Unbudgeting in 2016: reflections halfway through

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?

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Budgeting: always stay a month ahead

I loved being paid monthly. I know some people hate it because then they run out of money by pay day. A simple bit of budgeting or planning (whichever word you prefer to use) can help with that really (so long as you do have enough money to go around).

Since an internship when I was 20 (quite a few moons ago now!), I’ve been paid monthly. And I have loved it! Without even realizing it, this forced me to always be a month ahead. I would get paid on the last business day of the month, set aside some money for the next month’s spending, and then send the rest to whatever my current savings goal was. Now with being on semimonthly pay, I plan to use part of the first paycheck to cover the next month’s spending and then the second one to savings, so that if I don’t get the second paycheck, the next month is already covered.

The other way that I stay a month ahead is on my credit card. You know how you can charge money on your plastic and then not actually pay for the items until sometimes almost two months later? That’s not how I budget. I follow a similar methodology to YNAB in that the day the money is spent is the day it comes out of my budget. My checking account balance has enough money at all times to pay off all of my credit card balances, even the ones that haven’t seen a statement yet. There’s no looking around for where to get the money when the statement comes. It’s already there.

Once you’re a month ahead, finances are much less worrisome. It doesn’t matter whether you’re paid biweekly, weekly, monthly, semimonthly, or completely sporadically. You add up all the income you received in the month, send some to savings and set some aside for the next month’s spending, rinse and repeat.

My parents always taught me to use one paycheck to pay for some things and the other one to pay for other things and to always pay your credit card before the due date, as in a few days before was just fine. I tried that way for a while and I found it really stressful to always be pulling money out of savings to pay for things you hadn’t planned on when the credit card bill came, so now I do things this way. I budget a bit (but I’m not very hard on myself at all if I miss the target) and have the money to pay the credit card statements in my checking account long before they come due. It’s freeing!

Edited to add: I’ve gotten a fair number of comments in recent months asking if I budget. I wrote several detailed posts on this back in April 2012. I’m still using the same spreadsheet, but the numbers are a bit different.

  1. April 2012 Spending Plan
  2. How I Made My Spending Plan
  3. April 2012 Spending Plan: Conclusion

Looking back at those posts made me realize that I don’t forecast for home maintenance or long-term car maintenance. I also don’t have a plan for what I’ll do to replace my car. My current assumption on the latter is that I’ll have the mortgage paid off then and will just sell some taxable investments. For home maintenance though? I’ve definitely had to do some replacing. Honestly, I just keep a larger cash buffer to help with that.

Readers, how do you pay your credit card bills? Are you more like me or my parents?

The Balanced Money Formula: Why it wouldn’t work for me

The Balanced Money Formula suggests that you spend 50% of your net income on needs, 30% on wants, and 20% on savings.

If I followed that, I would split my net income up like this:

  • $3,500 on needs
  • $2,100 on wants
  • $1,400 on savings

To me, that is a really low amount to savings – I normally save somewhere around $3,000 – $4,000 per month. My net income is actually budgeted to be split up something like this:

  • $2,200 on needs (31%)
  • $1,500 on wants (21%)
  • $3,300 on savings (47%)

So I have basically swapped savings for needs at the 50% marker, wants for savings at the 20% marker, and needs for wants at the 30% marker.

I think that at a net income of $7,000 or so per month (checking account direct deposit with 401(k) contributions added back), spending 50% on needs is a bit excessive and I would argue that at my income, 30% on needs 20% on wants, and 50% on savings is a much more balanced formula.

My needs and wants have definitely been going up continually, but I think I’ve found a pretty good balance of what I want to spend money on and spending money on what is important to me.

How did I split these groups up:

  1. Savings: my 401(k) contributions, cash and taxable investment contributions
  2. Needs: Rent, renter’s insurance, water, sewer, gas, trash, parking in my apartment building, car insurance, electricity, keeping my driver’s license and passport up-to-date, renewing the tabs on my car, maintaining my car, putting a tank of fuel in my car each month, internet at home, groceries.
  3. Wants: smartphone, sports, Pandora, Remember the Milk, and Dropbox subscriptions, income tax preparation (I could do it myself), personal domain registration and hosting, TiVo, clothes, social, dinners and lunches out, getting my eyebrows waxed, hair cuts, make-up, occasional trips to the spa (once or twice a year), a new cell phone and computer every few years, parking meters (I don’t have to drive where there are parking meters – I can bus or walk, mostly), parking at work if my employer doesn’t pay for it, travel, donations, and presents.

