by John Voorhorst

“Deficit budget” is a term we’ve heard quite a lot the last few months. Mr. Harper has presented a deficit budget of $50 billion and Mr. Obama has lead the charge for a deficit budget of $1.7 trillion in 2009 and $1.1 trillion in 2010.

But what about your household budget? Is it also a deficit budget? Or do you even have a budget?

If not, why not? Every household must have a budget, and actually, every single person, even if he or she lives at home while attending university or college, needs a budget. Perhaps you are rolling your eyes as you read this and thinking: Yah right! A budget?! Why would I need a budget? I barely have enough money to make it from paycheck to paycheck. Budgets are okay for people with real money, but me?

Yes, even you need a budget. Let me ask you a question to make my point. Do you know how much money you spend every week at Tim Horton's? Many of us spend a lot more money on a double-double every day than we realize. Even if you only buy a cup a couple of times a week it amounts to more than $200 a year just on coffee. That’s “real money” flying out of your hands unnoticed. So yes, even you should create a budget.

First steps

Building a budget is a process. And that process does entail a little work. Living within the budget is the hard part. It takes discipline, self-discipline. But let’s start with the process.

The first step is gathering information. Find the last two or three months of statements from your bank, the various utility companies you deal with and your pay stubs. If you do not pay your utilities on the budgeted plan but pay as you go, be sure to find at least one statement from the previous winter. Either the January or February statement would give you an idea about the winter costs. Also write down on a piece of paper what you have been contributing to church and also what your school fees are. (Yes, I realize that this is a little backwards. What you give to church and school should be based on your pay stub, rather than simply on what you’ve paid in the past, but we will address that later).

That should give us all the history we need. Next, sit down and estimate how much money you require for clothing, food and other household expenses, and write that down on a piece of paper.

Joe’s budget

Perhaps the most helpful approach would be to demonstrate the budgeting process with the help of an imaginary friend – let’s call him Joe. As we work through Joe’s budget you can work through your own by scrolling down to the bottom of this article and downloading Excel spreadsheets of Joe's budget and the blank budget template you can find there. You can plug in your own numbers as we fill in the numbers for Joe.

Our friend Joe is married and he and his wife Mary have three children. Joe works for T and F Plumbing. He has been there for 8 years. Mary spends her days at home managing the household, but is able to earn a little “pin” money by selling some home cleaning supplies. They have two sons and a daughter.

OK, enough of this building of an imaginary friend. Let’s get to work.

When I build a budget I like to start with the income. Joe earns $28 per hour, so at 2,080 hours per year his annual salary is $58,240, which works out to $4,850 per month. Last year Mary earned $3,000, which averages out to $250 as a monthly amount for budget purposes. So, the household income is $5,100 per month. So far so good.

Now a little work is required. Let’s start with the three obvious expenses: church, school and the Canada Revenue Agency, better known as the tax man.

First, church. This can be a little contentious, but let me use $450 per month as our friends’ budgeted contribution to the church. That is a little less than the tithe spoken of in the Bible but when I add the $425 per month that our friends pay to have their eldest child educated in the local Christian school then we have a total of $875 which falls within the guidelines that I believe can be used for this. Next, taxes, Canada Pension Plan and Employment Insurance. That will be about $1,225 per month. Now some hard work.

Joe and Mary live in Lethbridge, Alberta, and they’re currently paying $885 per month for their mortgage. Utilities average $300 per month. They also spend $40 for their Internet and an additional $38 for their cable TV. They each have a cell phone with a combined cost of $85 per month. And they also have a landline that costs them $35 per month. The line on the budget we will use combines those items. They total $198. They spend $600 per month on groceries. Groceries includes things like cleaning supplies, toiletries, etc. Auto insurance is $145 per month for two older vehicles and their home insurance cost them $55 per month with auto fuel and maintenance coming to $150 per month. Now we come to a few discretionary items, things like clothing and entertainment. Here is where we need a little discipline because it is in these two items that we often spend a lot of money that is not being tracked. So, for clothes, we’ll give Joe and Mary $100 per month and for entertainment we’ll assume $50 per month. Because Mary is saving for some additional furniture we are putting $100 per month into that column. Joe's job provides him with a complete health and dental benefits plan and he pays $25 per month for the disability portion of that plan. That goes in the disability column. Periodically Mary does pay for some of the dental expenses that are not insured and we average that out to $20 per month. They subscribe to Reformed Perspective, Clarion and a local newspaper at $20 per month. Maintenance for the house is budgeted at $100 per month and life insurance costs $35 dollars. That looks after just about everything, with the exception of a small retirement plan. Joe is depositing $75 per month into an RSP. And they are also putting aside $75 per month for travel and recreation. That is so they can go camping two weeks in the summer.

The budget form we have online has a few extra lines. Because Joe and Mary have no debt, besides their mortgage, we’ll put zeros in the lines for credit cards and in the line for auto loans. Finally we have the miscellaneous line, which really should NOT be a permitted line item, as it is too easy to allot large unaccounted sums in this column, but for those of you who insist, it is there.

Mysterious shortfall?

So, if we didn’t miss anything, we have gross income of $5,100 per month, and total expenses including church, school and taxes totaling $5,033. That leaves a small surplus each month. But Joe and Mary are much like most Canadians in that they cannot believe that there is any extra money left because they actually end each month a little short of cash. How can that be happening? Well, we have marked everything down into our budget so now we can compare what we budgeted for with what we actually spend.

Tracking expenses

I hope each one of you will take the time to build a budget. But don't stop there. For at least the next twelve months you should keep a record of all your expenses. So, when you go to Tim's for coffee, ask for a receipt and put it into a jar above the kitchen stove. Every bill you pay between the first of the month to the end of the month should be kept and then early next month you (or for couples, the two of you) should sit down and compare the actual expenses to the budget. Where you have gone over the budget you must make a conscious effort to reduce that expense next month. So, if you put $100 into entertainment but you spent $125 at Tim's or Starbucks, you need to stop and consider whether that is really a prudent use of your money.

Get your own house in order

Remember, it’s a little bit hypocritical if we complain about the government running deficits if we are not prepared to balance our personal household budget. And just in case you think there is nothing left at all, remember that when Joe and Mary file their taxes next March they will receive a substantial tax refund. Their donations and RSP contributions all add up to a refund of approximately $6,000 (I say approximately, because the refund is dependent on what portion of the school fees are a donation). The refund should probably be put away for maintenance on the house or, if you are so inclined, you could pay the mortgage down with at least half that amount.

It is also good to remember that the Bible speaks of this budget process in a few places. In Luke 14:24 we read “Suppose one of you wants to build a tower. Will he not first sit down and estimate the cost to see if he has enough money to complete it?” And in case you are tempted to place your trust in the money you have been given or in your ability to manage, it may be good to also reflect on what we read in Proverbs 15:27: “A greedy man brings trouble to his family, but he who hates bribes will live.”

So budget – prudent use of what God gives us is a must – but don’t obsess about money. It is in God that we must place our trust.

Resources

The following are two Excel spreadsheets, the first with a sample budget from Joe and Mary, while the second is a blank budget template that can be used to create your own budget. When you use the blank budget template, you will notice that you only need to enter the dollars into the first month of the budget. The template will fill in the rest of the year. If you have large one-time expenses that need to be included, they can be entered into the month as required. We added a line marked “one time expenses’ at the bottom.

Click here to download Joe and Mary’s sample budget

Click here to download a copy of the Blank Budget

July/August 2009