I want to explain the three tools we use to plan our family finances.
Our monthly budget (no surprise)
This is like a budget that a mortgage company or bank would expect you to have. It’s a list of 20-30 items with the monthly value and the 12 times bigger annual value. For annual discretionary value items like holidays it includes a typical figure. For discretionary timed items like car replacement, they are in as a typical annual depreciation.
For spends that are annual (car insurance, car service, etc.) we build up to the total through the year. So along with the budget sheet there’s list of the 12 months with a value against each month for the total of the various build-ups, so we can see how much should be sitting in our accounts at the end of each month.
Our monthly tracking
I track my actual spend on a spreadsheet for current account and credit cards. For future months I show expected spend. I can see how low the balance will get before my next pay date.
In contrast my wife simply compares her current account vs the monthly budget.
Our long term budget (really important)
This spreadsheet is really important. It shows one line per year. At the end of each line is the total we expect to see in our current/ISA accounts at the end of the year. It assumes we spend the normal monthly & annual sums for most items and then in this sheet we show the discretionary spends as one-off lumps:
• We assume we have no bonus salary but if we get a bonus it goes in.
• Car replacements.
• One-off mortgage repayments.
• One-off house improvements.
• Temporary costs such as giving our children an annual university living allowance appears for the relevant years.
• Holidays appear at the assumed value, but we can plan to pay more or less in some years.
• If we plan to stop paying something (e.g. kids music lessons or some of our mortgage interest) it appears as a positive sum every year after we stop.
Those are our large discretionary costs. The plan looks ahead about 15 years.