When my wife and I started to get serious about budgeting, we realized pretty quickly that we needed some structure to stay on top of it.
Life’s busy, things happen, and the next thing we knew months would go by without even looking at our budget. To create the structure that we needed, we’ve developed what we call our Monthly Budget Meeting.
In the five years since we implemented this meeting, it has served us well despite pretty drastic changes to our financial situation. And while ours is designed for a couple, this system could be useful for anyone.
How our monthly budget meeting works
The system, in summary, is this: throughout the month we categorize transactions and keep an eye on our discretionary spending categories independently (my wife does most of the categorizing because she’s the best). We then schedule our Budget Meeting where we sit down together to review our budget.
The goal of this meeting is to catch any issues with our automatic payments, keep us aware of past spending, and keep us thinking ahead toward future goals.
Our budget meeting has four parts:
- Step 1: Finish Categorizing Transactions
- Step 2: Review Last Month’s Budget
- Step 3: Review This Month’s Budget
- Step 4: Discuss Our Goals
Step 1: Finish Categorizing Transactions
Despite our best intentions, we don’t always keep up with categorization throughout the month. This is our chance to make sure it gets done.
Also, both of us sometimes leave items uncategorized if we’re not sure how they should be categorized. This is a convenient time for us to discuss them and choose the category that makes sense for both of us.
Step 2: Review Last Month’s Budget
In this step we look at the budget for the previous month, and how our income and expenses compare to the budget. In general we look at each category with this perspective:
- Are the actuals close to the budget? No need to discuss it.
- Are the actuals surprisingly low or high? We should be able to explain and justify it.
To break it down further, here are the main things we look at in this step, in order:
Budget vs Actual Totals
In some ways this is the most important step, checking if our actual income and expense totals match the budget totals.
If this looks good I’m much less concerned about the rest of the details. It doesn’t always, though, and if not we always make a point to discuss why. Sometimes it’s just one large expense like a hospital visit or a new car, in which case we discuss what money we’re using to cover that expense and how we are going to deal with (or avoid) similar expenses in the future. But if we don’t know why the expense total is high, we go into the rest of the budget meeting with an eye out for an explanation.
We are usually already very aware of what our income will look like, but it’s useful to quickly review. It’s good to make sure we both got paid! We both have fairly reliable incomes so this doesn’t take long, but I can see how that could be different for someone with an income that fluctuates more than ours.
Next we review, quickly, all of the categories that we don’t consider discretionary. Things like the power bill, rent, medication, subscriptions, and debt payments fall into this step. For us, many of these are set up as automatic payments so it’s important to have a way to review them. It’s a way to make sure we actually paid the bills and that the amount we were charged was reasonable.
For instance, one month we noticed our water bill was 3x higher than usual. It took a few days, but we finally realized that one of our toilet tanks wasn’t sealing properly, so it was essentially constantly flushing. Time for a trip to the hardware store! On the flip side, one time we noticed that our electricity spending was zero dollars. When we looked into it, we realized that they still had our recently canceled credit card on file and we had forgotten to update it. Fortunately, we caught it before incurring any late fees.
Next we review our discretionary categories, which includes things like restaurants, fun money, and gifts. Neither of us are big spenders and we both have a tendency to feel guilty about any frivolous purchases we make, so we use this as an opportunity to make sure we’re both on the same page and that we are spending responsibly. Of course you may have other reasons to review these categories, do whatever works for you!
But you may ask, what exactly do we do if our spending is too high in a category? We have three options: write it off as an anomaly (take no action), decide our budget is too low and increase it for future months, or make a commitment to decrease spending in that category.
Step 3: Review This Month’s Budget
For this step we switch over to the Categories sheet to review the budget for the current month. We also pull up our calendar, so that we can see what events are coming up. Are we celebrating someone’s birthday? Make sure we have enough in the gift budget. Going out of town? Make sure we budget enough in the Vacation category.
Even if we don’t adjust the budget at all, the important thing is that we’re looking ahead. For us, it helps frame our spending as something that we have control over, not just something that we review after the fact.
Step 4: Discuss Our Goals
I recommend taking time to consider and articulate your goals even if you’re budgeting by yourself, but it’s even more critical if you’re budgeting with a partner.
Too often in a relationship, we have priorities and opinions that we never communicate, and that can lead to frustration or unmet expectations. So every month we take time to intentionally discuss our short and long-term financial goals, and what practical steps we can take to achieve them. Sometimes this means making short-term sacrifices in favor of our long-term goals, but it’s so much easier when we are working together and supporting one another.
One more thing I’ll add (for those of you who have made it this far) is that Google Keep is an excellent tool for taking notes during the budget meeting. It can open as a sidebar next to a Google Sheet; we use it as a way to take notes for things we want to review in the next meeting, as well as to record to-do items for between meetings. WIthout notes, I know I’ll never remember everything I wanted to for the next meeting.
What Do You Think?
If you are inspired by this, or have your own system, we would love to hear about it! Everyone budgets in their own style, and one of the great things about Tiller is how flexible it is for so many different styles. Join the conversation on Tiller Community here.