My First Budget: Drafting a Plan for Discretionary Spending

Welcome to the wonderful world of budgeting! You’re right, $750 seems really high to spend on wants every month, but hey, looks like you’ve earned it.

As for adjusting, we check out budget on the 15th of every month and at the end of every month. So halfway through we have an idea of where we stand and if we need to pull back in any category. And I’d sweep any leftovers into the vacation fund. I think it would be a colossal mistake to roll that money over unless you’re saving up for a major purchase.

The interesting thing about your post is that your personal finance wizardry is allowing you to now spend money as freely as someone who has no budget. I don’t know how I’d spend $750/month on wants. Where are you going to put all those books/comic books?

Great minds think alike– here is the breakdown I just posted a few days ago about allocating a pay raise:

Here is what I would do first:

40% Debt/liability reduction
30% Emergency fund
20% Long-term investments
10% Splurge

After the debts and liabilities were satisfied, I would shift to the following:

60% Emergency fund
30% Long-term investments
10% Splurge

Finally, after the emergency fund was realistically funded I would shift to my final breakdown:

80% Long-term investments
20% Splurge

You can budget splurge spending . . .

I agree with the first poster – sweep any extra into the vacation savings. (Doing this may also provide the motivation NOT to eat out tonight).

Because we love to travel, we maintain a travel fund which we keep topped off at $3,000. The result is that we always have the money to take a trip. After the trip is paid for, we build the 3 K back up. This method works extremely well.

I think you should probably roll over any extra into your vacation fund – $200 per month doesn’t seem like much if you are planning to go to Europe next year (depending on how much savings you are strating with, how long you want to go for, etc of course).

I draw up a new budget every June (I was actually doing this tonight). June works for me because our financial year in Oz ends June 30 plus June is the month all our household’s biggest annual bills are due (car registration, car insurance and auto membership). June is good because it is also a good time to assess whether we can afford to go on a holiday over the summer break as we will have 6 months to save.

My husband’s and my income is pretty reasonable (we are both professionals with secure jobs) and we don’t have any children (but are planning to next year). We essentially live off my husband’s income and save mine but we are hoping this year to reduce spending and essentially live off my income and save his (he earns about 20% more than me) so I have been trying to keep a closer eye on our budget.

Like you, our income and spending seem fine (I have just gone through each category to check that we aren’t overspending anywhere though). These are all essentially ‘fixed’ expenses too so it makes them easier to budget for (some vary slightly month to month or quarter to quarter but tend to average out – so I just budget for the averages and then round up).

Where we come across problems is in discretionary expenses. We have 5 categories that I set annual amounts for – groceries, gifts, clothes, entertainment and holidays. I keep my eye on these weekly until I am comfortable that we are sticking to budget and then I just check them monthly. Its slightly unconventional but it works for me. I keep a small notepad in my bag and just tally spending in each category each week. I’ve been keeping my eye out for an i-phone app that will let me do the same thing but so far I haven’t found anything that I like.

I use a modified version of the envelope system. I have opened accounts at ING to put my budgeted dollars into. This keeps less cash lying around the house and more earning interest. Then when I am ready to make a purchase I can check to see if I have enough money for it and if so, I go for it, if not, I have to wait.

How funny…this is exactly where I am right now. We paid our debt and now I’m looking at how to budget for our wants. Actually writing out the budget is a great idea.

I look at our spending each month, and if we go over, there’s usually a good reason (lots of April birthdays, a wedding and travel expenses, etc.).

I think if we’re under it just ends up in general savings right now, but I think in the future I’d like to carry some of it over. I like buying quality clothing, for example, and I could see myself saving up for a couple of months in order to buy something nice. Then again, throwing it all into the vacation fund would be a good solution, too.

I don’t like the envelope system because I’m an avid online shopper. I also seem to find some of the best deals online, and I use AA eshopping for bonus miles and Ebates for cash back. Maybe the notecard idea is worth a try. Right now all of our expenses go on a CC that we pay off (we do it for the AA miles), and since I reconcile in Quicken at the end of the month, at that point it’s too late to correct any spending for that month.

I would like to keep spending low in some of the categories, only because others, like the vacation, are more important. Also, we’re building a house soon, and I want to direct the largest chunk of our discretionary spending into our house savings.

