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, very detailed budgets can be 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. Most of our income is reserved for that.
Included in our fixed expenses beyond the mortgage, insurance, heating, hydro, cable bills are:
- TFSA contributions
- RRSP contributions
- Extra mortgage payments
- Money to savings accounts to save for major home improvements
- Money for travel
- Money to non-registered accounts for investing purposes.
Forecast our variable expenses. Some of our income is reserved for that.
Included in our variables expenses are things like:
- Gas for car
Forecast our discretionary expenses. Some of our income is earmarked for that.
Included in our discretionary spending are things like:
- Dining out
- Things (we don’t always really need) 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” items as fixed expenses as much as possible.
After paying ourselves first we pretty much spend whatever we want from there.
We could likely save a bit more money running a detailed budget – nickel-and-diming everything – but that’s not us. Besides, that approach is time-consuming and filled with angst. Who needs that drama?
At the end of the day personal finance is personal but I think the more you can make saving and investing for your financial future part of your fixed expenses the better off financially you will be.
What’s your take on budgets? Do you use one? If so, what works for you?