Readers, have you ever tried the balanced money formula? Why did it or did it not work for you?

Not All Details Matter: Spending

I still track my spending down to the penny. I’ve been doing this for over eight years now. But after verifying that my transactions posted correctly in online banking, I don’t care about the details in each category.

Creating a spending plan was really, really hard for me since I care way too much about the details. I’m doing pretty well with my spending plan now, but the first year that I was using one was hard. I didn’t use one through most of college, though I did in my last academic term and I did after I moved to start my full-time job.

I started out breaking down food down into different line items so that it was easier to budget for: alcohol, dinners out, on-campus food, groceries, and junk food (aka chocolate bars). I broke clothing down only for bras – everything else was grouped into the general category.

My post-college spending plan first started out with so many details. I can’t believe I was trying to track everything that I did. I learned that I simply can’t budget for some things.

I can’t budget for how many books I’m going to buy in a month or how many times I will eat out with friends. All of that just gets looped into “Entertainment”.

Also, having a separate category for chocolate bars was too detailed for me, so I just count those bought from the vending machine in “lunches out” and those bought in bulk under “groceries”.

I learned that grouping everything into “Clothing” just didn’t work because I really couldn’t tell what the number meant, so I split it out into the subcategories that I have today: bras, bottoms, athletic wear, dresses, coats, shoes, socks, underwear, tops, and swimwear.

Instead of getting mad at myself for roaming fees on my cell phone, I round the bill up to the nearest $5 and then I’m happy when I’m under “budget” every month.

I set budgets for travel to figure out how much I spent, but while I’m on vacation, I don’t think about the budget and just spend money. That seems to work okay since I have a natural aversion to spending too much money.

I’ve stopped trying to budget for “household cleaning supplies” and just leave that under groceries. It’s not very much anyway and I’m always under budget on groceries.

You might think that my spending plan has too much detail, but I think I’ve finally found the right balance in detail for me.

Readers, how do you determine which details matter to you when creating your spending plan?

Money Mindsets: Spending

My default money mindset, as you all know, is to save. I’ve always been good at saving and at controlling my spending, but I’ve always sucked at spending. I have always had the opposite unhealthy relationship with spending in comparison to most personal finance bloggers.

While I was in college, I was ridiculously cheap. As you know, I graduated from college with a net worth of $32,000. I did this partially by saving a lot of my income from internships and my parents paying for my expenses on academic terms. But I also did this by being ridiculously cheap:

I hardly ever drank alcohol.

I never really went out with my friends more than once a month and sometimes, once an academic term.

I would only go home if my parents would pay for it.

I didn’t let myself buy clothes (basically, I just stayed away from the malls) and hated paying the $7-10 to get my jeans altered to be the right length. Since bras were expensive, I bought as few as possible, though then I had to replace them more often.

I ate a TON of pasta with cheap tomato sauce, cheap soups, and other cheap food like pancake mix. (I was too cheap to buy eggs and the pancake mix was way easier.)

I didn’t really go on any trips, except when my parents paid.

I refused to pay for cabs when I could just wait in the cold for a bit for the bus or trudge through snow to get to the grocery store.

I thought that paying $30 for yoga classes for the academic term was expensive, so I didn’t do it. In my current city, that would probably only buy me two yoga classes.

I didn’t drink coffee. (I still don’t.)

I stopped getting my eyebrows waxed.

Some of the above might not sound that crazy. Maybe I picked the wrong examples. But I would chastise myself in my head if I spent money. I never cut myself or anything, but I would get really mad at myself. I made myself feel like I had no money, even though my only calendar year with a loss in my net worth was the year I started college, by about $8. Every other year saw an increase in my net worth. One year in college, my net worth even went up almost $15,000 thanks to a high-paying internship, more than doubling.

Now, a few years post-college, I have a much healthier relationship with spending.

I am so glad my parents forced me to spend my entire relocation bonus on brand-new furniture. I have a really awesome bedroom set, mattress, and really awesome sheets. Who knew that buying a $200 comforter and 500 thread count sheets would make you sleep better than buying only a $10 fitted sheet from Wal-Mart that starts to fall apart after a few months?

Some people say that budgets are terrible and constricting. Not for me. My spending plan is freeing. It allows me to spend $20 including a small tip to get my eyebrows waxed every month because $20 of my paycheck was allocated to that. It allows me to buy only designer jeans and to travel.

