This Blog Post was originally distributed by the Newsletter "Financial Idiot". You can find and subscribe to it here.
DISCLAIMER: I'm an idiot and this isn't financial advice! You can lose money when investing, and you should never invest money you don't own or you can't afford to lose. I'm not responsible for your decisions!
Before we get started with the funny intro sentence, today is my birthday, so thank you for reading along on this special day!
You never know where your money is running or why you’re overdue on your checking account again? Fear not. There is a solution! Welcome to a new Issue of “Financial Idiot”.
At first, this issue isn’t sponsored by You Need a Budget (Affiliate Link), but I have been using that App since around 2015 and don’t look back on my old Excel sheets. Everything I will explain now is based on the YNAB Method of giving every dollar a job, but you can do that in every spreadsheet software. Let’s dig in.
What is a budget?
Budgets probably have been around since money was invented. It is a plan for how to spend (and earn!) money. You define what you get every month and what you pay every month. Companies and states use it to plan projects, finance infrastructure, or handle personnel costs. Since companies and states use it, it is a proven way to plan your money journey: for months, years or even just days ahead.
Also, a note directly in the beginning: in my opinion, there is no bad budgeting. You can be as precise as you want or create more significant categories for easiness. The most important thing is that you are true to yourself and don’t try to cheat your way through.
But how to define a budget?
To define a budget, you need to understand which “categories” you’re spending your money on. For example, there can be fixed costs in an Apartment: Mortgage/Rent, Heating, Power or a different example: a car: Insurance, regular gas cost, repairs and so on. Variable expenses might include groceries and eating out or the occasional visit to the hairdresser or barber.
After you’ve got an overview of your spending, you also need to find a suite able amount to “budget” for. Again, as an example, my mortgage costs 340,08€ per month. In my budget, I assign 341€ per month to it (in my opinion, it doesn’t make sense to budget every cent).
Let’s have a look at how that pans out on my budget (and yes, I’m sharing real numbers here):
- Fix Costs per Month
- Mortgage: 341€
- ETF Savings Plan: 275€
- Heating: 120€ (recently got bumped from 104 to 116€; I will dig into why assigning more can make sense later)
- Power: 100€ (although I only pay 80€/Month; see heating note)
- Apartment Operating Costs: 245€
- Car Leasing: 340€
- Car Insurance: 101€
- Mobile Phone: 20€
- Internet: 40€
- Fix Costs multiple times a year
- Quarterly Insurances (Apartment, Life, ...): 40€
- GIS (formerly, this also included the “church tax”, which I cancelled at the beginning of this year): 28€
- Variable Costs per Month
- crypto trading Tax depot: 0€ (doesn’t have money assigned, more on that later)
- Groceries and Eating: 150€ (I don’t have to pay for my lunch meal at work, which drastically drops my eating costs)
- Drugs and Health: 0€ (I should assign something here, but currently I can’t think of a suite able value; at least I do not forget that I should “save” up some money for that category)
- Car Maintenance: 50€ (although my car has no necessary maintenance interval, I add Charging Costs in this category)
- Consumables (Toilet Paper, detergent, ...): 0€ (again, a category I should budget for, but my mother is regularly supplying me when she’s buying larger amounts in bulk)
- Software & Subscriptions: 300€
- Pedicure / Massages: 0€
- Sauna: 0€
- Apparel: 0€ (I inherited a bunch of jeans and T-shirts from a cousin that died a few years ago and recently a bunch of shirts from my grandfather who died at the start of this year; hence I don’t need to buy clothes soon. Thus the category is at 0€)
- Stuff I forgot to budget for 0€ (everything I didn’t plan for lands in this category)
- Vacations and Long Term Goals
- Wacken 2022: I already saved up 1000€ for the vacation. No need to dedicate a monthly value here
All those values add up to a total of 2150€, with an income of 2447,61€, which leaves me a “spare” 297,61€.
As you can see, my budget is relatively tight, but I know precisely on which day of the month which thing is deducted from my account. That means I can plan for three to four months (well, even a year) and see when I will be able to buy “something big”.
Why are you overbudgeting several categories?
As you can read, I over-budget some categories above, mainly heating and power. I’m doing this in case there is a supplementary payment. For example, with the 20€/Month extra on energy, I can quickly pay 240€ additional charge if necessary.
Why is the crypto tax category empty?
Every month I’m selling off 40% of my crypto holdings I earned that month. That way, I can build up some cash buffer for the upcoming tax the year later (27,5%). So every sell-off is added to the monthly category and thus leading to a buffer balance.
I just wanted to show how “I do it”. As I’ve said, you can add or Substrat as many categories as possible. Also, this isn’t sponsored by YNAB (Affiliate Link), but if you’re starting on budgeting, they got some great resources to read through and a 34-day trial to try out.
PS: I’m not sure about the topic in the following newsletter, so if you got any ideas, you could hit me down below with an email. :) Until then, budget like an idiot! ;)