Reader Mail: Starting and Sticking to a Budget

I live with my awesome, wonderful boyfriend who just found out that his awesome, wonderful full-time job that he loves has been downsized to part-time. Thankfully, our rent is pretty cheap (LES, represent!) and my job is stable (fingers crossed, amirite!?), but neither of us has much in the way of savings. Right now, his main concern is not to burden me while he’s “underemployed,” but I think this is a great opportunity for both of us to become more financially responsible. Unfortunately, creating a household budget seems like a daunting task to me. Any advice on making one (and sticking to it)? — V.K.

I get budgeting. It’s great, and I do it. But what percentage of your income are you supposed to spend on rent/food/commuting/bills/booze benders each month? I need some sort of benchmark because I know how much I spend, but I need to know if that’s okay. For example, I live in London where rent is outrageously high, but I don’t know if what I’m paying is above average, or just normal, relatively speaking. Do I need to feel guilty about that £45 weekday dinner out? Or can I relax a little. When I was growing up we never had much money, and I’ve had little to no money education. These days I’m making my own cash and it’s great and everything but I just don’t really have a measure on what is the done thing. — D.B.

So … any budgeting suggestions? I’ve taken a few different tacks but it feels like it’s never enough to get me on really solid footing. What I would like is to have a clearly outlined budget where I’m never scrambling to cover my ass. Which sounds like it should be easy considering I don’t even pay rent! — A.P.

I’ve been getting lots of questions lately asking me for tips on how to create—and stick—to a budget (in fact, I just got another one five minutes ago—hello Kathy!), and I’m going to tell you something that may sound surprising: I don’t use a budget. Some people need to have a budget to remain responsible with their money, while others find budgets to be too restrictive for their individual needs. I’m one of those people who find budgets too restrictive. 

Of course, this doesn’t mean I don’t limit my spending—it means I’m not going to put an arbitrary dollar amount to a category like “grocery shopping” and make myself stick to it every week. Sometimes I want to spend $100 at the grocery store, and sometimes I want to spend $25. Every month, I set aside enough money to pay my rent and other household bills, and sock at least 20 percent of my income into various savings accounts. Whatever money that’s leftover—a fair amount—can be used however I want.

I’ve tried creating budgets for myself before, but was never able to stick to them. I wasn’t overspending—I was just spending irregularly. I would go half a year without buying a single article of clothing, and then decide I could drop $200 to replace my shirts that had torn away at the elbow, and new socks to replace the ones that have worn away at the heel (for me, it is always the heel, and never at the toes). In the month where I was dropping money on clothes, I would automatically adjust my other spending—fewer drinks and nights out with friends.

Budgets never worked for me because my circumstances changed frequently. For example, I have two weddings to attend in California next month, which means 10 days at my folks’ place where I don’t have to do any grocery shopping and get to eat for free (besides a visit to In-N-Out, and that great Mexican food joint on the corner). As long as I’m paying the bills, getting some money into savings, and not running out of money at the end of the month (which has yet to happen on my budget-less modus operandi), I’m ahead of the game.

So if you’re paying your bills, and saving at least 20 percent of income, you really don’t need a benchmark for how much you should be spending on weekday dinners out, shopping, or whatever it is you like to do. Everyone’s different. I have a higher spending benchmark for grocery shopping than other people I know because I love to cook, and I like purchasing quality ingredients. But I have a very low spending benchmark for things like going to the movies or shopping for clothes, which balances that spending out.

Of course, if you find yourself running out of money before the end of the month, you’ll need to start putting some limitations on your spending, AKA set a budget. Spending too much on dining out? Set yourself a weekly limit you can spend on dinner with your pals, and then don’t go out to dinner again after you’ve reached that limit.

