balancing budgets and budgeting styles

I've been keeping careful track of what I spend money on since about 2002. I've got an Excel spreadsheet format all worked out to my liking, and I try to enter receipts weekly (sometimes more often, oftentimes less). I think I miss some small cash expenses, but I generally have a very good idea of how I (now we) spend money.

For most of my relationship with Jon, I have been the money manager. We've been a 'financial unit' since about 2005. We're both responsible with money, but over the years we've learned that we have different strategies for managing it. Jon has little interest in my money management system, but developed a different system for our several months of travel abroad. We took all of our money allocated for our travel, divided it by the number of days we expected to travel, and came up with an average daily budget. Every day we entered our expenses and income and if we overspent, we watched our daily allowance go down. This system was great for knowing exactly how much money we had to work with.

This week we he and I have had some discussions about money. Our money is pretty complicated, and I'm the one keeping track of it closely. Jon is trying to save for a new computer and we're trying to save for our wedding in April. Both of us have to set aside money for taxes because it isn't taken out of our paychecks. We're making ends meet, but we're not able to save much once the bills are paid. We had to find a way for both of us to pay attention to our spending habits.

My approach would be to make an allowance for each major expense category (food in particular) and stick to it. Jon doesn't like this approach as much, so we've just re-implemented Jon's daily average system to be sure that we meet our spending and saving goals from paycheck to paycheck. Setting aside for rent and other known expenses, we've got $15.41 per day until December 2!

What's your system?

Cash management

In the process of making a budget it is helpful to have "goal" targets, particularly for the areas that can be highly variable such as groceries, gas, and entertainment. These goal numbers allow you to meet your savings goals, without being terribly restrictive. Say I have budgeted $50/mo for entertainment (I include eating out in this category). This money does not go to the same place, so I will take the $50 cash and put it in an envelope in my wallet labeled "Entertainment" I spend only from this envelope; when the money is gone, entertainment for the month stops. As a personal incentive, when I come out ahead of my budget for the month, I take my savings and place it in my travel fund.

If I find myself always shopping at the same place for groceries or gas, I may look at a store debit card. Groceries tend to be a larger part of my budget; I do not like carrying around that much cash at the beginning of the month. Gas can be trickier, so I work the envelope in reverse. I write my gas target on my envelope, put the gas on my credit card, place the receipt in the envelope, and write the remaining balance on the front of the envelope.

I stumbled across 6 Budget Bombs when preparing this post; I think they are worthy of direct comments.

1) Entertainment: without some of your budget alloted to entertainment, it will feel like a burden. A reasonable aim is 5%; but if you are spending 10%+, it may be time to scale back.

2) Savings: Pay yourself first and be consistent. I've addressed this with this previous post.

3) Debit cad reliance: While I do not advocate a strict cash-only budget, it is necessary to have a system to track expenses so you know where your money goes.

4) Credit card "minimum" payment: Often the interest rates on credit cards are higher than any sort of investment you can make. Personally, I try to avoid using a credit card at all costs.

5) Emergency savings: This is a savings goal to have 3 to 6 months of income tucked away. Having emergency savings helps you plan for the unexpected.

6) Live within your means: If it means cutting back, then do it.

This all said, do cut yourself a break when you do not meet your budget goals. Life happens. Always look to the future when budgeting.

Goals

Some financial advice is perennial. One recurring nugget is to set goals for saving so that you feel like you're working for something rather than just depriving yourself.

I have a whole bunch of savings goals. On my current income, they are unattainable taken as a whole. But I figure that I might be able to meet some of them at some point. My priorities shift over time, so the item that tops the list changes too. I’d like to save for

• Three month’s expenses.
• Trip to Florida with BFF (I will have to pay for little more than airfare).
• Trip to Europe for family wedding.
• Our wedding. We’re not engaged, but I think it’s in the cards and I know our parents won’t be able to pay for it. Our wedding will probably involve helping some people travel to the U.S. from Far Off Land (where my boyfriend is from) or us going there to celebrate with the folks who can’t make it to America.
• Potential gap in employment and moving expenses after we graduate, plus deferred student loans that will kick in soon enough.
• Travel after graduation. We’d love to spend some time in Far Off Land, maybe 2-3 months. This is something of a fantasy.
• Down payment on distant future house.
• Retirement.

So my goals range widely in amount and time frame. It helps to have these things in mind when I put money in the bank instead of spending it on something I want now.

What are your goals? Do you find that having goals helps your discipline or does it make you feel discouraged?