Inspired by a blogpost on Stephen Weyman’s site entitled How to Budget Without Tracking Every Dollar I figured I should write an article about how we budget, or do not follow a detailed budget at all. Yes, this personal finance blogger doesn’t really care about detailed budgets. Instead, I/we focus on forecasting and managing expenses. Don’t get me wrong, detailed budgets are great:
- They help marry all incomes against all expenses.
- They help prevent overspending.
- They help develop sound, if not very disciplined financial habits.
- They help put “containers” around your spending habits.
- They help you communicate with your significant other about money.
- They help you figure out how much debt you can take on.
Full blown budgets are great, allocating and spending X money for X food and Y money for Y gas in Y car. This process probably works for many people. I actually don’t monitor that stuff whatsoever. We buy the food we like when we need it. We put the gas in the car when required. Instead of detailed budgeting, we forecast expenses on a weekly basis. My wife and I have been doing this for years and so far, it’s working for us.
Know our fixed monthly expenses and most of our income is reserved for that (Focus Area # 1).
Included in our fixed expenses beyond the mortgage, insurance, heating, hydro, cable bills are:
- TFSA contributions
- RRSP contributions
- Lump-sum mortgage payments
- Money to savings accounts for major home improvements
- Money for travel
- Money to non-registered accounts
Forecast our variable expenses every week and our income is reserved for that (Focus Area # 2).
Included in our variables expenses are things like:
- Gas for car
Forecast discretionary items every week and a small part of our income is reserved for that, with the intention to run a surplus even after these expenses (Focus Area # 3).
Included in our discretionary spending are things like:
- Dining out
- Things for the house
I’ve assumed by now you’ve noticed we probably forego detailed budgeting process because we’ve purposely put as many “pay yourself first expenses” and “save first, spend later expenses” as possible in focus area # 1. We pretty much spend what we earn from there. I’ve been cheap on some things in the past but I think I’m getting better at letting go as I get older. We could likely save a bit more money running a detailed budget but that’s not us. Personal finance is personal, there is a time and place for detailed budgets but maybe this budgeting paradigm can work for you too.
What’s your take on budgets? Do you use one? If so, what works for you?