I’ve been using Mvelopes.com for the past 6 months. It allows for envelope-based budgeting while using plastic, etc. I love it. Since I like to use a rewards credit card for my day-to-day spending, it’s very easy to ignore a budget and over spend. By putting all of my transactions into Mvelopes and assigning them to an envelope, it helps me to enforce limits on my spending.

We do something like this – the only areas we budget in are two where we can go haywire – eating out and groceries. My husband and I both have “allowances” – mine go to music lessons, yarn, lunch/coffee with friends, and the occasional book (we’ve cut way back on the book buying). No real clue what his goes towards . We’re still paying student loans and a mortgage (but no consumer debt anymore – YEAH!), but we still allow ourselves the allowances because we can. I should probably start budgeting my allowance, too!

The name of the blog after all is “Get Rich Slowly”. Not “Stay Cheap For Life.”

So I think spending a little more is perfectly acceptable, but you’re right about keeping it in check. One can lose richness quickly if one loses control over spending.

I am still paying off debt, but I have a “budget” with 4 items in it. All of my have to pays, cars, house, utilities are not in this budget. I have gas, groceries, eating out and miscellaneous. These are all things I can spend on or not at least to a certain degree. I have to eat, but I can eat beans or steak. That is why I say I have some control. We use a debit card for all purchases so I go online daily and put in what we spent. Takes about 5 minutes a day. To me you should have the categories and the budgeted aamount but if you overspend in on category it doesn’t matter as long as you cut back in anoter. As long as you don’t spend more than what you alloted does it really matter where you spent it? I mean if you buy an expensive game and it goes over its budgeted amount but you spend less eating out does it really matter? You are still on track if you don’t spend more than the total what you budgeted. Any thing left at the end of the month should be moved to savings someplace Vactation or whatever else you want to put it. I redo it monthly looking ahead and planning for things coming in the next month. This way if you know a new version of your favorite game is coming out you can plan for it. Remember a budget is a guide, not a rule.

My wife and I track our budget constantly but have a monthly review at the end of the month. Basically here is our process.

We make all purchases with a rewards-based credit card (I don’t advise this for everyone but since we are using a budget we are conscious of our spending). Occasionally stores we visit don’t accept credit cards so we use cash. We take the receipt home. It’s laid on my desk to remind me to enter it into the budget. Usually I do this every 2 days or so.

Within our Excel budget we have tons of trackers/numbers to track our monthly progress. (Eventually I’d like to start using Mint.com to do this – since they have a budgeting tool built in). I have a total projected costs and total actual costs rows as well as projected living expenses (to see how well we can live off one person’s salary and save the other’s). Each time a receipt comes in I enter it into it’s category by the end of the month it looks like this in Excel…”0+5+8+9+15+30″. So I can add each receipt individually yet see the total in the formula. I want everything to be easy and simple to view. (P.S. I’ll be glad to send my budget template to anyone who wants to use it and give it a try).

Here are some answers to your questions:
1. We track ours monthly. My wife can sometimes call me nutty about it but I enjoy looking at the numbers and she is glad I do.
2. Give yourself 3-4 months to let your budget align. Don’t worry too much about being a little over or little under. Track the budgets at the end of the 4 month period and average each category to get a better idea of what you should budget for in each category. Since we started our budget at the beginning of the year we have been pretty relaxed but we are about to start tightening this up since it’s been a full 5 months. We are making some job/life changes right now so the budget is going to get kind of crazy during the summer but by the fall I’m hoping to have it nailed down to where we are +/- $10 in each category (I like to give myself some wiggle room)
3. If we are under budget (this is my favorite ) then we have setup our ING account to have all our mutual financial goals which we sweep the remaining money into – therefore we forget we have “extra” for the upcoming month. We each have a blow account so we fund those each month – $100 per person then we sit down together and say “These are our priorities, what do we want to fund first?” (this can include car, travel, home improvement, house, etc – remember to get that emergency fund nailed down first). We like doing this together since we both can see each other’s goals visually and talk about them with one another.
4. I use the Excel sheet to enter each expense but a notecard/envelope system would work to. I’m a huge fan of Excel and all it’s analysis/charting tools so it helps me to keep it digitally.
5. We have also created a wealth management plan (name coined by my former finance professor). This is our written contract with ourselves of our goals and lifestyle that we’d like to pursue. We review this semi-annually (every 6 months) along with the budget and average out the categories to see if we need to realign more/less money into a specific category.

