see next section). In effect, you are paying off a charge for the bicycle (at 0% interest — a negative interest, since the savings account where you park the payments does pay some interest), but you don’t get the bicycle until the charge has been paid off.

Once you get the bike, you discontinue this purchase expense altogether, so your Discretionary amount will increase. However, you do then have a new Replacement Expense: the monthly amount you set aside to replace the bike — plus replacement expense for tires and maintenance expense, all of which should be recognized in a new Bike Expenses category, along with other anticipated bike-related expenses. The monthly replacement expense for the bicycle will be substantially lower than the monthly money set aside for its initial purchase, however, since you can expect a bike like this to last at least 20 years (240 months), and that means its Replacement Expense is only $11.67 per month.

You’ll note the cost of owning things means also taking on the cost of replacing and maintaining them. Having fewer possessions means having more discretionary income — which can be spent on experiences rather than possessions.

Expenses Paid from Savings and Expenses Paid from Checking

At this point, the Overall Plan worksheet is almost complete. Return to the top of the sheet and enter a summary list of all the expense categories as shown, and enter the amounts using the “=” function: enter = in the cell and then click the total for that category in the Categories list. The total will then be copied into this list — and if the category list changes (for example, if you add an item to the category list, or decide to change the frequency/lifespan of an item), the new total in the category will be immediately reflected in this list.

The total of all these expenses is your savings account deposit each month. That money is set aside to be ready when you need it, and when you do need it, you take the money from your savings account, not your checking account. (As I’ve already mentioned, in practice you pay for the expense/item with your credit card, and then immediately transfer money from your savings account to the credit card account to pay the charge.)

So when do you use your checking account? Use it for day-to-day purchases, either necessary purchases (groceries and household supplies) or discretionary purchases (such as movies, nights out, books, concerts, restaurant meals, and so on). The amounts for those expenses — purchases you must make and purchases you choose to make — are shown under “Expenses Paid from Checking,” and in that table, you enter just one single number — the weekly amount you budget for Groc & Misc — the other numbers being then calculated by the spreadsheet.

The amount for “Groceries & Miscellaneous” purchases is shown in boldface in the image: $180.00. That’s the limit this person set for necessary day-to-day purchases for one week. The per-month amount is computed from that (4.35 times the one-week amount). Thus if a change is made in the weekly budget amount, the monthly amount automatically is changed by the spreadsheet.

The Discretionary amounts are also calculated. The Discretionary amount per month is entered as a formula:

Available Income monthly amount – monthly Total Deposit – Groc&Misc per month

In this spreadsheet, that is:

=B7-E13-H6

In other words, the monthly Discretionary amount is what’s left over after setting aside all monthly money already obligated.

The Discretionary amount per week then follows from that:

Discretionary amount Per Month / 4.35 — or, in this spreadsheet =H7/4.35

The Overall Plan Worksheet Is Now Complete — Sort Of

This worksheet does the heavy lifting in the workbook, and you now have a good first draft. However, you’ll find that as you use this method over the first year, you’ll have to return to the Overall Plan worksheet to adjust some figures (replacement prices or lifespans, for example) and you’ll probably have to add some items you overlooked.

As noted above, when you add an item to a category list, insert a new row in the middle of the list and add the item there. That will automatically include the new item’s monthly amount in the total. And when you make that change, it will ripple through the spreadsheet: the new category total will update the Total Deposit amount, and that will change the amount of Discretionary money available.

Once the worksheet is complete, you will find yourself “tuning” it — adjusting amounts or lifespans to keep expenses within Available Income (95% of your take-home pay). It’s important not to cheat: the amounts in the categories really will be needed, and having the money on hand when it is needed is a great thing. As Charles Dickens observed:

Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness.

Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

Now we move to creating the other worksheets in the workbook. Those will contain some entries copied (using the “=” function) from the Overall Plan worksheet. Thus any change in this worksheet will result in changes elsewhere in the workbook.

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DAILY

The Daily worksheet collects all expenditures. It has a heading, which you lock into place by selecting the cell that holds “Date” (A4 in this case) and then using View, Freeze. Then, as the list grows longer and you must scroll down, the heading remains visible. Under the heading are entries for expenditures: date and amount, with any amount from Groc & Misc + Disc expenditures entered also in its own column (so the two columns can be summed separately).

