Part 1 of the series is located here: Effective Budgeting: Why Budget? (Part 1 of 3)
Why did budgeting fail me?
1. It was too hard to manage. I tried using MS Money and other complex methods to get my finances in order. I kept a budget for 2 days before quitting. It took too long to manage everything. When I bought a can of beans from the store, I would have to input the following information:
- Did you pay with credit, debit, cash, or check? Credit.
- Which card? Amex.
- What date did you buy it? Um. Yesterday.
- What catagory did this purchase fall under? Food.
- What sub-catagory did this purchase fall under? Eating out? Groceries? Yeah. The last one.
- What was the sales tax? ARG. Food doesn’t have any.
- Where did you buy it from? Who cares?
- How many did you buy? A MILLION. LEAVE ME ALONE!
2. It was too inaccurate. There was always some emergency and I would end up going over what I expected. Way over. This was discouraging enough for me to throw most of my budgets away. What’s the point of having a budget if I’m just going to spend more than I thought anyway?
I needed to find something easier. I wanted to do the least work possible. Here are some of my main guidelines that have allowed me to keep a budget for the past 3 months.
Binary Dollar’s Budgeting Guidelines:
Do NOT budget more than you earn. This includes your income, rent from tenants, a conservative estimate of earned interest, etc. The ideal pool you should start with is 90% of your take-home pay for a little bit of added cushion.
Subtract your fixed expenses first. Pretend that you pay your utilties, rent, and savings at the beginning of the month. Even though the food bill changes each month, I subtract a rough estimate as a fixed expense. I don’t want to run out of money and go hungry. Your savings should be a fixed expense too. Don’t fall into the trap of saving what’s “left over” at the end of the month. There won’t be anything.
Things that I usually subtract from a month’s pay:
- rent - $500
- utilities (rough estimate) - $100
- food (rough estimate) - $130 (Are you calling me fat?)
- savings (this could be emergency funds, ira, etc) - $500
- car (rough estimate) - $40.00
Strip the catagories. Figure out what’s important for you to keep track of. You don’t need 75789347598374 catagories in your budget.
I’m not worried on a day to day basis about how much of my savings goes into an IRA, money market, or some mutual fund. I lump it into a catagory called “savings” on my budget sheet.
Use the bare essentials according to your tolerance of complexity and your priorities. I have fairly broad catagories. Here’s my list:
- rent
- student loans
- gym
- utilities
- car
- groceries
- savings
- spending
Evolve your budget. I used to write my budget and then try to spend according to it. I had it backwards. I had to spend and THEN write my budget. My budget did not become accurate until I started tracking my spending. My budget changed quite a bit in the beginning. It took me 3 months of tracking my spending to evolve my budget. What I thought I spent and what I actually spent were different. Don’t keep your budget the same month after month if it isn’t working. Tracking strategies will be covered in the next article.
[This is a reprint of my original contributing article over at 1st Million At 33. Thanks Frugal!]
[Photo Credit: Daniel R.]
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