Sorry for the long post but budgeting is something I’m a strong advocate for. I’ve watched former family members become horribly in debt (multiple times) and so I wanted to fight against the temptation and the best avenue for me was the budget. Good luck J.D. with the budget and look forward to hearing more about how your tracking of it goes!

My husband and I have had a lot of extra income for the past few years. We’re loosely allocating it towards the mortgage and general savings for rainy day/old age/next car, etc. But it is hard for me to resist wants. My weaknesses are similar to your books, my hobby (baseball cards) and tennis shoes (I walk, run, and play a lot of tennis so they get used, but still…). But as I’ve gotten older and more used to the extra income I’ve realized I enjoy these indulgences, but don’t need them in the excess I think I do.

You just come to realize there are more important things in life and there are lots of people out there with A LOT LESS than you and when I open my closet and see 6 pairs of tennis shoes and 4 pairs of running shoes I tell myself “Enough”.

I think its very natural to have weaknesses, it doesn’t make you bad and it doesn’t mean you are overly susceptible to advertising or keeping up with the Joneses, it’s just normal to have weaknesses. But I think you’ll start to see that there are other things more important. If you must budget I would go with a percentage rather than a hard number.

I’ve found that I only need to re-budget after a major cash flow event like a raise or new apartment.

I just moved overseas and many shops don’t accept credit cards. I made a strict budget and transfer a set amount each pay period to local currency. I don’t keep track of categories, so if I spend less on groceries I can treat myself to something else. Cash is a great reminder for how much you really have left.

It has it’s ups and downs, but keeping spending money separate from investment/saving money is a lifesaver.

I agree that income and needs are pretty much ‘fixed’ and what we can play with are the wants and the savings categories. In my situation, I’m a ‘future’ while my husband is a ‘today’. So arguments about wants/savings are always a sore spot in our household.

We don’t have any debt, and have goal of paying off our mortgage in 2 years time. My husband also wants to take our kids scuba diving in Florida 4 summers away(huge trip, huge trip!) I want to save for kids’ college funds(4 and 8 years away, respectively).

My husband thinks that since we have retirement fund(16% of gross/month)I shouldn’t be uptight about spending. He would spend on a magazine here, a starbuck there, a pair of expensive shoes here, an electronic gadget there, just spending without a plan. After years of tension I implemented the Dave Ramsey spending budget 2 months ago and so far it has calm me down so much (Although I have written down every item I spent for 18 years I never categorized them). Now I just budget all the needs and savings for the whole household; then give my husband a set amount as his ‘blow money’. This way, he doesn’t feel that he works hard for no fun at all, and I get the peace of mind that we are livinf within our means.

Glad to have found this site. Great discussion.

TS

I haven’t had a detailed budget in a while. The reason was I had some legal internships during the summer that filled my bank account with money. I really didn’t have to worry about where money was going to come from to pay for stuff because we had enough. Basically, I was lulled into a false sense of security. I didn’t spend it all, I still have money left over from last summer, but I’m sure I could have maximized it better if I had a budget.

So this post was a nice kick in the pants to start one up. When I did have a budget, I’d look at every month and reevaluate it.

I also use Mint.com to track my budget – it is a huge timesaver over the excel method I used to use. There is also an export to excel option AND an iphone app that is quite handy when I travel. The software is quite flexible and will text or email you if you go over budget or there are larger than usual debits (both of which can be tweaked to your own preferences).

I started budgeting late last year, so I’m a newbie, too! Here’s what I’ve come up with so far:

I use ooCalc (Openoffice’s version of Excel) to build and maintain my budget. This year, I’ve split the year into Thrids, and review/make adjustments after every Third. Next year I’m going to switch to quarterly.

I track every penny I spend, and, each night, I take about 15 minutes to add what I have spent for the day to my spreadsheet using the method that Chris Wilson mentioned above (comment 22). In the “Spent” column, I’ll enter “=10+24+34″ etc, so that I have a running total at all times of how much I have spent in a category. Since I don’t use the envelope system, this makes it easy for me to see how much money I have left in category. So, if I’m going to buy groceries, I open up my spreadsheet, take a look at my actual vs. budgeted, and have an idea of how much I can spend.

