Nicole and Maggie discuss budgeting (both individual and family) and link a lot

I hate budgeting so much, as you will read in one of these links.  Basically I pay to not have to budget by saving a huge amount extra so that there’s always slush.  Technically, our spending is always one month behind our income, so what we did last month determines what we do this next month.  I can look into my check register and go, yep, we can afford more stuff, or nope, we need to cut back.  This only works because even when we were in graduate school and spent 40-60% of our income on rent for a 300 sq ft apartment, we spent a lot less than we earned and had a relatively large emergency fund (compared to our income).  Some of the sacrifices included not buying meat for so long that the first time I had a steak (to celebrate paying off DH’s student loans), I threw up.  That’s not normal.

What I’m saying here with this illustration is that 1.  I don’t do detailed budgets, and 2.  There are a lot of different ways to spend less than you earn and keep on firm financial footing for different people.  If one method just does not work for you, you can sacrifice in a different direction and try a different type of budget.

What you shouldn’t do, though, is to keep going into more and more debt (or not doing any saving for future you) through inattention to your finances.  Some system is necessary, even if that “system” is always to spend far less than you bring in.  Most people want to spend a bit more than we did while we were in graduate school at that income, and there’s no reason not to if you want to unless you really value not budgeting, which I apparently value more than I do red meat (at least on a graduate student stipend).

For a third note, 3.  Your system may change with your income levels and required expenses, and that is AOK.

Here’s where to start if you’re in debt.

Posts on whether or not to have a detailed budget:

Do you budget?  MSN Money used to have a fantastic post of Liz Pulliam Weston’s about when it’s ok to ditch the budget, but unfortunately that post has gone to the ether.  Nick from Step Away From the Mall did a nice summary of her post that you can read here, though he notes that this list is really a general budget, just not a detailed one. And here’s bit of a personal post (from when DH was unemployed and we had to keep a tighter rein on spending) in which I talk about how much I hate budgeting.  You can also combine a loose budget with tighter monitoring of spending as Leigh (who doesn’t need a detailed budget but enjoys tracking her money) discusses in this recent post.

Different types of budgets:

General guidelines

The general idea behind a budget is to allow you to balance all of your spending/saving needs and goals.  In general you will want to balance saving for long-term goals like retirement with medium goals like automobile replacement and with short-term goals like eating.  You want to do it in such a way that keeps you out of high interest debt and allows you to save for the future while still enjoying today as much as being a responsible adult will allow.

A good general guideline for people who don’t want or need to retire early is the Balanced Money Formula by Elizabeth Warren.  This is really  just the idea that you spend 50% of your income or less on fixed expenses (she calls these “needs”), things you would have to pay whether or not you have income.  Then 30% goes towards variable expenses (she calls these “wants”) that you could cut if you lost your job and 20% or more goes towards savings.  These percentages don’t have to be perfect, but if you’re a member of a dual income family then keeping to these guidelines will put you on a good track for the future while insuring against catastrophe if there’s a job loss in the family.  If you’re interested in the balanced money formula, Get Rich Slowly has some really great posts on it, including this nice worksheet from back in the day when JD Roth was figuring things out.

Another possibility to get those percentages for yourself for a general budget is to look at your specific circumstances in the case of a job loss or other emergency and do a financial fire drill. Think of the worst case scenario and run numbers for that, then based on that set your major recurring expenses like housing, car, etc.  It will also show you if you need to target debts or sell things you couldn’t really afford to get rid of regular payments and so on.

Some people argue that you should target only big expenses and let the little ones figure themselves out.  Others argue that the latte factor, money you spend on little things, adds up and is important.  Both these arguments have elements of truth and elements of untruth.  We talk about these two belief systems in this post on the latte factor vs. big item spending.  Here we address gazingus pins, which is a type of latte factor.

Detailed Budgets

As much as I dislike them personally, detailed budgets are incredibly useful and a really healthy thing to have.  Probably the most popular method of doing a detailed budget on the PF blogosphere is YNAB (You Need a Budget).  Some people prefer Quicken or make their own spreadsheets.  Some people just use MINT, though many people use MINT in conjunction with YNAB or Quicken.  MINT is great for tracking your expenditures by category and if you’re new to finances and use a lot of credit cards, it’s a great thing to just do.  However it’s not as good a budgeting software as YNAB or Quicken.  Ana talks about how she makes a budget here.

A zero-sum budget is one in which every dollar is accounted for.

Some people have strict envelope budgets.  Instead of dealing with spreadsheets and so on, they will have cash-only budgets.  This is especially useful if you truly have a limited amount you are able to spend without going into debt.  Once the cash is gone for the month, you’re done.  Some people allow you to take cash from one variable spending budget to add it to another (ex. if you spend less than expected on food, you can add the additional money to fun) and some people don’t.

