Creating a Budget and the Pocket Budget Card

Are you looking for some ideas on how to create a budget?  Check out my account below how I created my budget and what tools I use to make it stick.

The Back Story

My girlfriend Cara and I ventured out a little while ago for a night on Raleigh.  We had a blast, and we ended up paying for it! By the end of the night, I had unknowingly spent $93.  WOW! When I told Cara, she was shocked. “But we [each] only had one drink!” was her immediate reply.  How did I spend $90 dollars on drinks for two (tips will be included)?

• $12 – Glass of wine for Cara and soda for myself
• $25 – Glass of scotch for myself and a friend
• $16 – Two appetizers @ Solas (costs split between another friend there)
  
• $40 – Paid for cover @ Mosquito for myself and three other guys (the ladies got in free thankfully)

So what happened? I could have halved my expenses if I hadn’t paid for the cover at Mosquito, but the guys I was with do a lot for me so I was more than glad to chip in for everyone. The other part of what is at play is that I use credit cards to pay for virtually everything.  I like the practice for a number of reasons.  It makes expenses very easy to track (I currently download all the data into Quicken), and the rewards for travel are great.  I have come to realize though that I am not able to budget using my credit cards.  I’m not alone in this regard. We all spend more when we use credit cards (I imagine debit cards have the same effect):

• From NPR: Why We Spend More Using Credit Cards
• From LifeScience: Credit Cards Cause More Spending
• From the CBC: Credit-card use akin to spending play money, say authors

I needed to design a solution to the above problem, especially in these tight economic times.  I imagine we all need to watch what we spend a little closer.  The results in the experiment below are something I’ve been working on for a little while.

The first part I needed to refine was my budget.  I only had a loose idea of what I should spend each month before I went through this exercise, and tried to keep my expenses in my head (epic fail more often than not). Budgeting (or creating a spending plan if you hate the word budget) seemed like a daunting task. I needed to find a way to simplify the task and capture everything. Total capture also seemed a little too daunting at first, so I needed a small place to start.  To begin with, I am only focusing on recurrent and habitual expenses while excluding the things I want to do or own (like visiting my grandfather’s village in Greece).  I plan on adding these dream goal in soon.  I know this does not add up to a complete budget, but it is a start for a guy who doesn’t have a clue.

I turned to the blog sphere for some advice on budgeting.  I didn’t want to reinvent the wheel when it came to building a spreadsheet.  Here are some ideas if you are looking for your own spreadsheet application:

• From J.D. over at Get Rich Slowly: The Budget Toolbox: 13 Tools for Building a Better Budget
• From Leo Babauta at Zen Habits: 6 Great Free Alternatives to Quicken & MS Money
• From Tim Ferris on Dreamlining: Ideal Lifestyle Costing (a reverse budgeting approach)
  

The Budget

I ended up picking the Of Zen and Computing’s simple spreadsheet to start. I then set down and set what I think are reasonable objectives for my variable/controllable expenses. [Note, these number come after pulling out fixed expenses for savings, routine car maintenance, etc. The lines items below are also "new" to me, and will definitely change as I refine the budget.]  Let me share those below:

• Groceries – $400.00 (this seems very high, but I figure that since it is in the budget we can transfer money if need be and refine the category allocations later)
• Entertainment – $100.00
• Dining Out – $200.00
• Gas – $240.00 (this is probably extremely high, but I am including this with the uncertainty in fuel prices)
• Clothes and shoes $0.00 (some short term goals, and this might be adjusted, but we both realized we really didn’t need or want any new clothing)
• Gifts – $100.00
• Dog – $50.00
• Misc. – $25.00
• Haircut – $40.00 (the last time I went into a Supercuts the first words I heard after sitting down in the chair were, “Whoops…” that was seven years ago, and I will not skimp on this budget item)

[I modified the Of Zen and Computing spreadsheet slightly. You can DL and modify my version here: Budget Workbook]

The Pocket Budget Card

OK, all this is great, but how do I make this stick in my daily life.  I broke down these expenses on a weekly basis, and figured out exactly how many times I wanted to do certain things like:

• Guys night out
• Date night
• Coffee @ a coffee shop
• Etc.

Now for the part I’m pretty excited about (get ready for extreme geeky-ness).  I took these weekly items and put them into what I’m calling the Pocket Budget Card (PBC). I now have an entire month’s budget broken down onto a business card (I picked Avery brand 27882 because they were inexpensive and available at Wal-Mart).  I used MS Word 2007 to construct my PBCs, selecting Avery 8731 as the page template. I then split the business card template layout into additional columns for organization purposes.  I am using two layouts currently (two column per business card side and three column per business card side).  Now, all I have to do is stick the PBC into my wallet with my credit cards (I use one card for work expenses and one for personal expenses) and I have a visual reminder on what I can spend when I am out and about!

I like my approach for a number of reasons:

1. It’s simple: I didn’t use complicated math or challenging equations to come down to a number.  Once I broke down the details, it became simple to think about the actual items these things should be spent on.
2. It’s visual: I can very quickly figure out exactly how much money I have available and plan accordingly much like the envelope system of budgeting.
3. It’s compact: After carrying around a back breaking wallet for years, I now have one of the simplest wallet’s available.  You can imagine then that the idea of adding heft to my wallet did not appeal to me.
4. It’s flexible: I can rewrite the dollar values if they aren’t entirely used, and “pull” money from categories as I see fit.
5. No cash needed: One of the great advantages of credit cards (aside from rewards programs) is that you are not liable for fraudulent charges.  Just cancel your card if it’s lost or stolen.  The same can’t be said for cash.
6. It’s lifestyle oriented: In using this system, I am thinking about what I want to do, not what I can’t do. Since savings are automatically accounted for as fixed expenses, I don’t have to worry.
7. It’s adjustable: My waste is only if I print an entire sheet of business cards.  I can adjust as I go.  After I add a wish list items (that trip to Greece for example) into the fixed expenditures to save, it’s only a matter of figuring out what I need to give  up (or better yet how much I need to increase my monthly income) to attain my goal(s).

You can download the PBC file here if you like my approach: Pocket Budget Card (PBC)

Of course, all this is still theoretical, as it’s a new experiment for me.  The values on the card will most certainly change over time, and there are a few more tools I am still seeking to implement this system.  One of which is a great compact pen.  I have been doing a little research, but remain hesitant on pulling the trigger on a purchase.  I hate carrying things in my pockets, so I’d like a pen that fits in my wallet.  I have found the following to date, and I would appreciate any good recommendations.

• The Derringer Pen
• The Wallet Pen (seems a bit too expensive)
  
• The Bullet Space Pen (seems a little too large for a wallet)

Does anyone have any good recommendations for a pen (would be much appreciated)?

Like any good experiment there has to be some data to compare with, and I will try to report on my progress by comparing last years numbers.

Cheers,
Eric

Posted by Eric Stroud on February 4th, 2009 in Finance, My Life

Tags: budgeting, budgets, Finance, PBC, pocket budget card