You might want to give the envelopes system a go: Look at your how much take-home money you get every month in your paycheck. Set aside what you need to pay your bills in your checking account, put at least 20 percent away for savings if you can, and then divvy up the rest of your money into envelopes for the rest of the things you’re spending your money on: groceries, dining out, shopping, entertainment, transportation, etc. If you find yourself spending much more in one category than in another, you can adjust the amount of money you put in each envelope accordingly. But remember, once that money’s gone, there’s no dipping into your savings. Unless you’ve run out of food to eat, the spending has to stop or you’ll begin to dig yourself into a hole.

The envelopes system works well for a lot of people because it makes spending money tangible. We often swipe our credit or debit cards without thinking about the money coming out of our bank accounts. Handing a cashier real cash hurts just a tiny bit more—especially when you go home later and see what’s left in your envelopes.

Again, I’m the sort of person who works best without a budget, so you have to do what’s right for you. If you have your own genius budgeting system, I’d love to hear them.

 

More: Budgeting Part II

Photo: Flickr/vectorportal

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36 Comments / Post A Comment

Fig. 1 (#632)

Aaaand this is why I love this site. Financial stuff without the shame or overweening spreadsheets. Anyways, this is the method I use, although the saving rate is more like 10% since I’m aggressively paying off student debt.

@Fig. 1 Hello, are you me? I just hammered out some preliminary student loan payment/budget plans yesterday (graduating this week, yow) and my savings is going to have to be closer to 10% if I want to be able to pay rent and eat and such. Loannnnnns, loans foreverrrrr.

Fig. 1 (#632)

@The Everpresent Wordsnatcher Er…you are probably more disciplined than me. I still like to, um, live in the now a bit more than I should. Also, my interest rate is low (prime) so I haven’t been attacking it seriously until the last three years or so. Regardless, I’ll have it paid off next year – 7 years, woo – but I went to PSE in Canada and only graduated with ~20K in debt. Now if I could only stop buying bikes every year, I’d have some money for a house…

breakfast (#633)

For me, it helps to have it written out in a spreadsheet and log all my purchases for the month. It’s easy to say I will spend $200/month on food, but if I don’t write it down, it’s really hard to see if that’s actually what I’m spending. It sounds kind of obsessive to do this (or maybe it feels kind of obsessive, because I am only on month three of logging my expenses) but it’s helping to keep everything in order. And if I do go overboard in my ‘fun’ column, I can take it out of my ‘etc’ column or ‘food’ column (less fancy stuff), to make sure I stay on task. It also makes me less worried about expenditures, so if I spend alot on something one week I don’t worry as much, I can see the amount left over for the rest of the month instead of some abstract ‘I spent x amount of money and I don’t usually do that’ worry.

@breakfast Samesies! I started keeping track of all my spending — every penny — since September when I finally started getting a full-time paycheck. With student loans + rent + lowish salary + NYC prices, the first couple months were really, really tight. If I hadn’t written down everything, I would not have been able to plan ahead and I am pretty sure every check would have bounced.

Now it’s less tight, so I don’t count the pennies, but I still keep track of everything, even if it’s rounded. It’s so easy to forget what I’ve already bought–I find it empowering to look at my budget and say, “Oh yeah, I already spent $100 on restaurants this month! That’s why it seems low.” or “Oh hey, I haven’t put any money in my emergency fund!” or whatever. I’m a huge budget evangelist for this reason. Knowledge of how I’ve spent my money just gives me peace of mind.

DrFeelGood (#401)

@breakfast Yea I think this is a good idea in the beginning. Whenever my life situation has changed dramatically – moving, marriage, new job, I do sort of a regressive budget, where every month we write down every cent we spend. Then we look at the overall spending over say, a 3 month period and see where we need to adjust and cut back. For instance, a few years ago, I realized that I was spending well over a grand each year on the train to visit family. Something I hadn’t really thought about because I thought, well, visiting family is important. I switched to taking the Bolt/MegaBus and really cut back on that expense.