One way to allocate “fun” money for non-necessities is the use of an adult allowance.  Adult allowances are also great for balancing “fun” spending between partners while keeping below a budgeted sum and removing resentment.  Here’s two posts on adult allowances:  In praise of DH’sHow they work.

What about that nebulous idea of “savings” and “emergency fund”?  Some people will include things like vacations and so on in “targeted savings” either virtually or in actual separate accounts and others will include all short-term savings into one general fund.  We talk about when to use targeted savings in this post.

For people who don’t use detailed budgets and can wing things because they’re already saving a large portion of their earnings, it may still be useful to compare the cost of things when trying to decide whether to, for example, hire a house-cleaner.  This post discusses how to make those kinds of comparisons.

Special budgetary topics:

Financial Independence

A good heuristic to reach financial independence, definition here is to “simply” save 70% of your income until early retirement (there are more complicated formulae as well, but they all require a lot of saving or a lot of luck).  Partial financial independence can be achieved at a lower savings rate and is a wonderful thing to have even when you’re still working.  We talk about how having partial financial independence as a goal can make your life a lot less stressful because you will not be trapped by a bad job.

Not spending can be hard, even if you know you have to not spend now that you’ve looked at your budget.  Here’s some recommendations for how to delay gratification.  One that works really well for me is telling myself I can have it later!

Blitzing with a spending challenge

Some people do spending challenges for various time-lengths.  I love reading about these and they can make really big changes to people’s mindsets.  (Please link in the comments for spending challenges you enjoy reading.  I also really like reading about “the compact.”  Here’s our challenge tag, but we do more than just money challenges and we’re not that interesting.)  They’re really great for stopping an addictive behavior or bad habit, such as buying clothing every weekend because you’re bored even though your closet is already full of things you never wear.  Here we talk about how maybe no-spend days aren’t really the appropriate length of time unless you have real problems.

How to deal with joint finances

We at grumpy rumblings are not going to take a stand on whether you should fully merge your finances with your partner or not.  There are a lot of different methods for sharing finances that we discuss here.

Ok, Grumpy Nation.  What have we missed?  What do you want to know more about?


28 Responses to “Nicole and Maggie discuss budgeting (both individual and family) and link a lot”

  1. CMonster Says:

    We had a similar experience of a “lean time” while DH was in graduate school. A few things that made it a bit easier for us: he had an assistantship and tuition waver, I was working (but not making much money), we’d both worked for a few years before he went back to school and had quite an emergency fund saved up, we knew that he’d be set to make a pretty good salary when he graduated.

    We’ve also never budgeted. I’m typically a “data” person and have tried YNAB, Mint, etc. but just never “got into it”. DH’s argument against it is similar to yours: “We’ve always spent way less than we earn. We talk about big purchases before we make them (actually we’ve made exactly 1 large purchase in our entire marriage and that was a mini van this year). Why do we need to drive ourselves crazy deciding if fancy cheese is or is not in our budget this week if we really want some fancy cheese.” It’s nice to have someone else admit they feel similarly. Sometimes I feel like the only person who doesn’t want to spend her Sunday (even if it’s only for 30 minutes) with a YNAB and a pile of receipts.

    Financial independence is all relative. DH makes a good but not crazy amazing salary, but because it’s so much more than we made for quite awhile, it gave us the “financial independence” to allow me to reduce my hours at a job I didn’t like (I’m kind of on retainer now), take a job that pays less well but is more rewarding, and spend more time with my little kiddos (which was something that was really important TO ME). We can’t save 70% of our income right now without being like food stamps level poor (or pretty close), but I value the kind of financial independence we have now way more than the idea of financial independence where we yacht around the world.

    • nicoleandmaggie Says:

      Mint is nice because it mostly runs in the background collecting data and you don’t have to do much until you need it. I don’t think it’s a great budgeting tool, but it is definitely a pretty easy tracking tool.

      Fancy cheese FTW!

  2. hollyatclubthrifty Says:

    We use a written zero-sum budget and it works pretty well for our needs. I don’t spend a lot of time on it because we stick to generic categories like “grocery store,” “miscellaneous,” “utilities.” I don’t have time to break down every expense into small categories, nor do I have the desire. I just use the budget to make sure we are on track with our big picture spending and savings goals. And since we make so much more than we need, it helps us avoid lifestyle creep or at least minimize it.

    • nicoleandmaggie Says:

      There are a lot of different levels of budgeting, even for a zero-sum budget. I think how detailed you get depends a lot on your constraints. And if you don’t want any detail, then you have to spend a lot less than you earn on a regular basis.

