Tuesday, April 7, 2009

Different Budgets for Different Folks

Budgets are wacky things. What works for one person won't work for others. Trent at Simple Dollar has an article that spells it right out: Why One-Budget-Fits-All Doesn't Work - And Why it is Difficult to Compare Spending Between People and Families. His point, and I think it is a valid one, is that everyone has different priorities and situations. One family with relatives in another state may spend more on auto fuel than a family that doesn't. A person living in a old house (like me) may have high home repair costs, whereas someone living in an apartment may have none. Budgets are a bit like personalities - everyone's is unique to them.

Even the way a budget is created can be different person to person. Some financial folks recommend tracking your spending first, others say that isn't necessary. Most will tell you to add up your income and then subtract your fixed expenses (car loans, mortgages, etc.) and what is left is what you can use for variable expenses and savings. Of course, when I did that I ended up with a negative number!! Now what?!?

I'm not going to tell you how to make a budget. There are lots and lots of resources out there for that, in fact, I am going to include a list of budgeting articles from bloggers I like at the end of the post. I will tell you how I went about setting up my budget though and why I decided to live with a negative budget...

I didn't start by my tracking my expenses. In fact, I have tried repeatedly to track my daily expenditures and I always seem to fall off the wagon somewhere. The problem is tracking cash. I start off doing well, jotting every little thing in a notebook, and then I forget a $.25 cup of coffee at the office or how much I spent at the farmer's market, and then I get all thrown off. I have found that I have much more success by putting everything on my debit card and using the receipts for tracking. Cash just gets recorded as "cash" and I don't try to itemize it. However, I discovered all of this after I made my budget.

I created my budget back in May of last year, and I started by simply taking my income from my day job and adding to it the rent that I would get from the tenant. (The house has a one bedroom apartment that I have rented out in it.) This gave me a fairly static number for income. I knew that things could happen - I could lose my job, the tenant could break her lease, but it gave me a starting point for what I could expect.

Then I made a list of all known constant expenses. These were all the bills that I knew would be consistent each and every month, like my mortgage, car payment and insurance. Next were estimated expenses, like utilities, that I knew would hit each month, but I couldn't absolutely predict. Fortunately, I had 10 month averaged list of the utility costs that my ex had put together for the realtor when we listed the house. (I took it off the market when I moved in. It wasn't going to sell at the price I wanted in this market anyway.) That helped me plan for the electrical, water, trash, gas and so on. Then I made rough guesses at truly variable costs such as groceries, home improvement, and car maintenance. Really, these were no more than stabs in the dark and based only on gut instinct.

You know, of course, what happened when I did the math - I came up with a negative number, a big negative number. That promptly sent me spiraling down into a sea of depression for awhile. It is a good thing I was in therapy, because that made me I decide one day to face my fears. I reworked my budget. This time I not only included all of the things mentioned above, but also all the of the things that were important to me. Some would consider these "extras," but I didn't. I knew that my first budget had been incomplete and therefor unworkable. This time I didn't think about the income number, but instead I concentrated on making a realistic list of expenses that included everything I could think of. I went ahead and "shot for the moon" and added everything in that I wanted. I created a list that I felt was reasonable, but that would still gave me a good quality of life. I figured why not? I could always scale back later, (and I did.)

This list included things like adding to an emergency fund, continuing my Christmas fund, dining out, entertainment, buying gifts, and contributing to charity. I also added a "Misc." because I knew there would be expenses that didn't fit under any other line. I tweaked it a little here and there, and lo there it was - $900 a month. Now this is where I differ from most folks out there in the personal finance world. Many would have started scaling back and trimming until their expenses were less than their income. Really, that is the logical way to do things by far. The problem was that I already knew that my fixed expenses were more than my income, and no amount of trimming could change that. Once I accepted that I was already in the hole each month, well, what was a couple hundred dollars more? I had to get the income anyway. I realize now a year later, after reading countless financial blogs and articles, that this was probably incredibly naive and foolhardy of me. I'm not even sure I would make the same decision today, and yet, it has worked! So far, I have kept my property out of foreclosure and more than that, haven't had one late payment. The point is, every situation and budgeting solution is different. What works for me would be complete lunacy to someone else. My budget is big and so are my goals - but built into that is some flexibility. I strive to come in under budget each month and mostly succeed, but there are times I go over. I pump up the income line with extra work, but I also know I could quit contributing to my emergency fund or my Christmas fund in a heartbeat if I needed to. I could even access that money if it came down to it.