@breakfast Yo, mint.com DOES THAT FOR YOU. It’s like magic.

lalaland (#437)

Thanks for this! I always feel guilty I don’t have a budget, but my month-to-month spending varies so much. For example, this month is killer due to vehicle registration renewal, a couple of plane tickets for weddings and assorted travel, and car insurance.

However, I keep in mind the “cushion” I’m comfortable with in my checking and savings, and if it dips below that, I try to cut down the next month. Also, I save about 20% of my paycheck to Roth and 401k accounts and throw in the excess to my stock account whenever I am well above my cushion (so that I can inevitably lose it when the stock market dives again).

@lalaland I feel guilty too! Especially when I hear people discussing their über-detailed breakdowns. My own spending varies wildly, so I never understand how people can work such hard and fast spending plans.

I’m like you, in that I have a cushion I’m comfortable with in my checking account. This is the account I use for all spending. At the end of each month, whatever remains above that amount goes into savings. This is on top of the chunk I place into the savings account from the get-go. If I dip into the cushion, part of the next paycheck goes to re-establishing equilibrium.

ghechr (#596)

For people who want a budget with columns and stuff, I suggest first going back in time a bit. Using your e-statements from your bank and credit card and whatever else you use, kind of generally categorize your expenses (i.e. groceries, insurance, car, restaurants, clothes, rent) over two or three months. That should give you an idea about what things you spend your money on and areas where you think you can spend less without much heartache. There are also websites like mint.com that will categorize things automatically for you (but you should double check to make sure they get it right). There is no *right* or *wrong* budget; just spend less than you earn with hopefully a little on the side to save and you’re already in good shape.

zelda sayre (#634)

@ghechr YES. I was only able to create a budget that I actually stuck to after I started using a mint-esque program that let me download the previous 3 months of reckless spending and see where my money was really going. Turns out that those weeknight $30 dinners out and friday night ‘I’ll just pick up a lipstick…. and some eyeliner…. and a bottle of wine’ shopping expeditions on the way home from work were costing me more than all my other non-rent spending combined.
Now I don’t worry about my daily coffee (why does budget advice always make us feel so guilty about $20 a week!?) or grocery spending but pay attention to the things that actually make a difference.

And to the OP, as someone who lived in London, yeah 40 pounds for a weeknight dinner is a lot.

@ghechr I was going to suggest this! I’ve never used a fancy program, just a spreadsheet, but I spent three months tracking EVERY penny and then putting my expenses into broad categories. It was tedious, of course, but helpful.

From there, I looked to see if there were any surprises, and decide if I should adjust my expectations or adjust my spending. Like I spent a lot more than I thought on groceries… but it wasn’t like there was a lot I could cut down on there; I was just really underestimating the cost of normal groceries. I did, however, find some other areas where I was overspending and tried to fix that (a little).

@zelda sayre Ugh, yes re: the $20/week on coffee and the “Just cut down on lattes!” advice. Not only has that *never* the main source of my budget woes, but I really enjoy spending buying coffee! For instance, I realized that I could save $60/month by switching birth control methods–way more effective, and no latte deprivation!

Also, it’s things like your credit score and retirement planning that is actually going to make a long-term lifestyle difference.

ElBlynx (#499)

I’m not sure how the billfold community feels about Mint, but I really like it for keeping track of multiple different accounts. I use it primarily on my smartphone as an easy way to keep tabs on my instantaneous money situation. It auto-categorizes spending (and is easy to change the occasional mislabeled item), you can create a custom tag (such a wedding, work, tax deductible, etc…), and you can set auto alerts (low account, unusual spending, etc…) I was skeptical at first about linking my accounts up to a third-party site, but I’ve been very happy with how everything has worked out.

My spouse and I just got a joint bank account, so we definitely need to sit down and have a detailed budget discussion now that we are in a transitional life state. I will probably use some of Mint’s auto graphs for visuals!

selyse (#497)

A site that I really like is pocketsmith. It really helps you see what your finances look like in the future – as in, how much $ will i have between now and next payday, as opposed to many other tools which do a really good job of just telling you where all your money went.