The heading

The heading shows the total spent so far in the current month. Note that the transfer to savings (the Total Deposit amount shown on the Overall Plan worksheet) is entered as an expenditure — that’s because it represents future expenditures. (it covers expenses you know you’ll have.) The two figures in blue are summations for the current month, thus on the first of the month, you must manually reset the range.

I set the end of the range very high, so when I reset, I change only the start of the range (to correspond with the cell that’s the start of the month). Thus to get the totals for August, as shown, I would set the ranges:

Total spent entered as: =SUM(B7:B5000)
G&M+D spent entered as: =SUM(C7:C5000)

Then the next month I would change “B7” and “C7” to the first cells for the new month. Because the range is set to begin with the first entry for August, the totals shown in the example do not include the two purchases made in July.

The Groc & Misc plus Discretionary Limit is set using the “=” function. Enter = in the cell and then click in the Overall Plan worksheet the cell that shows the Total per-month amount for Grocery & Miscellaneous plus Discretionary (in this example, cell H9 in the Overall Plan worksheet). Any changes you make in the Overall Plan that affect that total will result in a change in Limit on this worksheet.

“Remaining” is the Limit amount minus the (blue) total of G&M+Disc. As you make more purchases, the amount shown in Remaining will dwindle.

The entries

Entries in lines 5 and 6 are from the previous month and are routine purchases. The line 7 entry, the first purchase in August, shows the purchase of a prescription (from Safeway, in this case). Since the prescription is included in an expense category in the Overall Plan (Periodic Expenses, as “Rx refill”), the money for that purchase has already been set aside. So the purchase is shown as text — “Svgs $42.00”, meaning the $42 was taken from Savings — and thus is not included in the sum of purchases for the month. The money used was already set aside in previous months.

Lines 8 and 9 are routine purchases, but line 10 is the monthly Total Deposit amount transferred to savings. It has, in effect, been (prospectively) spent, and so it is subtracted from the amount available for the month — that is, it’s treated as an expenditure. It is not, however, a G&M purchase, so no entry is made in the G&M column.

The remaining purchases follow the same pattern, with two more purchases — lines 13 and 14 — again being “prepaid” in the sense that the money for the expense is taken from the savings account. Line 13’s expense is a Subscription Expense and Line 14’s is a Periodic Expense. As before, those entries are text (because they include the text “Svgs” and thus the amounts paid (from savings) — $70.00 and $80.25 — are not included in the Groc & Misc/Discretionary total.

Note that the test strips turned out to cost $80.25, instead of the $72.00 estimate in Periodic Purchases in the Overall Plan worksheet. At this point, I would change the Periodic Purchases amount from $72.00 to $80.25. That change would then automatically make appropriate adjustments throughout the workbook. This kind of adjustment will happen from time to time — a price will change, or an expense will be added (or dropped), as when a subscription is started (or canceled).

Two useful tactics

To remember what I purchased for how much, I now have the habit of always getting an itemized receipt. When I get home, I go through those receipts and enter the total for each store.

The other tactic is to set a notification alert in my Visa account. With the alert set, I get an email for any charge that exceeds the amount I specify. I specified $1, so I get an email alert for every Visa charge made. As I enter the day’s expenditures, the emails serve as a double-check that I got all the receipts.

Moreover, the email alerts also notify me of any charges made to my card that I did not make. And in fact, once I got emails for a few small charges made at stores on the other side of the country. I had not made those charges.

I immediately called the bank. The bank closed that Visa account, reversed the spurious charges, and sent me a new card by express delivery. (They were going to send it by regular mail, but I told them I depended on the card for all my purchases, so they sent it by 2-day delivery.)

I hadn’t expected the email alerts to detect fraudulent charges, but they did, and I’m very glad I had set up the alerts. (I have the same sort of alert set for debit card charges, even though I don’t use my debit card very often at all.)

