It’s no secret that I spend a lot of time tracking my finances and I love that! I realized though as grad school kicked into gear that I have too many systems that require me to perform some actions on a specific date, which is problematic when grad school is more important than micromanaging my finances.
So I decided to unbudget in 2016.
What does this mean? I still tracked my spending via the normal ways, but it won’t be time sensitive anymore. I’ll be able to track my spending a month or two later with no effect on anything.
My spending has been relatively consistent since graduating from college. If I throw out the highest year (the year I bought my condo), my spending averages out to $44,000 per year. For 2016, instead of micromanaging how much money my checking account gets each month and it varying a ton, I just took my 2015 annual spending ($48,000), divided it by 12, and gave myself that amount each month. I generally know how much will debit from my checking account each month (credit card bills, mortgage payment, HOA dues, and property tax payments), so I’ll be able to do a quick check by looking at my balance and seeing if I need to add a bit extra.
Why did I do this? It seemed like an interesting experiment, especially since the system of detailed budgeting I used from 2010 through 2015 was largely unnecessary with the huge difference between my income and my spending. This is also essentially what my boyfriend does, so I wanted to experiment and see if it could work for me too. When I first told my boyfriend about my idea, he thought I was crazy and it would never work.
How is the experiment going?
It’s going great!
I started out the year with an auto-transfer from savings to checking of $4,000 on the last day of each month, but in late April (once I finished with 401(k) contributions for the year), I switched it up for my employer to direct deposit $2,000 each pay check to my checking account and the remainder to my savings account. I can split my direct deposit so many ways that I actually also set it up to put 1% of my gross income into my charitable donations savings account as well, which is awesome. The only thing I do manually now is I pay the balance of every credit card as of the last day of the month on the first of the next month, to start the month with a clean slate on the credit card balance, instead of paying attention to the due dates. I used to have my mortgage payment auto-pay on the last possible day it could, but I changed it to the third of the month so it came out earlier and then I knew how much was left in my checking account earlier. Any funds that are leftover in my checking account at the end of the month just stay there and roll over to the next month, which is how I deal with the irregular, but large-ish expenses like property taxes, insurance, and travel.
It’s kind of weird not knowing that I have set aside $X for property taxes so far, that I have $Y left in my clothing budget and $Z in my travel budget, but that’s surprisingly okay. If I spend more this year than I did on clothing last year, then I may consider a clothing budget to see if that helps with the spending. But for everything else, it has been fine. It’s nice getting invited to yet another wedding and not feeling like I need to add money to my presents budget because I don’t have a presents budget! It’s also nice getting the property tax bill and not being annoyed at needing to adjust my budget because it went up by more than what I had estimated. So far, I’ve stayed “under” budget, which is nice, but we also haven’t booked much travel yet this year.
The $48,000 figure was my total 2015 spending less grad school costs and charitable donations, rounded up to the next $1,000. I forgot to exclude medical expenses as I pay those out of my HSA, so really, I could have budgeted probably $47,000, but the buffer is nice to have. If I have funds left in my checking account at the end of the year (which I’m guessing I will), my plan is to just leave them there and then reduce the monthly deposits for 2017. So if I budget $48,000 again, but there is $4,000 left in my checking account, I’ll only transfer $3,666.67/month and not $4,000/month, which would leave a bit more room for savings next year.
So far, my spending seems reasonably in line with my 2015 spending, so I’m not particularly worried.
I have been tracking my spending reasonably close to when it happened, which isn’t strictly necessary, but it’s okay. The time saved not playing with the budget spreadsheet is huge.
This strange way of budgeting also means that it’s really hard to go over budget and irregular spending is accounted for since I never transfer money out of my checking account except to pay the mortgage/credit card bills.
Readers, how have your budgeting strategies evolved over time?