My favorite budgeting trick is the rolling budget. For example, I budget out $110 a month for eating out. If in April I eat out a ton and go over, that’s just that much less that I can eat out in May. This is really good for clothes, since it allows me to “save up” for bigger purchases and then buy them without feeling guilty. It really helps me see the big picture…I’ve started thinking about how my day-to-day purchases fit into my yearly savings goals and expenses.

Borrellia (#179)

@Caitie Rountree@facebook That idea sounds like a good one – how do you keep track of your rolling budget?

@Borrellia This is what I do too! I use YNAB (You Need A Budget) which automatically does this. I <3 it. It helps me plan ahead and save for long term purchases in different categories, and doesn’t yell at me if I have a month when I decide to spend all my “going out” money on rum instead of food. It just means I have to use my “grocery” money more efficiently!

I’m overzealous about my budget. I have a credit card, but never use it. I only use my debit (important for this budget). I’m a phd student in NYC and so I make very little, but somehow have managed to save (I think) 5-8% of my income. What I did was I took my stipend amount subtracted taxes ( I have to pay those out of pocket), some school related incidentals, my monthly rent multiplied by twelve, and the amount I wanted to save. I then got some number, divided that by 365, and there was my daily spending limit. It’s incredibly paltry…about 35 bucks per day.

At the beginning of the month, I transfer from my savings to my checking the amount I’m allowed to spend for that month. That’s usually rent+utilities+($35*31 days)…which tends to hover around 1900. And that’s all I get in my checking account for the month.

I religiously tally my spending for the previous week in a spreadsheet in excel to make sure I’m not going too over budget. I’ve only gone over budget once – about $150 over.

cmcm (#267)

Save 20% of your income?! Wow. I wish. And I’m really obsessive about budgeting.

I have this uber budget spreadsheet, but I don’t know how else I could manage because A. I live in London so everything is expensive, B. I’m American and paying US student loans so they vary month to month depending on the exchange rate, and C. I make, like, no money so if I didn’t track everything I’d be afraid I’d be in a hole quite quickly.

Re: percentage of income, for me it works out as:
36% on rent
28% for food, eating out, booze normal weekly budget
20% on student loans (ouch.)
6% on Tube fare
6% on anything else (shopping, usually)
4% on bills

Whiiiiiiiiiiiiiiich adds up to exactly all of my income, with no savings. I do do freelance work, though, which I use for anything I have to save up for – any holidays, work visa, etc. I honestly don’t know how I could manage to put ANY money into savings.

@cmcm I just did my calculations and they are similar to yours:
34% on rent
15% on student loans
22% food/eating out
15% booze/gifts/entertainment/transportation
4% bills
and the remaining 10% goes to miscellaneous and savings.

Sigh!

elizabeast (#629)

20% of your income? Am I supposed to be doing that?! I do save a lot though, so maybe the percentage doesn’t matter.

So, this is how I run my life: I get paid once a month. Out of that paycheck, I immediately pay my rent, electric, cable, phone, credit card, and student loan. Whatever is left is divided by four and put into my savings, and I “pay myself” once a week. Every week I need to buy subway fare, groceries, and pay for going out/buying clothes/etc. I set myself a goal to save $40 a week (no idea how I determined that number), but what I actually do is just put whatever is left at the end of the week into savings.

What sucks about this system is that months are 30-31 days, not 28, so I usually end up in a situation where I need to make $50 last four days. It’s never dire though because I know I could take some money out of my savings and still be on track to hit my savings goal, I just like to play the “make money last” game with myself sometimes.