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Groc & Misc

The Daily worksheet logs all money in and out, but Groc & Misc tracks only the money spent from my checking account (and thus does not show purchases made using money from savings). This worksheet has two goals:

Record money spent, so I can see where the money’s going. I thus record not only date, vendor, and amount spent, I also include notes about any expensive items — for example, I might note that I spent $58.17 at the supermarket, and then in the notes record “$18 salmon.” (In these notes, I round to the nearest dollar. I just want to note any costly items. If I look at an old purchase and wonder why it seems large, the note lets me know.)
Several times in going over the receipt, I have discovered checker errors — where I was charged for the wrong item (which so far has been a more expensive item): peaches charged as nectarines, a buttercup squash charged as an ornamental gourd, and the like. These seemed to be innocent mistakes, but I’m still glad I caught them and got the overcharge refunded.
See how I stand with respect to my budget, so I can trim spending if needed or treat myself if I am well within budget. I’ve found the best way to do this is to focus on what I’m spending in the current week. (Long-term purchases/expenses are taken care of by the money transferred to savings.) Besides seeing how I’m doing in the current week, I also want to see how I’m doing for the month. The Groc & Misc shows total spent for the current week and also, copying the amount from the next worksheet, Weekly, the amount still available (which varies depending on how much above or below budget I was in the previous week).

The Groc & Misc worksheet as now revised.

This worksheet has at the top the same table that’s at the top right of the Overall Plan worksheet: the total budget for Groc & Misc and Discretionary, per month and per week. The values here are taken directly from the Overall Plan worksheet. For example, the cell that shows $779.40 contains =‘Overall Plan’!H5 and the cell that shows $258.12 contains =‘Overall Plan’!H6. (The totals are calculated using “=SUM”, but they could be copied — it makes no difference.)

Below that, the heading line shows totals for the current month, just as Daily does, but also adds them (Total — that is, the total spent) and subtracts the result from the total amount budgeted (shown in B5) and displays the difference as “Remaining”: how much money remains for the month. (The amount remaining for the week is shown in the next worksheet.)

The individual item entries are obvious: date, vendor, amount (entered in either the Groc & Misc column or the Disc column as appropriate), and any notes about the purchase.

Week summary

Following each week’s entries is the week summary, which shows the current week’s total spending for Groc & Misc and for Disc. These totals are offset by a column so they don’t get included in the monthly totals. Then those two are totalled to show the total spent in the current week.

That total is followed by “Available,” the amount remaining to spend in current week. This amount shown is copied from the next worksheet, Weekly, by using the = function. The amount remaining will be negative if you spend more in a week than is available for that week.

When I copy the week summary line, I paste the copy several rows down to leave room for the new week’s entries. Using Edit in the Google Sheets menu, I can easily add more rows if needed and, at the end of the week, delete any unused rows. I do have to adjust the summation ranges for the week’s totals for G&M and for Disc in the new summary line, but once the range is set, Google Sheets automatically adjusts it if you insert or delete lines.

As soon as I make a new weekly total line, for the upcoming week, I insert a cell reference (using the = function) into the appropriate cell in the next worksheet, Weekly.

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Weekly

I’ve found that seeing the amount of money remaining for the rest of the current week is extremely helpful. If very little money remains, it’s generally easy to tighten the belt and get by with what I have on hand until the week ends. And if I stay within each budget each week, at the end of the month I find that I have stayed within budget for the month. (It’s interesting to note that Stephen Covey, in his 7 Habits of Highly Effective People, also focuses on a week-by-week approach to achieving large goals.)

This worksheet both provides good feedback on your spending vs. budget by week and also — an important feature — adjusts the budget for each week based how how much is left over from the previous week.

Week numbers are entered by entering 1 in A4, then in A5 enter “A4+1” and press enter. That results in 2, and then copy the contents of A5 down the entire column, to get all week numbers entered.

The budget for week 1 is taken directly from the weekly budget amount shown in the Overall Plan. In this example, that is $239.61, and that is entered directly as a number, not a function. That is, it is not copied by using the = function from weekly budget cell in the Overall Plan, since the contents of that cell might change later on — for example, if you get a raise during the year, your income will change, and the amount of Discretionary funds will change, so the weekly budget will change. You will then change the weekly amount here (by entering the number), and the previous weeks will not be changed.

