Now that I have scared you with my spending plan for April, I’m going to talk about how my spending plan ended up the way it is.
My spending plan didn’t start out being three laptop screens long. Originally, it started as a way to know all of the dollar amounts that I was responsible for each month. See Exhibit A, my April 2010 spending plan.
Back in April 2010, I was using a prepaid cell phone and not spending very much money on it (that’s what happens when you’re single and mostly organize things with friends via the internet…). I did however have a Vonage phone, which I used to call my parents and make longer calls when I was at home.
Anyway, here’s how I made my spending plan.
- Think about how much of a buffer in my checking account I would feel comfortable with. ($400)
- Think about all of my monthly expenses: cell phone, cable/internet, rent, renter’s insurance. Write down the amount for each.
- Think about all of my bimonthly expenses: electricity.
- Think about all of my yearly or semiyearly expenses: Vonage (I opted to be billed yearly since it was cheaper) and sport #1.
- Next, think about variable expenses. Instead of just writing down $100 for clothing or some other random number, think about the specific items. (This has made me feel much less guilty about spending on clothing now!)
- How much do I think I’ll spend on food? Think of some random numbers for eating out by myself, groceries, (work) lunches out, and junk food (i.e. afternoon snacks at work).
- How often do I want to get my hair cut? How much does that cost?
- How much do I send on random bathroom stuff?
- How often do I want to go to the spa? How much does that cost?
- Think of a random number to cover all of the other expenses for the month and call this Entertainment!
- How much do I think I will spend on Zipcars each month? (My bus pass is free from my employer.)
That was a pretty good starting point. The spreadsheet on the right doesn’t look all that ginormous or overwhelming, does it? Well that’s what the one you saw on Friday evolved from, slowly. As I incurred new expenses or forgot about existing ones, I added to the spreadsheet:
- In May 2010, I started being billed for sewer, water, trash, and utility administration fees in my apartment building.
- In June 2010, I bought my TiVo and paid for 3 years of service. Now I’m wondering, at almost 2 years, whether I should have paid for lifetime or not. 3 years seemed like a lifetime back then! I started setting aside some money to pay for the TiVo service once my 3 years I have pre-paid are up.
- In June 2010, I had to get a new driver’s license from moving to this state, so in July 2010, I added that as a line item under “> yearly or unknown”.
- In August 2010, I got my first credit card and started counting that against the balance I expected my checking account to be at the end of the month.
- I planned on buying a car in September 2010, so I added six months’ prepaid auto insurance, parking in my apartment building, $50 for fuel, and $25 for car maintenance to my monthly spending plan.
- In September 2010, I donated some money, so I added that to my spending plan at $50/month.
- As I had more months of food spending data, I adjusted the budgeted amount to be an average or a ceiling of the past data instead of random numbers.
- When I renewed my passport, I realized that I should probably put that in my spending plan… So I added up the costs of getting a new passport: application, photos, sending it away and amortized that.
- I remembered about my Pandora subscription! So I added that in.
- In November 2010, I remembered about Christmas (oops), so I added $100 in November and $100 in December to cover Christmas presents. (Lo and behold I went over. In 2011, I estimated $100 per person per present of Christmas and birthday for each of my parents, my sibling, and a significant other. That was a much better estimate.)
- After I switched to the rewards checking account, I got rid of the $400 buffer in the “checking” portion of the account since I have a several thousand dollar buffer with the level of savings that I keep in there.
Some people make their spending plan in December for the entire year and then just leave it. I think that it’s good to re-visit the entire thing once a year, but your spending plan evolves as you do. I’m quite happy with my spending plan and it definitely helps me to feel less guilty about spending money since it’s there! There’s a bucket for it!
I liked the idea of the envelope system, but I hate cash. That’s how I came up with the idea that the balance of my checking account should be equal to the sum of all the amounts remaining in each virtual envelope (or line item), plus the balance on each of my credit cards.
For a few months, I tried having my fun (entertainment) money be a separate checking account and debit card, but I found that then I just didn’t spend any money at all out of it! So I moved it into my checking account, just like I did with my travel money this month. I actually originally had my travel money as a separate checking account, but I just used it as a “curveball” account, say for presents and eating out. I think that worked out okay in the short-term as I figured out my expenses better. Now, for example, a curveball account isn’t really necessary since I have a better understanding of my expenses.
For some people, the level of detail in my spending plan might drive them crazy. For me, on the other hand, it is incredibly freeing to know that for whatever I want/need to spend money on, the money is there, money just for that very specific purpose. I used to guilt myself into spending very little money and it SUCKED. Having a plan like this makes me remember exactly why I’m spending $3,600 per month or whatever my spending plan amount for the month is instead of guilt-tripping myself for spending so much money (despite the fact that I could *net* six figures this year). In a way, it’s actually turning into a bit of a specific slush thing now since I can easily “borrow” money from my sport #1 fund to pay for travel by having one be overly positive and the other be overly negative. It all balances out quite nicely.
Readers, do you have any more questions about how I write, maintain, or implement my spending plan?