My first step - Budget

Hello my faithful readers. It’s another week and time for another posting. Let me start by giving you a quick update on whether I’ve listened to my last posting and focused or not.

Believe it or not I’ve done a decent job of focusing for the week (don’t knock it, that’s an accomplishment for me). To help me remember my ideas and attempt to expand upon the good ones I started an entrepreneurial notebook (Skye’s idea). I’ve written down two ideas for businesses. One I really like and may or may not make something of it. The other is a gym idea I’ve had since I was working out heavily two years ago. Also, in my notebook I’ve placed numerous websites I heard about while listening to StartUpNation (SUN) radio. Haven’t had the time to check out all the websites, but that’s ok. Like I said, I did a decent job of focusing.

I’ve read more of my current book, Quality or Else, and refrained from buying any more books (although I did fill the buggy at Amazon.com with numerous books I plan on buying in the future). It happens to be the inspiration of one of the business ideas, the one I’m most excited about. I’ll discuss the idea at a later date. I’m a little over half way through.

I’ve told several friends and family members about my blog as well. Most say, “That’s awesome!” and say they’ll check it out. Some are more interested than others. It all serves my purpose of talking about my blog though.

Ok. I said I’d make that a quick update, so I’ll stop now.

What I’d really like to talk about today is the first thing I did to prepare myself for this journey, which just so happens to be a financial checkup, in the form of a budget.

To be honest, I made my little budget spreadsheet not for purpose of starting my own business, but to make sure that we have enough money for Skye’s schooling. She was about to start grad school and I wanted to make sure we had enough extra money in order to cover all the necessary expenses. In order to do that I needed to know what was coming in and what was going out. So I made a nice spreadsheet that has numerous tabs. A brief description of the spreadsheet follows. Unfortunately I don’t think I can post the spreadsheet here (if you can neither Skye or I see the way), so if you’d like a copy let me know and I’ll email it to you. I find it very useful.

The first tab is a monthly summary of our total revenues and expenses. So for any given month I can see if we had a surplus or a deficit. We tend to break even, imagine that. What’s the old saying, “Expenses will grow to match income.”? In our defense, the main reason our expenses match our income is because I’m paying down credit card debt I acquired while trying to make a go at real estate.

The next tab is a paycheck breakdown. What I do here is enter each paycheck that either Skye or I receive. On the left I place the gross amount. To the right of that I have before tax deductions, taxable income, federal taxes, state taxes, FICA, Medicare, and retirement deductions to arrive at net pay. This is the amount we bring home each payday. I have totals for each month and then at the top I have a grand total for the year.

The next tab is for our net revenue. This tab may be a little redundant because all it shows our take home pay. I guess I really just have it here because it shows our net pay, without all the ‘background noise’ of how we arrived at it.

The next tab is probably the most useful tab out of all of them and that’s the expense summary. Here I have the totals from each expense tab, by month. I also have a row across the top for grand totals by type. Another useful feature of this tab is I have percentages all over it. On a monthly basis I show what percent of total expenses each exp is. I also have the average yearly percentage per expense class. So if we start spending too much in anyone area I can pinpoint it immediately.

After this tab I have individual expense classes. For instance the first expense tab is for utilities. This includes items such as rent, renter’s insurance, phone, cable, gas, and electricity. The next tab is food. On here I have groceries and eating out. I have a total of eight separate expense classes and a total of thirty-five separate expenses.

I understand that I probably just spoke the equivalent to Latin to most people out there. For that, I apologize. Skye said she’s going to see if she can’t find a way to place a copy of my spreadsheet on here so all you’ll have to do is click on it and see what I’m talking about. Trust me, it’s more useful than it sounds.

The only thing that might bother you about this spreadsheet is that it must be updated on a constant, regular basis. I pretty much update it each evening that I’m home (we have a tendency to visit friends on the weekend). So each day I gather all receipts (if we have any) and place the amounts in the spreadsheet. It’s a bit of a chore at first, but now it’s a habit. Supposedly, you only have to do something for 21 days in order to make it a habit.

What you learn from the spreadsheet may or may not be a surprise. We learned that we spend more on our cars than anything else. We also learned that we ate out WAY TOO MUCH when we started keeping track of our expenses. Once you see where you are spending the money you can then determine if it is discretionary or not and what you can do to reduce it. For instance, with our eating out we cut back A LOT. We were spending more eating out then we spent on groceries. Now we spend a lot less on eating out then groceries.

So since I made the spreadsheet I know where money is coming from and how much we make and I know where we spend the money and where we need to cut back on our spending. I’ll be the first to admit that budgeting is not a cure all if you’re in financial troubles, but I do think that it is a very important first step to gaining financial health.

Right now I would give us a C in terms of financial health. We are not doing bad, but we are not doing well, either. But I would say we’re a C heading towards an A, instead of a C heading towards an F. The main items that are holding us back are 1) credit card debt and 2) Skye’s pay. Fortunately, both will be much better within two years. In two years the credit cards will be paid off and Skye will be graduating from grad school. Upon graduation she can expect to make two to two and half times more. Both of these items will help us greatly.

So remember, before you start your own business it’s a great idea to find out where you stand financially. If you’re in trouble you need to do what you can to straighten things out BEFORE you start your business because during your initial couple of years it will be fairly challenging to separate your financial health and that of your business. By the time I start my business I will be in good financial health.

(I’ll let everyone know if and when Skye figures out how to put my spreadsheet on here.)