The amount spent is copied automatically from the appropriate cell in Groc & Misc: the current week’s total spent in the Groc & Misc weekly total line. Enter = in the cell (for Week 1, that’s C4), then click the week-total cell for the week in the Groc & Misc worksheet and press Enter. Then, as you spend during the week, this cell will be updated automatically. In the Groc & Misc worksheet in the example workbook, the total spent for Week 30 is in cell G11, so when you enter the amount spent for week 30 in the Weekly worksheet (D11), that’s the cell you would click.

The amount available is a simple calculation: for week 1, enter B4-C4, and then copy the contents of that cell for the entire 52 weeks. As the example shows, this person went over budget in week 1, so that difference is negative: -$8.02, shown as “$(8.02).” (I used accounting notation since negative numbers show up better.) This amount available is copied back into the appropriate week’s “Available” cell in the previous worksheet, Groc & Misc, so I can see directly in that worksheet the amount available for the current week.

The budget for weeks 2 through 52: For week 2, enter $B$4+D4 in the cell. This adjusts week 2’s budget by the amount of the surplus or (in this case) deficit from the previous week. Thus the budget for week 2 in this example is $8.02 less than the budget for week 1. After week 2, you can simply copy the contents of this cell and paste it into the cell for the next week. That works because the use of the $ in the formula means that the first addend will always be B4, while the second addend will be adjusted when you paste so that it is the appropriate cell. (You can inspect the cell contents in the actual workbook to see what I mean.)

If your income or expenses change during the year, so that the total weekly amount for Groc+Misc and Discretionary changes, enter the new weekly budget as a number (not a reference) in this worksheet for the appropriate week, and then in subsequent weeks use the $B$x reference to that cell (where “x” is the row number of the new weekly budget number).

The result, as you see, is that each week has its own budget figure — a little less than normal if you overspent the previous week, a little more than normal if you came in under the previous week’s (adjusted) budget.

Specifically, the budgeted weekly amount for G&M and Discretionary is $239.61, but since Week 29 (shown in the previous example worksheet) ended up spending $2.55 less than its budget, the budget for Week 30 is $239.61 plus 2.55, or $243.18. (You can see the details on that week in the previous worksheet, Groc+Misc.)

In Week 30, this person spent only $231.70, so the unspent total of $11.46 is added to Week 31’s budget, making it $251.07. So far in Week 31 only $64.41 has been spent, but the week’s not over. The budget available for the remainder of the week is $186.66

I flagged this Weekly tab in the workbook with a blue line because I check it often. My goal is to stay within each week’s budget. If I do that, I feel good.

“Available” is simply the budget amount minus the spent amount. In D4, enter “B4-C4” and press Enter. You can then copy that cell down the column for the entire 52 weeks.

Groc Average

This worksheet shows Groc & Misc and Disc spending by month, and how each month’s total compared to your budget limit.

The Monthly Limit line contains the limits copied from the previous worksheet. The actual content of C2 (Monthly limit for Groc & Misc) is =’Overall Plan’!H6, and D2 (Monthly limit for Disc) contains =’Overall Plan’!H7. The Total is simply the sum of those two cells, though it also could be copied from Overall Plan.

The Monthly Average line uses the =AVERAGE function — C4, for example, contains =AVERAGE(C5:C16), and that cell can be copied to D4, E4, and F4 since the spreadsheet will adjust the range to be the appropriate column. Since blank cells are ignored in computing averages, you can specify the entire range. In this case, the average shows simply the average of July and August, the only rows that contain numeric data.

The row for each month shows the sum of the appropriate range of cells from the Groc & Misc worksheet. Thus -A- is an =SUM formula whose range is the January cells for Groc & Misc and -B- the sum of January cells for Disc from the Groc & Misc worksheet. (In the example spreadsheet, the row for August follows this formula, but the July figures are hard-coded rather than being formulas).

The Total cell -C- is simply the sum of those two, and -D- is the limit ($E$3) minus that total. (The $E$3 form is used so that for the next month’s entries you can simply copy the contents of this cell from the previous month and the $E$3 reference won’t change.)

In this example, Groc & Misc went over budget in July but Disc was under budget so the total for the month was $8.60 under budget. The month of August is still in progress, so those figures are just month-to-date.

Monthly

This worksheet provides a snapshot of your financial situation, month by month, and also shows annual averages.

