Many people spend hours and hours fretting over their budgets, trying to find out where that last 10 cents went or who spent how much on what… When I first got married, this was the method I tried to use to control our budget. Except it caused unnecessary fights, and frustration, and wasted hours gazing at the monitor trying to reconcile the impossible with the reality.
After I while, I stopped. I no longer budget to such a degree. I had to. It was beginning to affect my sanity!
So this is what I did to figure out what was going on, then to manage what we were doing. It’s not what most experts would advise, but it worked for me!
- Find out what: I kept the accounts as much as I could in the early days to determine rough categories of spending as well as approximate amounts: rent or mortgage, car loans, bills (water, electricity, etc.), insurance payments, etc..
- Find out how much: Once I had my approximate categories, I set approximate amounts for each category. Having worked out the total over a year, I was then able to manage the month to month spending better.
- Lump small categories together: If you have lots of little categories that have 1% or less of your spending, LUMP them together until they account for a reasonable percentage.
- Determine savings: I set a savings amount that was saved using a pay-yourself-first principle. Then the rest of the spending money was allocated accordingly.
- Broad Brush Strokes: I took a broad stroke around the ‘discretionary’ spending each month that we had to make.
- The Unforeseen and Unforeseeable: I added a certain ‘social element’, too, for gifts, parties, and unexpected social events so that I didn’t feel too bad about blowing money because of such things.
- Soft Limits (or a little emergency money): It’s a good idea to set soft limits to your spending, ie. having a little budget over run money is a good idea just in case you have to buy something that isn’t in your budget: a car repair.
- Hard Limits (Making life difficult!): It’s also essential to have a hard cash limit so that you can’t spend over that limit. It’s only the setting of realistic hard limits that will help us have the self-discipline NOT to overspend our budgets.
- Pocket Money: We both had ‘pocket money’ for extra expenses, such as lunch, and all the other items, not otherwise categorized.
- Make your money LESS accessible: Too often our society tries to make our money MORE accessible, this actually isn’t always so good. If money is accessible, it is likely to get spent. Opening at least one account that isn’t so easy to withdraw money from is a good way to handle the discipline. If it takes too much time to get the money out, then you’ll find another way.
I didn’t have dozens of categories, and still don’t. I have categories for expenses that are regular and for large ticket items, but for smaller things, like irregular clothes purchases, I just lumped them together for ease. If you have a budget that is too rigid, detailed and inflexible, you are setting yourself up for budget failure. It’s better to have looser guidelines, but gradually rein in the spending as you become more familiar with life under a budget.
From time to time, we’ll track our budget spending to see what’s going on: in fact, we were surprised how much money we spent on little things at 7-11, or coffee, or meals out. Other months, we tried hard NOT to spend so much discretionary money, and we did well. So, whatever budget method you first use, remember to revise and update as your situation changes.