I got asked on the Tweety on Saturday what is my best budgeting tip, and it got me thinking that I really don’t have a “budgeting” tip, as budgeting is really a tool for an entire lifestyle you are choosing. My response was a bit flippant:
@commoncentsmom Tip? Spend less than you make 🙂 Avoid lifestyle creep always. Live like you did when you were 24
— Big Cajun Man (@bigcajunman) January 18, 2014
But it’s not like I haven’t talked about Lifestyle Creep before, it’s insidious in many folks lives. Budgeting tips are fine, but budgeting is really kind of useless if you just make up a list of things you think you can save money on, without thinking about things first.
Best Budgeting Techniques?
The easiest budgeting method from my book is, if you use Quicken or something like that to track your spending, look at how much you spent last year in major areas, and try to do that again this year. I hear you saying, “But BCM that isn’t saving”, no not really but it proves that you can follow a budget. If you get a pay raise then suddenly you are ahead of the game. Next year, do the same thing again, and you’ll be a little farther ahead, etc., etc.,. Sounds simple doesn’t it? It can be, if you want to do it.
Getting rid of debt is another budgeting tool too (in an obtuse way). If  you can get rid of each debt, and then use the payments you used to get rid of that debt to save (or better still pay down other debts) (while continuing to live within your means, and not increase your debt), you are budgeting too (or at least spending within your means).
Any other budgeting tips out there?
This is not a budgeting tip per se, but is one of the most useful ways of identifying the value of a budget item.
It comes from a book written over 20 years ago called “Your Money or Your Life” and is still my goto book on investing and life in general. The premise is that you trade time for money and the best way is to calculate your entire cost to work. You then compare the cost of an item with how much work time it takes you to support that item and compare it against the value you get from the item.
High cost/low benefit items are not worth the hours spent and should be dropped. The effect is to concentrate your life around high value items that really give you happiness. If you can drop a number of items, then your overall living costs also drop.
It sound complicated, but not really. My wife and I live on a fixed monthly income from our investments. When I calculated the yearly management costs of those investments, it worked out to about 1/3 of our monthly living costs.
These costs are hidden but when you consider that every month we are also spending 1/3 of our monthly living expense in managing the investments, then it was very high for the perceived value. I have since discovered and started to move to the couch potato strategy (passive indexing).
We did have fun with our advisor, though. We created a persona that we called “Harvey” after a movie based on a 6 foot invisible rabbit. He thought that he was being introduced to a new family pet. We explained that “Harvey” represented the cost of the investments and that “Harvey” was with us everywhere we went and represented the invisible third person at the table.
He wasn’t amused.
But the technique remains quite useful.
rob…
I learned to budget, if you can call it that, from the Wealthy Barber. So you take the money coming in, subtract at least 10% for savings, you see how much you have left over and THEN you decide what you can afford to pay for rent or a mortgage or whatever. If you don’t make the saving the 100% highest priority, it won’t happen for most of us.
Somehow we all manage after the government takes its share from our cheques before we even see it. So almost all of us could also manage if we had our savings take its share before we even see it, too.
I have spent countless hours tracking my spending without really making any sense of it. Recently I started using YNAB (instead of Quicken). I like their approach – budget what you have, not what you think you’ll have and don’t spend much time looking back – start now. I think when I have made up budgets based on assumed income and assumed expenses – say a monthly budget – and then cast it forward a year, I have then never looked at it again. YNAB’s approach forces me (if I follow it, you don’t have to use the program) to re-examine my planned spending each month and base it on reality – like the car needs repairs or to go into servicing this month. In the past I would put money in the budget for it but rarely didn’t spend it on something else if the car was okay.