Are you in a constant battle with your budget? For the first two years of my marriage, I was too. We wanted to be financially responsible and were taught that financially responsible people kept budgets. But budgets are hard. Luckily, there is something much more effective than a budget to keep you and your family on the right financial path!
Let's start by learning why budgets don't work:
Why Your Budgets Fail:
1. There is no correct allotment
This is probably the main reason people fail. We tracked our expenses for months. We figured out how much we spent at grocery stores, gas stations, bills, etc. We set our budget to those amounts. We failed, repeatedly. The reason being that if the allotment was too low, you struggle, run out, then fudge.
If the allotment is even a little high, you feel like you don't need to try in that category and you actually get worse. When you see an extra $20 in your "bills" fund you think about what monthly payments you could get that cost $20 or wonder how much more comofortable the house would have been if you set the AC one degree cooler. If you see it in your "groceries", you relax a little and buy a little nicer meat or more cottage cheese (probably overspending the $20). If you see it in your "apparel" budget, that cute pair of shoes is not only irrisistable, but "deserved" as a reward for your financial prudence. You get the picture.
No matter what amount you choose, in some months you will have extra and in some months you will struggle.
2. Categories are confusing
To start off, you've got to set up clear, mutually exclusive categories. Is nail polish "toiletries", "apparel", or the "wife's discretionary"? Is the soda you buy for a party "groceries" or "fun"? It is a personal choice, but you need to think it through ahead of time.
3. Split receipts are a pain
If you buy your kid some socks at the grocery store, does it add to your "grocery" expenses or does it get split out to your "apparel" category? Costco or Super Walmart receipts are particularly troublesome because just about any type of expense could be on it.
4. You have to break the budget to save money
Last year, we bought a welder and all the accessories from a friend at a crazy good price. We had been wanting one for years and even have a money-making opportunity that requires one. We expected to pay more than twice the price we paid. Had I been on a strict budget, I surely wouldn't have had the required $600 in my "tool" category. I had just bought some other used tools for my husband's Christmas present.
When there are great sales on things you plan on getting, you need the financial flexibility to act.
5. Budgets break your soul
What is the purpose of budgeting? Improving your financial security. Budgeters will never get there. You can't feel safe if you are constantly checking your balances and trying to get ends to meet until your next deposit.
I feel so strongly against constantly checking your balances that when I actually was low on funds during college, I haredly ever checked my bank account. Instead, I would only buy things that I needed regardless of whether or not I had the money. Maybe that was reckless, but I felt it was okay because it had a definite end point as I wouldn't be a college student forever. Because I convinced myself every dollar was my last dollar, my dollars stretched like never before and I actually began to build a sizable buffer underneath my expenses. Yes, sometimes I ate "bread sandwiches" or "salsa rice" or even "salsa-supplemented-with-chili-powder rice", but not once was my bank short the funds needed to cover my credit card's auto-pay-in-full. To me, this felt more free than constantly worrying about how much money I had.
No one wants to feel trapped. It isn't fun, it isn't healthy, and it isn't worth it.
What to do instead:
For the last three years, we have used an alternative method: tracking and analyzing expenses. Roughly twice a month, I review my receipts, bank account, credit cards, PayPal, Amazon, and any cash purchases I've noted. Every item on the receipt is categorized and entered into my [url=https://drive.google.com/open?id=1EJGdxikiLpc92NHYzaelQPxePjrRkJCv]annual financial spreadsheet[/url]. I literally enter how much I spent on eggs in a separate line from my lettuce. My [url=https://drive.google.com/open?id=1EJGdxikiLpc92NHYzaelQPxePjrRkJCv]spreadsheet[/url] then crunches all the numbers and spits out everything I might wonder about our spending and saving habits. It takes a little time, but I can usually get through it in a half-hour and I don't have to think about it constantly like a budget.
I review that data briefly whenever I wonder about it and in depth annually. Every category is compared to the previous year's averages where we can easily spot any "lifestyle inflation" we've accidentally given ourselves. Usually just knowing you've spent more on apparel than normal curbs the issue. I also double check to make sure our over all spending increases don't out pace our take home income increases. To me, that is the most important thing to consider. We currently live off (not including giving or investing) 50% of our take home income. That is a goal I've worked towards and am so happy to have achieved. I don't want to let it slip.
I didn't solve the problem with identifiying categories, but I have practiced enough years that it is easy for me to search my heart and know the purpose of each item. I think it is actually a benefit now as I force myself to acknowledge that some electronics are "home" and others are "toys".
There are so many advantages!
1. I am not trying to target a specific number with each category which really realieves stress and opens up flexibility for smart deal shopping.
2. I can focus on continual improvement as I try to lower (or maintain) each category's monthly average.
3. I have a record of all purchases and dates. I can filter for specific items and see exactly how many boxes of goldfish I buy annually. This helps me know how much I can buy without worrying about expiration dates. I can figure out exactly how much a baby shower cost me by summing the various items. I can look back and know by my hardware purchases when it was that my father-in-law came over last year and worked on the project car. I can use filters to know roughly how much I spent in sales tax (for tax return purposes). This data captures so many things!
4. I can easily figure out good deals. Since I have the spreadsheet on my phone, I can quickly look up while in a store if I got a better deal on oatmeal at Winco or Costco. For items that I like to compare, I add information in a unit price section so it is even easier.
5. I can crunch the numbers any way I imagine. I am not stuck with some app that has a thousand features, but won't accept formulas as prices or that won't let me search for all entries with the word "cereal" or won't let me consider my expected income (standard paycheck) vs. bonus income (includes overtime, bonuses, side gigs, etc). I am a control freak and this is the ultimate control.
What we still budget
There are only 2 categories that we still budget out: giving and investing. The reason those are still in the budget is because they are more like a quota. We want to spend the full amount each year. For those unique categories we try to increase the expense, not decrease it.
For those two “budget” items, we’ve found that is by far easiest to stick to your budget with automation. Make sure to have a percentage of your paycheck deposited into your 401k automatically. Many charities have the ability to accept direct deposits as well. If you can, set up your direct deposit allotments to put either a dollar amount or a percentage into separate banking accounts for savings, giving, investing, or any other allotment you never want to shortchange. Actually, just go to your library this week and check out [url=https://www.amazon.com/Automatic-Millionaire-Expanded-Updated-Powerful/dp/0451499085/]The Automatic Millionaire[/url] by David Bach. He'll walk you through all the what's, why's, and how's of a conservative way to accomplish goals and get rich over time.
There you have it. Don't fight the system. Ditch the budget and do something that actually works!
[url=https://drive.google.com/open?id=1EJGdxikiLpc92NHYzaelQPxePjrRkJCv]Download Milly's Free Spending Tracker Here[/url]
Disclaimer: I am not a licensed or certified financial coach, planner or adviser, just an enthusiast. Anything I recommend should be personally analyzed and discussed with your financial adviser.