      That’s also a good point about budgeting preventing lifestyle creep. Though some people can do something similar without a budget by hiding money from yourself on a regular basis (even if Debbie M doesn’t see how this can work!) Like, if you know you usually spend 4K/mo, then you can make sure your checking has 4K in it at the beginning of each month. When you start having to borrow money from savings, then it’s time to re-evaluate (is it real inflation or is it lifestyle inflation, and is it an inflation we can live with or one we want to cut?)

  3. Ana Says:

    I’m using a detailed budget right now so I can 1) be aware of our money (after years of just ignoring it and figuring it will all be OK since we make a good income and “try to not spend much”) and 2) avoiding lifestyle creep (which messes with your perception of “not spending much”). It honestly doesn’t take that long, once I set the numbers in the beginning, I just tweak as needed, and having detailed categories lets me see, for example, what happens to our water bill when we indulge the kids’ “play in the shower” desires or the electric bill when I turn the thermostat down during the day to work from home twice/week. I had originally planned to budget for 12 months and then stop, assuming I would hate it or find it restrictive, but I actually really love it, I feel much less stressed about money when I can see everything clearly laid out.

  4. the frugal ecologist Says:

    Great post! Budgets are a great eye opening tool especially for anyone who feels like they are living paycheck to pay check or wondering where the $$ goes.

    For several years (5+) we did a detailed budget using mint and an excel spreadsheet I made. I dropped this about a year ago because I couldn’t keep up, it wasn’t clear that the granularity was helpful & it was making me feel like the money police. Its exhausting accounting for every penny and trying to keep spending at a minimum. I wonder if this is part of your resistance to budgets?

    We certainly spend more now (5%?) But it’s totally reduced the mental load around spending. And no more money stress with DH. So it’s increased our happiness a lot. Our level is something like cmonster – if someone wants to buy fancy cheese or eat lunch out, I don’t want to think about it. Before I was spending a lot of brain energy on those kind of expenses, figuring out what balance was left etc.

    We have automatic retirement and savings goals and save more than EWs 20%. We also have fairly low housing costs right now due to renting. I do like seeing how acct balances and net worth go up, so I do need to get back into doing quarterly balance sheets like the PoP’s do monthly. I like those.

    • nicoleandmaggie Says:

      My hatred of detailed budgets is a combination of not wanting to spend the mental power on detail and hating to be told no so much that I get overly restrictive so that I end up not spending of my own volition instead of running out of money and being unable to spend, which is ironic and horrible. (Though good for one’s net worth.)

      And I will do a detailed budget if we have to, but in general we haven’t had to– either we’ve made so little that the answer is always no or we’ve made enough that I can let things slide and do spending by feel. It’s when one wants to spend closer to one’s take-home pay that requires budgeting.

      Automation is awesome!

  5. Debbie M Says:

    Wait! What? We have to be responsible adults? Well, okay.

    This is fabulous!

    For me, the best part about budgets is how it makes you think about what your spending levels *should* be. Then you compare it to your actual spending and can see where the two differ. This is also the worst part–when people see that they spend more in some category than they think they should, it’s so easy to give up! But by researching why you’re spending so much more than what you think you should, you become open to some fabulous learning.

    You may find out that you were wrong about what you think you should spend in that category:
    * you may have special circumstances–you may have more health problems or higher food prices or worse mass transportation than other people
    * you may get much more happiness from extra spending in this category than you were remembering

    Or you may find out ways to reduce your spending that you never thought of:
    * there may be cheaper ways to get the things you’re getting
    * you may realize that your once-in-a-while purchase has become regular and make a specific standard–like I may have this treat once a week
    * you may realize that you are over-spending in some area to reward yourself or compensate yourself for something else going wrong in your life and decide to figure out a different way to deal with that situation

    And when I’m reading about people trying to reduce spending so they can fit themselves into a reasonable kind of budget, I feel like there are three kinds of ideas. One is the kind I think of as magical. For example, you will magically spend less:
    * if you move your savings out of your checking account at the beginning of the month instead of the end
    * if you use only cash

    I never really understand that–what are the actual non-magical things people doing at the end of the month when they have run out of money? Which brings me to the category on actual ways to spend less. For example:
    * buy used instead of new
    * buy on sale and/or with a coupon instead of full price
    * repair instead of replacing
    * use something you already have instead of something you buy
    * borrow or trade instead of buying
    * figure out what you really want and what you only kind of want, and spend less on the latter so you can have more for the former

    And finally the psychological methods such as:
    * your delayed-gratification strategies
    * putting things in your cart online (which is fun) but then don’t press the buy button right away (or a friend of mine enjoyed going to Target telling herself she could buy one thing–but she’d go through the store and put lots of things in her cart, and then go through the store putting everything back except one thing. At the end of the trip, she had had all of the fun of shopping, and only a little of the pain of spending
    * my friend who went to the gym more when she had a Monday-Wednesday-Friday membership than when she had an every day membership because she really couldn’t just go to the gym tomorrow instead

    These last methods are also kind of magical, but in a way that makes sense to me. It’s especially fun to figure out the ways you are irrational and make those work in your favor.

