A Better Way to Budget
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.
Don’t get me wrong, very detailed budgets can be great:
- They can help marry all incomes against all expenses.
- They can help prevent overspending.
- They can 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 can help you figure out how much debt you can take on.
Full blown budgets are great, allocating and spending X money on food; spending Y money on car expenses, the list goes on. This process of only spending certain amounts of money on certain things could work for many people.
I actually don’t monitor that stuff whatsoever.
Instead, we buy the food we like when we need it.
We put gas in our car for day trips.
We go out for dinner when we want.
Instead of detailed budgeting, we make many of our expenses including saving for retirement automatic and simply enjoy what is leftover. Let me explain.
1.We 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 saving for retirement and building our emergency fund:
- TFSA contributions (i.e., a few hundred bucks per month)
- RRSP contributions (i.e., another few hundred bucks per month)
- Extra mortgage payments (another $50 or $100 as our salaries increase at work over time)
- Money to savings accounts to pad our emergency fund or for upcoming home improvements (say $100 per month)
2. We forecast our variable expenses and essentially spend all money that is leftover.
By doing #1 above, we can enjoy some discretionary spending on things like dining out and entertainment.
Essentially, we forego detailed budgeting because we’ve purposely put as many “pay yourself first expenses” up front as possible. Those include saving for retirement. This way, we can easily enjoy anything leftover for fun without guilt.
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?