We’re entering month four of accurately tracking our expenses using PearBudget, and our second month of creating and sticking to a firm, category-based budget or spending plan. It’s been both immensely rewarding and challenging in ways I did not anticipate.

One of the first and most obvious rewards of budgeting is that you find money you didn’t know you had, because it had been disappearing into countless little black holes. For example, I spent over $120 on espresso in June. With only a moderate effort, I was able to cut this to $26 in August by making coffee at home or work instead of going to a cafe. This isn’t the drudgery I thought it would be; it’s actually quite fun to feel yourself saving money that you’ve been throwing down the drain for years.

A second reward is that you start to think realistically and long-term about irregular expenses, so they stop sneaking up on you. For example, we’ve fallen into the common trap of not planning for home maintenance expenses. We bought our home new, so our repair costs are perhaps lower than most, but there are still plenty of things to fix, and plenty of longer-range projects to save for.

But the irregular budget categories have also proven the most vexing, because it’s hard to know how to carry over an over-budget expenditure or an unused balance from one month to the next. At first glance, it doesn’t seem too difficult to just forward a positive or negative balance to the next month, but when you consider that this is actual money, it gets a little tougher. For example, I need to carry forward enough money to pay my grad school tuition bill when it comes due later this month (budgeted for last month), but I was a little too aggressive in paying down a student loan (a separate category), so the total amount left in our bank account at the end of August was less than I wanted to carry forward for tuition. Oops.

As an aside, you can see why using credit cards, with their loose connection to the amount of real money you actually have, wreaks havoc on accurate budgeting.

I’m solving the above problem by budgeting more for tuition this month, and transferring money out of the tuition category last month to balance out other overspent categories. But other overspent categories will take care of themselves; for example, our cell phone and internet bills both billed us for some of our September service in August, so we should get smaller bills in these categories next month.

PearBudget has an “irregular expense” category type, so you can forward positive or negative balances in each category from one month to the next. For a while, I treated all categories as irregular, so no over- or under-spent category would go untracked. However, this doesn’t work well because we have June and July expenses that get carried forward into the present, and we weren’t actively sticking to a budget back then. Again, that’s what happens when you use credit cards.

For now, I’m exporting everything to an Excel spreadsheet once a month, and manually carrying over any over- or under-spending for each category. It’s not perfect, but it’ll do for now.

One of the hardest paradigm shifts to get used to (thanks, Dave Ramsey!) has been the idea that we need to stop borrowing money. Period. We make significantly more now than we did six months ago thanks to some career advancement, but we’re now both in doctoral programs. Our previous paradigm said it was fine to borrow money for grad school, but Dave says no - if you can’t cash-flow it, don’t do it.

We can (and do) pay out-of-pocket for our current grad school expenses, but it’s painful; I’d feel like we were making more progress if we didn’t have to set aside a huge chunk of change each month for tuition. But you can’t borrow your way out of debt; we’re fooling ourselves if we think borrowing in one category so we can pay off more debt in another category is getting us ahead.

How do you budget?