    • nicoleandmaggie Says:

      The “magical” stuff does work for me though– that’s why I did the opposite and put a ton of money from savings into checking so we could enjoy living in paradise without me freaking out about it. (Will link to post when leechblock lets me.)

      What essentially happens is that when I see there’s not much money left, I don’t spend it on things that aren’t necessities. At the end of the month I usually end up with a surplus (that I would save for future spending so I wouldn’t you know, have to budget). When DH would end up with a surplus, he would just spend it on things he might not have valued as much as if he’d had a budget.

  6. Debbie M Says:

    I can’t find links to any of my favorite challenges right now. But I do love how, because they are temporary, it’s easier to make yourself try things you wouldn’t normally try or to get through things you would normally really hate having to get through. And then at the end, you sometimes find out that you have a new good habit that you actually like. Plus sometimes if you’re doing the challenge with a group of people, you can support each other with encouragement and strategies.

    Here are some challenges I have tried:

    * Track every penny – In college, I wondered where all my money was going and so I decided to track every penny. I don’t always use this strategy, but whenever I feel like I don’t understand what’s going on with my finances, this is a great tool for me that I like to come back to.

    * Call certain kinds of companies to ask for a discount (cable, phone, car insurance) – I really hate doing this, but the rewards are so nice.

    * This one group had some monthly challenges on saving gas that I enjoyed. I did things like check the air pressure in my tires and remove heavy things from my trunk that don’t need to be in there.

    Here are some other challenges I have only sort of tried:

    * There are different kinds of pantry challenges (eat from your pantry instead of buying more food) and clothing challenges that seem good but I’ve never wanted to actually do them. Though sometimes I semi-participate in these kinds of challenges by modifying them.

    * This one guy has a one-year challenge (which he’s doing right now) to keep track of all the ways he’s saving money (like switching cell phone service, negotiating lower rates, and selling things he doesn’t need) and then actually sending that money to a savings account and writing it down so he can see how it’s adding up over the year

    * No-Impact Man tried to change one new thing in his family’s life each month so that by the end of the year he would be having no impact on the environment at all. And this was not a guy living on some farm in the middle of nowhere–he lived in New York City! I thought it would be impossible, but he got amazingly close. His blog details his journey, but it’s hard to find his entries from that year (2007). The book is a pretty good summary, but not quite as fun. (I haven’t seen the movie.) Because of his challenge (and similar ones), I’m better at bringing my own take-home boxes to restaurants and my own bags to stores, using stairs instead of elevators, using re-usable things instead of throw-away things, looking for hand-powered instead of electricity-powered tools (like can openers, egg beaters), and not using my car for short trips. Only some of these have financial relevance, but it’s a fascinating challenge and I loved watching him figure out ways to do things differently.

    * Apartment Therapy (there’s a book and a website) has some challenges to get your living quarters to better match your actual lifestyle. Again this is marginally related to finances but touches on some of the same themes (spending your money, energy and space on things that are actually of value to you).

  7. Liz Says:

    Really interesting post and comments.

    I grew up with two accountants for parents and they never budgeted, just subscribed to the spend way less than you earn camp.

    As a single grad student, I was a meticulous budgeter, tracking every dollar spent by category on Excel. I found this really did help me rein in spending as needed and worked very well, although it was did require effort to keep it up-to-date. At one point, I was on scholarship and my payment was in three lump sums a year, so my chequing account balance didn’t serve as a good indicator of monthly cash flow, and I found this approach to be necessary.

    Now married and making substantially more than in grad school, we have a pretty relaxed budgeting strategy. We have a monthly “budget”, essentially a list how much we expect to spend each month in each category to use as a guideline and to ensure we really should be spending less than we earn, but we don’t actually track our spending. We have our earmarked savings automatically transferred out of our chequing account and then keep $5000 buffer in the chequing account. That way, as long as the number is above $5K, and hopefully steadily rising, I’m comfortable that we have money to spend and don’t worry about the details too much. Also, if we have a one-time big-ish spend or are waiting on a reimbursement, we still aren’t worried about running out of cash. My partner and I are both naturally fairly frugal, so we don’t really run into issues with overspending.