I’ve filled in very little in this sample. Let’s look at line 11 for Aug-21. The total spent is obtained by summing the range of entries from the Daily worksheet. The actual content of the line that shows $2,672.76 is =SUM(Daily!B7:Daily!B5000). On September 1, when I update this worksheet, I’ll change “B5000” to the cell identifier for the last August spending entry, and enter a new summation for September, from September’s first spending entry to some cell way down the sheet.

The cell that shows $741.41 contains =‘Overall Plan’!$B$7–C11 — that is, it subtracts the August total spent from Available Income (from the Overall Plan worksheet). In this case, the $741.41 shows that at that time I was still under budget for August by that amount. The Daily worksheet shows that as well, but only for the current month. This table lets you see what the previous months were like.

Financial Snapshot

The more interesting part of this worksheet is the monthly financial snapshot at the right. On August 1, I went to my online banking account and entered in this line of the workbook the amount in my checking account (A), the amount in my savings account (B), and the amount of my Visa balance (C), which I make negative if I owe money to Visa, positive if my Visa balance is positive, or zero if the credit card balance is zero.

I enter into D (or copy the formula from the line above, which adjusts the cell references) the formula =F11+G11-H11 — and that is the amount of cash I had on hand at the first of the month.

One nice thing about using this method is that almost always cash on hand increases month to month, though when I suddenly had to replace my computer, cash on hand dropped — because I used some of my cash on hand (in my savings account) to buy a new computer, thanks to Replacement Expenses.

The bottom line uses the =AVERAGE function to show the average values for Total Spent, Deviance, and Net Cash.

Another monthly event

Although not related directly to budget planning/tracking, I do another monthly task that has proved interesting and sometimes helpful. FutureMe.org enables you to write an email to be delivered to yourself (or another) at a future date you specify. I routinely use this service, so on the first of each month I read a letter I receive that day (that I wrote to myself a year ago), a letter that generally includes:

• a brief description of my then-current mood, situation, circumstances, worries, and predictions;
• my goals for the coming year and some thoughts on how I plan to achieve them;
• comments on my success (or falling short) of the goals and plans from the previous year; and
• a description of my current activities and interests.

After reading that, I write a new letter to be delivered to me in a year.

Sometimes I will write ad hoc letters with a shorter time frame. For example, at the time just before my most recent move, when I was packing and wondering how I would like my new apartment and neighborhood, I knew intellectually that things would doubtlessly work out fine, but that did not fully settle my worries and anxiety, so before the move I wrote a letter to be delivered to me in 3 months, listing all my concerns and worries. Reading that letter 3 months later, after I was settled in and enjoying my new situation, showed me (again) how worries often come to nothing and (unlike plans) are a waste of energy.

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And that’s it

If you give this workbook a try, I think you’ll find that it will work for you, after perhaps adapting the categories a bit and getting a few months’ experience in using it. Your first impression may be that you have committed yourself to more future spending (periodic payments, replacements, subscriptions, and so on) than you realized. When that’s the case, one generally feels chronically short of money — and the reason is simple: that feeling comes from having committed to spending (in the future, which arrives daily) more money than is coming in, a commitment that one doesn’t realize. Putting those commitments into this workbook book makes them visible.

Solutions vary, but usually, over the course of a year or two, it involves both getting more money coming in (a better-paying job is one option) and cutting back on some of the money committed to future spending. You can try extending the lifespan of an item in Replacement Expenses, for example — 72 months instead of 60 — though that is risky if your new estimated lifespans turn out to be inaccurate. In my own workbook, I take a conservative approach — for example, I set the lifespan of my computer at 48 months rather than 60 months.

Another discovery you’ll make in the first year of using this method is that you will almost certainly have overlooked or forgotten some obligations — one reason you may not have realized how much you’ve committed yourself to spend. By updating Overall Plan to account for those omissions as you discover them, you’ll get a more accurate picture of your financial situation.

