I had a couple good comments to my post titled Avoid the "Budget-Busters" that Kill Us Financially and wanted to share them with you. The first offers several great, additional money saving tips:
Great Tips! I agree with you on the "personal account". I do exactly the same thing. I can spend it on whatever I want without asking the spouse. When you do this you completely loose all of the guilt of spending on something frivolous you really want. I also have an item called “Personal Account – Bonus”. If I get a bonus at work AND if we are on track with the rest of our budget – then we give ourselves each a bonus – now that is fun!
Now here are my 5 additional budgeting tips I would like to share from my own experience. YMMV:
1. Use software – Quicken / Money / Whatever. If you don’t keep good records, how do you know what you are spending to even make a budget?
2. Keep it simple – When I first did my budget, I tried to get really detailed on categories. I had categories for just about everything. Over the last couple of years I learned to whittle that down significantly. I have my big categories such as Utilities, Insurance, Taxes, Medical, mortgage, etc. These are all the monthly expenses that are regular and recurring. Then I have what I call my “Budget” categories. These are the categories where I directly spend the money at a store: Entertainment, Gifts, Groceries, Household, Kids, etc. Each pay period I take out the CA$H needed for the budget categories. Guess what? I never overspend those anymore.
3. Budgets take time – It has taken me a couple of years to refine my budget to where it is today. Now I know when every bill (such as yearly car registration) is coming. It is all dialed in to my software. You can’t just slap one together and expect it to have everything the first try. Don’t get discouraged, you will forget things but it will not take long to get it right. Now this may sound crazy, but after I had my budget nailed down I actually “enjoy” when my bills come. Do I like paying bills? Nope…but it was really cool when they come and match my budget and all the money is right there to pay it. Now that is a good feeling!
4. Budgets are Living Documents – I used to think once I set my budget, it could not change during the year. Bull. If I have worked extra hard and have extra income, I want to enjoy some of it – or put it toward budget categories that I have gone over. Take for instance this year, we are doing great and on budget. Since my income is better than expected we decided it was OK to buy a new sofa. When my wife looks at the budget she sees a big RED number showing we are over and it freaks her out. Well – why not adjust your budget? Keep in mind you have to be very disciplined to do this! You can't just change it because you overspent a category to make you fell better when you have nothing to balance it out.
5. Make your budget equal $0.00 – I know when many people do their budgets, they take what they earn, subtract what they will spend and say “I will just save the rest”. I budget everything – even what I will save. If you don’t – I bet you wont save it!
This is GREAT advice! Does this person have a blog? If so, I'd love to read it!!!!
My thoughts on the above:
1. I use Quicken too and have compared Quicken to Microsoft Money here at Free Money Finance. If I had to do it all over again (if I didn't have 10 years worth of data in Quicken) I'd use You Need A Budget. It's a great alternative to Quicken and Microsoft Money.
2. Quicken makes it very easy to sub-classify expenses. So under utilities I have Utilities: Electric, Utilities: Gas, Utilities: Water, etc. This is one thing Quicken does very well.
3. I spent much more time at the beginning than I do now. Today it takes me many a few hours a month to do everything associated with our finances. Much of it is on auto-pilot and all I need to do is adjust every now and then.
4. Yes, a budget is not cast in stone. Things will change, adjustments will be needed, etc. That's called life. :-) BTW, this is the same reason you need an emergency fund -- the unexpected will happen.
5. I don't do this, but I know what the commenter means and it's likely a good idea for most people. I just happen to be uber-self-controlled when it comes to money, so I have no problem saving. In fact, my savings is deposited automatically before I get my paycheck (some goes right to my 401k and more goes to a taxable investment account).
The second comment was made in response to my revelation that I estimated my house's value on the low side when calculating my net worth:
Estimating the value of your house on the low side is an excellent idea. Even assuming that you sell it for exactly what you believe the fair market value to be, there are always transaction costs. In reality, most of those costs are being covered either from the price the buyer is paying, or out of the seller's pocket if the seller is selling at a loss. However, when they are covered by the price the buyer pays, they are bundled in the sale price. The big one is the realtors' commissions, but there are others: title search, attorneys, etc. In the end, the check you walk away with is less than the difference between the sale price and your mortgage balance.
Oh, yeah. There are always big swings when a house is sold. How come they never seem to be in my favor? ;-)
Have been reading your blog for a few weeks now, and love it. Couldn't help noticing today, though, that you say, "That's why you need an emergency fun."
I'm afraid that most of the problems I've had sticking with budgeting over 29 years of marriage stem from believing I need (and deserve!) an "emergency fun." :)
Posted by: Katy Raymond | April 21, 2006 at 08:00 AM
Katy --
Cute! ;-)
I changed it back to "fund", thoguh you are still entitled to "fun". ;-)
Posted by: FMF | April 21, 2006 at 08:29 AM
I especially like #4 and #5 - budgets are definately not static. We update our monthly budget every 2 weeks/month to make sure that if there are any upcoming unusual expenses, they are included.
#5 is a great practice also, and is something we do too. I like to have everything accounted for and laid out ahead of time, that way, you have no excuse to slip from your plan.
Posted by: Amanda | April 21, 2006 at 12:36 PM