    • nicoleandmaggie Says:

      I also got a graduate stipend 3x/year and what I did was ladder a cd with it (this was back when cds made interest!) and transfer money from savings to checking so the checking amount determined how much I could spend each month. Your approach now sounds very similar to ours, though the numbers are a bit different :).

  8. Katherine Says:

    My dh and I don’t budget per se. He’s firmly in the camp of just spend less than you earn and watch the checking account balance grow, to the point where he didn’t really see the point when I suggested we should get quicken to track our spending and see the long-term arc of our finances.

    I try to update quicken and check our spending and money picture a few times a month. Now that we’re doing it he’s on board and appreciates seeing how well we’re doing on spending. We have a general idea of how much we usually spend on food, utilities, home, etc.

    Since we’re down to just the one grad stipend and money is very tight, we still don’t have a budget, but our spending is way down. I did do a back of the envelope budget to see what our spending levels should be, but I never entered that into quicken and we don’t adhere to it too strictly. The only “budget-y” thing I do is make a transfer to savings each month to cover irregular expenses, but even that isn’t set in stone.

    We do have adult allowances, which automatically transfer from our joint checking to individual checking the first of every month. My tendency is to spend mine on yarn and fabric and patterns. My dh accumulates his. His account balance is more than double what mine is right now.

    • nicoleandmaggie Says:

      I do like the way mint (and also our local utility company pages!) allows us to see long-term trends. That also helps identify things like say, water leaks. Our gas has a nice feature where it plots your gas usage vs. the temperature so you can see if you just used more heat because it was cold or if there’s something going wrong.

      My DH’s account balance is apparently under $22 right now (he gets either $30 or $35/week, I’m not sure which). This morning he told me he wanted a coffee out but was saving up to buy a millenium falcon. (He has also gotten DC1 hooked on spending hir allowance on a collectible game, which I suppose is better than spending it on candy like I used to spend mine.)

  9. Katherine Says:

    My account balance is way more than $22, but I still feel allowance-poor because I have a number I’d like to see in it. I can’t help comparing myself to my husband and then feeling a little bad that I want to spend money on so many things!

    That’s great that your DC is saving up hir allowance! I saved allowance for things like that when I was a kid. Then when I was in 6th grade my parents looked at their spending history and totaled up what they had spent on my clothes in the previous year, divided by 12, and added that amount to my monthly allowance. For a while the clothing allowance was separate from my regular allowance, but then it got merged in. I still saved for some stuff, but I also spent a lot since my friends were really into shopping. Also, I think the initial clothing budget amount was inflated because I had just started a school with uniforms after having gone to schools without uniforms for elementary, so I never felt like I had to choose between things I wanted versus really needed.

  10. First Gen American Says:

    +1 on spend less than you earn. We can live on one salary if need be. It would just mean that home repairs would go slower….and even those are tempered by time constraints because we do much of the work ourselves.

    When I was in college, I pretty much worked and studied around the clock, so I didn’t have time to spend money. Time constraints again tempered my spending. In fact, I have needed shorts for 2 summers already but because they are so hard to find in a size that fits well, so I just go without. I hate spending my precious time shopping. Thank god for Amazon. I guess that’s the crux for me…I value my free time more than things especially because I have plenty of things already.

    The one exception to this is yard sales. My mom loves going so it’s like a quality time thing for us and the kids to do together on the cheap. It’s really fun coming home with new toys or kitchen stuff that only cost $1.

    This is a great article. Well done on the research and links.

  11. Matt Healy Says:

    Something I’ve noticed about owning a condo and an old car: once or twice a year, each will suddenly require a chunk of money when something breaks. The A/C or the dishwasher or the transmission or the water pump or whatever will need fixing. I call this sort of stuff “un-surprises,” because although each repair comes as a surprise, it should NOT come as a total surprise that such things happen. Which means, in any month of the year in which no major repair takes place, you had better be putting some money into the bank so you’ll have it when you need it. If your budget is EXACTLY in balance in a month without any “un-surprise” then your budget for the year will NOT be in balance. So plan for these “un-surprises.”

    The first year we owned our condo, we had to take out a loan when the A/C compressor died because we’d put most of our cash into the down payment. But today we have zero non-mortgage debt, and were able to lend my brother the down payment on his new house (he’ll pay us back when the old house closes).

    • nicoleandmaggie Says:

      That is definitely true. We average about one “emergency” a month (kids + house + cars all lend a hand) … predictably unpredictable. Good zero-sum budgets put away some money into either a general emergency fund or targeted repair/maintenance funds.

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