Mike Dang (#2)

@elizabeast As long as you’re saving, you’re on the right path. We all have different income situations. I say at least 20 percent, because part of that should be going into some sort of retirement plan (like if you work for a company that offers a 401(k) with a match or an IRA of some sort), and the other part of that money should be going into a savings account for emergency purposes.

cmcm (#267)

@elizabeast I like the “paying yourself” once a week game… I might try that. I generally just retrospectively look at what I spent at the end of each week, which often includes some surprise drunken weekend transactions WHOOPS.

elizabeast (#629)

@cmcm Somehow, when I started this job in which they only pay me once a month, I got really serious about not letting Drunk Elizabeth spend money that Sober Elizabeth did not know about. I think this came from knowing that if I spent all my money before the month was up, there would be no more money and I’d have to draw on my savings. In my world, I only pull money out of my savings for specific things I have been saving for (plane ticket, a dress I really want, new apartment, it could be anything).

So, when I go out, I always take out cash and I never EVER do the thing where everyone gives me cash and I put it all on my card. That never works. Carry cash and have the bartender break a $20 to pay your friends if you have to.

elizabeast (#629)

@Mike Dang Makes more sense now! I AM paying into a 401(k), but I’m about to quit that job for a job that doesn’t offer that, but might soon?

Actually, I shouldn’t be too surprised about the 20% thing. In January, I decided I wanted to make a cross country move in July and I’d need to basically triple my savings in order to do so. I figured I’d do that in 6-7 months, but I did it in less than two with basically no adjustments to my life. Maybe I’m saving more than I think I am. Once i get settled on the other side of the US, I plan to look into IRAs and stop just letting my money sit in a savings account that hates me a little.

*waves* Hi Mike! This was perfect and so helpful, thank you! The Billfold couldn’t have come around at a better time.

Mike Dang (#2)

@The Everpresent Wordsnatcher Hi! It’s always great to see you in this part of town.

@Mike Dang I like it here, it’s happy. I feel so excited to be called out in a post. :D

aw this is a great article and as much as I appreciate budgeting tips and my email has been included here, it didn’t address my actual problem which is that I don’t get paid on a regular fucking basis! ARGHHHHHHH I hate my employers. (i am typing this on my work computer)

Mike Dang (#2)

Oh yes, I haven’t forgotten! I wanted this to solely address budgeting—your weird payment schedule deserves it’s own addressing!

@Mike Dang aw thanks Mike :) :( :) my stupid payment schedule is making me crazy(er)

@redheaded&crazy also, now I feel like a whiny jerk! I take back all my comments and replace it all with a new one: THE BILLFOLD IS GREAT

much better

@redheaded&crazy i’m sure this is a problem of freelancers around the world. i just don’t get it. the envelopes thing is what I do more or less and budget out a month in advance and that’s still not enough. so frustrating.

DrFeelGood (#401)

The biggest help to me in terms of budgeting without a budget, is to have spending holidays. Days where I am not allowed to spend money. It’s gotten so good that I usually do it Mon – Wednesday, and it cuts down on the “I feel like a coffee/tea/candy/book/don’t want to cook” whatever. The only exception is groceries.

atruck (#1,312)

Yay, these comments and suggestions are great. One thing I do – I give myself a cash allowance for the week for lunch if I eat out, happy hour drinks, little incidentals, and buying whatever. One thing I do with this – if I think about buying something but decide not to – say a coffee – I take that $3-4 and put it into this jar I have. The jar is full of change and random bills I just throw in there when someone treats me to a drink or I don’t purchase something, or I win $2 on a lottery scratch off, whatever’s left at the end of the week, loose change, etc. I emptied my jar last week (after three months) of shoving bills in it, and not even counting the coins, it had $125! I’m super excited about this, since it’s money I didn’t notice much before, and now I can put it toward either something fun I’m saving for (a trip to see a friend), or expensive random purchases I always forget to save for, like wedding or Christmas gifts. I also have random places (both physical and online) I have money – my jar cash is all in one place in my room, and my cash-back rewards for my credit card are sitting there online, waiting to be redeemed. I find a lot of pleasure in making plans to spend that money on something awesome.

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