PART 4 - Stretch Your Dollar Further with Budgets & Buckets in the Personal Budget App

The secret to budgeting is to get the job done quickly, as there are so many more important things in life to spend your time on!

In MoneyFormula, updating your budget planned expenses starts with taking a guess at where you think you are spending your money, and the aim is to do it in under 5 minutes.

In the previous PART 1 - MoneyFormula Bank Accounts & Debts Bob & Jill started their first budget by entering their income and putting $50 towards their long-term wealth goals.

In this article we are going to fill in their planned expenses section to find out where their income is going and to check they are not spending more than they earn.

Then we will set up the rest of their money flows & buckets to put them in control of their spending.

Simple select Edit option in the budget and then enter an amount for each spending category along with how often it happens (e.g. weekly, monthly, etc.).

The trick here is to go through each spending category and quickly estimate what you spend, don't get bogged down. You can always come back later and update the budget numbers once you have reviewed your actual spending (which we will look at in PART 9 - MoneyFormula Spending Review).

For example, if we want to review our Daily Living Expenses we simply select it from the list and instantly get a pie chart of all the spending within the category (refer to bottom chart in the personal budget app screen below).

In the example above we can see in the budget that Bob & Jill's estimated Groceries spending makes up 44.0% of their Daily Living Expenses.

We can also start to look at what spending categories are costing us the most and even where to start cutting back and making savings.

But first, one of the most important questions still remains.

Are we spending more than we earn?

MoneyFormula makes it really easy to compare what you earn to what you spend and it shows the difference between the two.

In the case of Bob & Jill's expenses, we can see in the budget below they have $9,450 of income available and they have currently budgeted planned expenses of $9,172.17, leaving them a monthly safety buffer of $277.83.

The personal budget app calculations also take into account any money flow amounts you have going to your buckets (i.e. the $50 going to Wealth Goals) so you can quickly see how realistic your overall plan is.

After your first pass of entering your planned expenses you might want to go back and check any numbers that look too big or too small and tidy things up a bit, but remember at the moment your budget is just a best guess and a good starting point.

When a budget is overallocated then you really only have three choices to bring it back into balance and you will need to do one (or more) of the following:

TIP - In PART 9 - MoneyFormula Spending Review we will look at how to load a few months of spending transactions into the personal budget app to find out what you are actually spending your money on. This can then help to fix up your budget if you've missed anything.

Now that Bob and Jill have a better view of their budget and spending and they've reviewed their expenses a couple of times, they are pretty happy they have a safety buffer of $277.83.

What they are going to do next is set up all of their money flows in the personal budget app to help them take control of their finances and stop themselves from overspending.

The Wealth Goals bucket is for those important goals like paying down debt or setting up an emergency fund. It can also be called Long-Term Goals or Barefoot Fire Extinguisher bucket.

The Reward Savings bucket is to help you save for those nice things that are just over the horizon, like a holiday or new car. It can also be called Short-Term Goals or Barefoot Smile bucket.

The Fun Spending bucket is a small amount you can spend each month, guilt free, to help keep the whole budget realistic and fun. It can also be called Weekly Spending or Barefoot Splurge bucket.

What we will do now is work through the example of helping them set up all of their buckets, where they want to:

Increase their Wealth Goals to $100 a month to pay down debt faster.

Use the Rewards Savings to plan a small holiday, and

Set up their Fun Spending to cover their Eating Out and make sure they don't overspend.

First, Bob & Jill are going to move another $50 towards their Wealth Goals so they can achieve their $100 a month to pay down debt faster (refer back to PART 2 - MoneyFormula Wealth Goals for more details).

To make sure this happens in the real world (and not just in the MoneyFormula app), they have also updated the regular transfer from their Daily Expenses account of $50 to $100 a month so that it is guaranteed to happen.

TIP - When we save the above change in the personal budget app, all of the calculations for the Wealth Goals, Debt Crusher and Debt Free Plan are automatically updated to use the new amount and we will cover this in more detail later in the article.

Bob loves his Friday night takeaway Pizza but with the cost of living it is becoming a bit of a luxury, so he has decided he will cook Pizzas at home as part of Friday movie night and they think this will save them about $40 a week (from their current $100 weekly "Restaurant & Takeaway" budget)

So they are going to reduce their Planned Expenses of $100 weekly spend on "Restaurant & Takeaway" down to $60 (freeing up $40 in their budget).

... and they are going to lock the $40.00 a week into their money flow for the Rewards Savings bucket.

Now their holiday fund will build up at $173.33 per month and they will soon be able to take a short break. And just to make sure, they have set up an automated monthly transfer of $173.33 from their Daily Expenses to their holiday fund.

In PART 5 - MoneyFormula Savings Goals we will look at how easy it is to track their holiday goal in the personal budget app.

So what they are going to do in the personal budget app is take the remaining $60 a week from "Restaurants & Takeaway" and the $50 weekly amount from "Cafes & Snacks" from their Planned Expenses and move it up to their Fun Spending bucket.

To do this, we edit the planned expenses and set the values to $0.00 (freeing up $110 a week in the budget).

... and then under the Fun Spending money flow we enter the $110.00 we have moved from the Planned Expenses ($60 + $50 = $110).

Then they are going to set up a separate physical bank account to put that money in, with a debit card each, and all future spending for Restaurants and Cafes will come from that fun spending amount.

Now they can't overspend on eating out, because once the money has gone, it has gone, and this will help them stick to their budget and planned expenses - while still having fun.

They will also automate the payment from their Daily Expenses so that the $476.67 monthly amount is available in the new account they have set up.

They have entered their planned expenses and they are spending less than their income by $227.83.

They have also managed to set up all three money flows and buckets to help them with their wealth goals, saving for a small holiday and keeping some fun in their week (eating out) without risking their budget.

... and, in the real world they have automated the money flows from their bank account, so that each month everything automatically goes where it should, even if life gets busy, they are dealing with a family drama or away enjoying their camping holiday!

Now that Bob & Jill have managed to increase their Wealth Goal amount to $100.00 let's take a look at the impact on their debt.

If you need a refresher, refer back to PART 2 - MoneyFormula Wealth Goals for more information on how Bob & Jill set up their initial goals and put the $50 towards them.

The debt free date on each individual account has also been updated in the personal budget app.

As Bob & Jill have now reached their short term goal of $100, they are going to set their new custom target to $150 and over the coming months set themselves their next short term goal of trying to free up another $50 in their budget.

This short term goal approach worked well for them last time, so they will keep trying to increase their bucket amount by $50 each time so that it is realistic and achievable.