Budget, track expenses, then budget

The last post mentioned that I've set as a goal this year to track my expenses a lot better than I have been.  There are a fair number of untracked expenditures in our current spending, and it's likely those little secret leaks that will hurt us in the long run if we don't plug them up.

Tracking is only part of the answer, though.  I can track things down to the penny until I croak, but if I don't look at what types of expenditures are causing the most damage, then I have a lot of beautiful accounting that I can pack up on my way to the poor house.  This tracking has to feed into a budget so that the leaks can be plugged up.

Without really knowing what the extent of the leaks are, it's difficult to make too detailed a budget.  I can guess, but the discretionary stuff is likely to be off a lot, which makes it frustrating to try to hit a target that's way off where I really need to be aiming.

Not all of the expenses during the month are so vague.  Many expenses are pretty much the same each month, like:

• Tithe
• Mortgage/rent
• Phones
• Internet
• Insurance
• Other utilities
• Cable
• etc.

These big rocks (borrowing that term from Stephen Covey) go into the first iteration of the budget.  Now cable might be cut out later, but at least for now we know for sure what that expense is going to be.  If we fill in the budget's big rocks, it gives us something to work with.

Then there's the cash flow tracking.  Tracking each inflow and outflow for a month gives a benchmark for the categories of expenses that we don't really know that well, like:

• Clothing
• Entertainment
• Dining out
• Groceries
• Hobbies
• Gas
• etc.

Once we have a benchmark, then for each category we can say “Oh, that's reasonable” or “Whoa!  I had no clue I was spending that much!” and adjust those benchmarks to what we should be spending in each category.  These revised numbers feed into the second iteration of the budget, and a lot of the frustration of following the budget is removed because the numbers are much closer to the truth.

(That's my thinking anyway.  We'll see if it works out that way!)

For our own budgeting and tracking, I have a couple of pretty high-power tools that I'll be using:  Quicken and You Need A Budget.  You Need A Budget was a prize from a Free Money Finance giveaway.  (I'm pretty surprised I won.  Thanks FMF!)  I've gotten a good chunk of my accounts into Quicken already and I'm ready to start tracking.  Quicken also has a budgeting component, and I'll see how it compares to the You Need A Budget tools.