In the beginning, I used to beat myself up if I went over in a specific category. Then I realized, that even though I was over-budget in one category, I still came in under-budget overall, so I started to take it easier on myself. Also, after reviewing the first Third of this year, I realized that even though I might have been over-budget in a specific category for one month, I was actually right on, or under-budget in that category for the Third. So, to answer your question, if I go over-budget in a category one month, I’ll just try to spend less in the following month.

After reviewing the first Third of this year, I was also able to reduce my budgeted amounts in some categories, since, in those categories, I was under-budget substantially in every month.

I’m still at a loss as to what to do with the money if I’m under-budget in a category. So far this year, I’ve split the amount 50/50: 50% to savings, 50% to debt-reduction. Lately, I’ve been wondering if I should roll it over to the next month instead to help cushion the months I might run over-budget in that category.

For my budget I track everything in Excel. I setup an annual system, one worksheet for each month, then have running totals and various charts and graphs. What can I say, I’m a math nerd. It’s very flexible and powerful. I also track everything in jGnash (similar to Quicken). I know it’s overkill, but it works for me and I enjoy doing it!

To keep track of spending in which category, I use pearbudget. Though it costs $3/month, its simplicity is really genius. Using their system, it doesn’t care if you paid by cash (envelopes)/check/debit card. Doing it online allows me to enter my income and expenditures at work or home. Every month you enter what your anticpated (then actual) income, and then your expenses as they occur. It works just like a monthly balance sheet.

The other feature I like best is irregular expenses. It keeps track of what you set aside for say, auto repair. If you budget $100 for the month, and spend only $50, pearbudget carries over the remaining $50 to next month. Quite handy if you allocate a yearly amount for variable expenses that don’t occur every month.

I really wanted to like neobudget, but it was too unwieldy for me. I’m very OCD and it took too much time to setup and implement to my satisfaction.

JD,

You’re talking right up my alley. I’m a big fan of budgeting, and I use the envelope method with NeoBudget. To answer some of your questions, when I underspend in an envelope, I carry the balance over to the next month. This helps me compensate for a month where I overspend.

I track my budget once a week for about 15 minutes. I download my statement from my bank and import it into NeoBudget. As I import, I go through each transaction and split it across my envelopes.

Voila! I’ve tracked my spending for the week. Once I got used to it, it’s pretty easy. I actually look forward to it each week.

I have a similar sized ‘personal’ budget. My spending is not that regular on items to categorize. On payday, I automatically move $300 to my “big splurges” account, and any leftover goes to this account as well. I fix about $2000/year in splurges I plan on (eg, a trip), but then typically find that there’s a couple other larger things I want through the year that I can then afford.

The one area where I feel I overspend for the utility I get is dining out / convenience store purchases, so I decided to make that the one thing I pay for with cash so that when the cash is gone, it’s done. I put $200 cash in my wallet for the month. Everything else I put on a CC that gets paid off monthly. If I was to ever have cash left from that $200, I would roll it into next month’s dining. So far that hasn’t happened.

I track it online but then record the results in Excel.

Excellent post. Thanks.

We also use Mint.com. I find it works almost exactly how we need it since we never pay in cash, our credit card gives 1% of purchases to our mortgage principle so it makes sense to just use that and pay if off each pay check.

The only issue is they don’t automatically do the rollover budgeting as I described in my first comment. So at the end of each month I have to adjust our budgets for the next month based on how we did that month. It is a bit annoying but in reality only takes me about 30 minutes a month, and the categorising only takes me about 15 minutes or so a week so all in all it is worth it for us.

I’m not one to judge… but $750 sounds like an awful lot to spend on wants if you were in debt until your late 30s-early 40s. What about retirement? You’ve lost about 20 years of the magic of compounding interest… if I were you I’d be a little more concerned about building up those retirement portfolios. I’m sure you are maxing out the 401-K (or whatever that account is called – we don’t have those here in Canada), but maybe you should sock away a bit more towards retirement… you can never have too much.