{"id":51762,"date":"2010-11-08T04:00:10","date_gmt":"2010-11-08T11:00:10","guid":{"rendered":"http:\/\/getrichslowly.org\/blog\/?p=51762"},"modified":"2023-09-24T09:23:54","modified_gmt":"2023-09-24T15:23:54","slug":"budgeting-for-mistakes","status":"publish","type":"post","link":"https:\/\/www.getrichslowly.org\/budgeting-for-mistakes\/","title":{"rendered":"Budgeting For Mistakes"},"content":{"rendered":"

How carefully do you budget? Do you account for every dime, or is there some wiggle room in your spending plan?<\/p>\n

\"Broken<\/a>Since I got on the wagon with tracking my spending, there’s no miscellaneous category in my budget anymore<\/b>. Every dime of my income is accounted for. I know how much I spent on parking meters last month ($2.75), as well as bigger ticket items like what my household utilities cost ($328).<\/p>\n

That’s great for budgeting. I base my spending plans for the coming month on my actual<\/i> spending from previous months. In theory, my household finances should be a well-oiled, debt-slaying machine.<\/p>\n

In theory<\/i>. In theory, there’s no difference between practice and theory. But in practice<\/i>…<\/p>\n

<\/span>Too good to be true<\/span><\/h2>\n

In practice, I end every month feeling pinched, wondering where all my money went and why my grocery envelope is so thin this week. Yes, I can check my spending records to get answers to those questions. But I would have thought that by now I’d have solved the problem.<\/p>\n

I haven’t for two reasons. One is that I’ve deliberately cut our daily operating budget very close to the edge. We lived for a long time on less than half our current household income. Our income has gone up, but we still have debts to pay off. As uncomfortable as it can be to shake the last cup of black beans out of the cupboard because I ran out of grocery money, I’d rather spend a few more years living on a tight budget in order to get out of debt faster.<\/p>\n

In other words, I make myself feel broke on purpose.<\/b><\/p>\n

Back in the day, I used to come up against the end-of-month bills in a panic, staring at a dwindling bank balance and no back-up plan. Now I have the same immediate problem of squeezing money for the electric bill out of the grocery budget. But instead of a wad of maxed-out credit cards, I have zero credit debt and a nice start on an emergency fund<\/a> building in my online savings account<\/a>. That’s a huge improvement.<\/p>\n

I’d still like to think, though, that after two years of tracking every penny I spend<\/a>, I could accurately predict how much money I’ll need each week.<\/p>\n

I fail because every month there are some irregular expenses<\/a>. Sometimes they’re big, like a surprise $600 vet bill for our cats. Sometimes they’re small, like spending $30 at the charity book fair at my kids’ school or buying a $100 part for my oven.<\/p>\n

The point is just that every month it’s something \u2014 something I neglected to account for. The more I plan ahead, the fewer these things take me by surprise. Our annual homeowner’s insurance bill no longer catches me off guard, and I’ve budgeted months in advance to pay the excise tax on our car.<\/p>\n

But I’ll probably never be 100% accurate with my spending plans. I’ve learned the basic skills of tracking my income and expenses, and plotting out what I’ll need to spend in the coming month. I’m pretty good. I get it right to within a few hundred dollars every month.<\/p>\n

<\/span>Living in the Real World<\/span><\/h2>\n

Given the complexity of our financial life and the reality of my ADHD brain, this is probably as good as it gets for me as a household financial manager.<\/p>\n

If I can’t get better at predicting what I’ll spend, I need another strategy to solve my end-of-month budget crunch. While I love how our household income has gone up over the past two years, I know that more money is rarely the answer to a financial problem. I just need to manage what we have better.<\/p>\n

Puzzling over this at the end of October, I realized the answer had been staring at me for months.<\/p>\n

I need to budget for my mistakes.<\/b><\/p>\n

When I wrote about travel budgeting<\/a> in July, I quoted Ramit Sethi<\/a>‘s rule of thumb: figure out what you think you’ll spend on housing, food and travel costs, and then add 20% for the unexpected stuff that comes up on any vacation.<\/p>\n

That rule served me well during all my summer travel. I came in under budget, feeling great, and put the extra money back in savings for my next trip.<\/p>\n

Clearly, I need to do something similar with my household budget. Given the scale of the numbers, 20% is probably excessive. But I need to rewrite my spending plan with a margin of error. Maybe 10% or even 5% will be enough.<\/p>\n

This will be money I can safely spend on anything that comes up during the month:<\/p>\n