My budget is like a living, breathing thing. It changes and morphs. It seems that every few months I realize that something could be tweaked. Changing to cfls halved my electricity budget, changing my tax withholding increased my income. I've added some things, like my car registration and shipping costs for eBay, that weren't in the original document. In June, when my budget hits its official one year mark, I plan on going over it with a fine toothed comb. I'm going to look at the last year and see what I need to correct in it for the next. I don't think a budget should be like a hall monitor - ready to blow a whistle at you and make you feel guilty anytime you do something "wrong." A budget should be a friendly guide to help you get to your goals.

I think people who hate budgets do so because they make ones that are impossible to live with. They set them too hard for reality. Reality is messy - it isn't easily contained in a black and white spreadsheet. Telling yourself you are only going to spend $10 on dining out when you are used to spending $100 is a recipe for failure. Be honest, set the numbers to what is real - then shoot to be under them. That way if you only spend $90, you've had success. Spend only $75 a few months in a row, then, you can lower your budget. At least, that's how I see it.

Here are some links to other people I admire who have written about budgeting. There is a whole range of ideas here from different types of budgets to not budgeting at all. See what rings true and makes sense for you. Oh, and if you have an article about budgets, leave a link in the comments so we can add to the list!

Being Frugal - How to Make a Budget That Works

Budgets Are Sexy - Budgeting 101: Get Your Priorities Straight

Budgets Are Sexy - Budgets are a Man's Best Friend

Frugal Dad - Envelope Budget System

Master Your Card - How to Make a Budget That You'll Actually Stick To

Milk Your Money has a free downloadable monthly budget

Moolanomy - Living Stress Free Without Budgeting

Mrs. Micah has a one month series on money tracking and budgeting. You can find Day One here - Where is My Money Going?

One Caveman's Financial Journey - Pay Yourself First and Grow Your Savings

One Caveman's Financial Journey - Frugal Living Bandaid: Give Yourself an Allowance

Simple Dollar - Why Traditional Budgets Don't Work - Wiser Actions You Can Take Instead of Filling Out a Budget Form

Photo by: Woman of Scorn.


Budgets are Sexy said...

This is true - we all need our own specific budget ;) just a matter of finding what works best for ya.

Dawn said...

And whatever budget that may be... they are ALL sexy!

getting stuff done said...

very interesting post! partly you story too, as in how you got to your 900 figure. I like that you go over and have tried to make up the difference, but you also have a means to be able to make your payments by spending less too. I think I may have set our grocery budgets too low, and have been struggling to come under every time! And of course comparing myself to some more frugal types who dont have a meat hungry husband to feed as well!

Kari said...

What a great post! Really it is. Its all I can say at 6:34 in the morning though ;)

That One Caveman said...

"So far, I have kept my property out of foreclosure and more than that, haven't had one late payment."

This is a huge success. Congrats on not even having one late payment. Your situation is unique and it required a unique solution - which you crafted very well. Congratulations and keep on succeeding!

Dawn said...

Getting Stuff Done - Yeah, a lot of people save money by not eating meat, but if your husband wants it, you need to include that in your budget. Also, I always notice that when I was married I ate more than I do as a single gal. There is something about cooking for two that always seems to mean bigger meals.

Kari - Wow earlier riser! Thanks for the compliments.

That One Caveman - Thank you so much. I keep working at it, and I hope I can keep it rolling. It can be scary at times, but it seemed like the best thing for me at the time.

Kristy @ Master Your Card said...

Thanks for the link, Dawn! It's so true that we all have different takes on budgets. I'm cool with that, so long as everyone has one that works for them!