As you use this method for a few months, you will gradually discover a hidden benefit. The money for expenses listed in the various expense categories in the Overall Plan is (a) safely sequestered away from the money spent on daily expenses — groceries, gas, restaurant, and the like — and (b) immediately available when the bill arrives, with zero impact on your weekly spending. I move into an expense category anything I pay for that will come up again — driver’s license, car registration, new shoes. The more money I don’t even have to think about, the better. That one monthly savings account deposit eliminates a myriad of small worries. Expenses paid from the savings account are now painless — they’re non-events. Thus I put as many expenses as I can in those categories.

I hope this method will help some readers. As I noted, this approach will not work for everyone, but it has worked very well for me. I hope that if you try it, it will work for you.

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Reminders for the Budget

The Reminders app included with macOS and iOS enables you to set a reminder for a date, or a date and time, or even a location, though I don’t use that one. You can make the reminder repeating — for example, birthdays, estimated tax payments, driver’s license renewal. Windows also has ways to set reminders, but I am no longer conversant in Windows, so I’ll describe the Mac version. And Google Calendar has a reminder function as well.

What is needed is a function that lets you specify a date and time to be reminded of something, and the function should allow for the reminder to be repeating: every day — or week, or month, or quarter, or year, or five years — whatever. You should be able to set the reminder and then forget about it because you know it will be brought to your attention at the appropriate time.

It’s good to group reminders by category — for example, Medical (one-time appointments and repeating events like checkups), Government (driver’s license renewal, passport renewal, payment of estimated tax, etc.), Birthdays (and other anniversaries), and so on.

In macOS (and iOS) the Reminder icon displays a red-dot notification on the day a reminder is due, and the app has a “Today” button that displays all reminders due the current day.

The Reminder app is a big help with budget management, particularly when you must make a payment for which a bill is not sent — for example, to pay to renew a driver’s license or passport, or to pay estimated taxes, or to buy a birthday present or anniversary dinner. When no bill is received for a relatively rare expense, it’s easy to forget that it’s due.

One useful tactic is to have one Reminder that comes up daily — for example, to back up the computer, to weigh, to clean the kitchen, to floss — whatever. The idea is to make sure that at least one notification comes up each day because that instills the habit of looking at the current reminders each day. That daily check, even if the result is only ticking off a trivial reminder, is satisfying, and it also creates a habit, and with the habit, a critical reminder will not be overlooked. (Plus, of course, such a reminder also makes the thing reminded become a habit — I now always clean up the kitchen in the early evening.)

Budget planning and Covey’s method

Stephen Covey, in The 7 Habits of Highly Effective People, set out a quadrant system to classify tasks:

Quadrant I: Urgent and Important
Quadrant II: Non-Urgent and Important
Quadrant III: Urgent and Unimportant
Quadrant IV: Non-urgent and Unimportant

Quadrant I tasks require immediate attention, which often disrupts plans and leads to rushed actions. To minimize the time spent doing Quadrant I tasks, effective individuals spend as much time as they can in Quadrant II, completing important tasks without being rushed, so that those things are ready when needed and thus never hit Quadrant I.

They can’t take time time from Quadrant I — those things are both important and urgent — so they get more time for Quadrant (1) by ignoring Quadrant IV tasks, and (2) by minimizing time spent on Quadrant III tasks to use it in Quadrant II. (More information in this post.)

It occurs to me that the implicit spending — the money “spent” into a savings account to be ready when foreseen expenses come due — is analogous to spending time in Quadrant II.

Covey recognizes that getting enough time for Quadrant II can take some time and planning. Quadrant I tasks must be addressed immediately, so those cannot be set aside. Similarly, you might not be able to set aside the full amount of your implicit expenses because your immediate expenses (in effect, Quadrant I expenses) require too much.

But in the same way that you get more time for Quadrant II by cutting out Quadrant IV and cutting back Quadrant III, you can cut out frivolous expenses altogether and cut back on discretionary expenses, using the money gained for implicit expenses (in effect, Quadrant II expenses).

When you do that, you will start to pull ahead. The first time a big expense comes due — an annual insurance premium, for example, or a major car repair — you already have available the money for it in your “implicit spending” savings account, you’ll feel the plan starting to work.

It may take some time to get things in balance, but both time spent in Quadrant II and money set aside for implicit spending ultimately will pay off.

Written by Leisureguy

9 August 2021 at 4:22 pm

Posted in Business, Daily life, Software

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