I am also glad that I bought a brand-new car. I didn’t buy a luxury car. I spent about $20,000 on my car. But I’m glad I bought it instead of sticking with a car sharing program. It makes me far happier.

Paying myself first, the saving method I used up until I started my first full-time job, was unhealthy for me. Now I pay myself first by allowing myself to spend whatever I want, within the confines of my spending plan. And then the rest goes to savings. Direct depositing money into my checking account instead of transferring it from savings makes it far easier for me to spend it.

Now, I let myself spend in a way that makes me happier. I try to save money on the things that don’t make me happier to spend on, like getting my hair cut more than 2-3 times a year. But honestly? I just go to someone at the salon where my eyebrow lady works. That’s easier. And I don’t really notice the extra $20-40 that that costs a few times a year.

Having a high income makes it easier to not guilt trip myself about spending money. I think that that is one of the many reasons in which I’m glad I took the job offer I had instead of applying to grad schools. I don’t know how my relationship with spending money would be now if I had scrimped for no good reason for another few years as a student.

Readers, how do you spend to make yourself happy? Did you ever have an unhealthy relationship with spending like I did?

April 2012 Spending Plan: Conclusion

At the end of March (holy cow was that awhile ago!), I shared my April spending plan with you guys. Vicky has also shared the results of her April spending plan.

You know what? April was a pretty boring month, spending wise. Well, other than the fact that I paid four months of electricity, what with that whole moving thing. There were no travel expenses, no infrequent expenses.

All of the monthly expenses came and went. My Comcast bill was a bit under than the budgeted amount since I returned my modem, so I adjusted my May budget down to even that out.

I finally paid my winter electricity bill, which added up to quite a bit, but I had it mostly covered.

I bought a new pair of skinny jeans! I absolutely love them. They don’t stretch at all :D

I also ended up buying those brown Naturalizer flats and I really like them. If in another few weeks, I feel like I’ve broken them in and they’re awesome, I will consider buying another pair so I have three pairs of flats.

My entertainment spending came in at $238.36, almost perfectly under the planned amount of $250 for the first time in months! That felt good.

My food spending was actually not bad either:

  • Dining Out: $32.79
  • Groceries: $130.30
  • Lunches: $165.03

If you look at my food spending for the last few months, my groceries spending went up a lot. My eating out with friends (included in entertainment) has gone down significantly. I don’t remember the last month that I spent that little on dining out either :) Honestly, I doubt my food spending went down by more than $50-100, but I felt a lot happier about it this month. Perhaps that was also related to having fewer commitments and making more time for myself though…

I feel like the direct deposit experiment was a good idea. $3,800 was direct deposited into my checking account to cover my full spending plan for May. The rest of my paycheck after my 401(k) contributions went to my down payment savings account. That definitely makes me feel more like the rest of my paycheck *has* to be saved, since I now have to go to the online thing to change that number if I want to spend more money.

There actually was no “extra” money left in my checking account at the end of the month, so I didn’t save any more than what came from my paycheck. I think I might actually use the “extra” month each month to pull the travel budget in closer from the end of the year.

Below are some screenshots from my spreadsheet of the final spending plan with the amounts I spent filled in. You can click on the images to see their full versions.

 

Anyway, I hope that my spending plan provided some insight for y’all readers. I don’t think that I will do this publicly again, but I do privately journal about my spending at the end of each month.

Readers, how was your April?

Financial Priorities

One of the biggest learning curves after investing in understanding and working with my finances over the last several years has been trying to figure out what my life and financial priorities are and how I should keep my spending in line with those.

Some examples:

* Dinner out with coworkers when I have leftovers at home and I’ve already eaten out once or twice that week? Not really important to me.

* Going out drinking/clubbing every Friday night? So not important to me. I prefer my Friday nights to be quiet nights at home where I can unwind from the long week and eat leftovers. There, I said it – I look forward to eating leftovers on Friday night.

* Having a super fancy car, such as an Audi or a sports car that accelerates really well? Not important to me, but having a car that is reliable, is cheap on gas, and gets me from point A to point B well with a radio, comfortable seats, and bluetooth audio is important to me.

* Feeling comfortable in the space that I live in is incredibly important to me. Living by myself and in a nice apartment building offers me that comfort, though it is quite expensive.

* Playing whatever sports I so choose and picking up new ones randomly is something that frequently causes me to go over budget. I’m working on that.

* Helping my sibling out occasionally with small things and buying nice presents for my parents is really important to me since they have supported me quite well throughout the years and they still help me out when I don’t really need it on occasion.

* I could not imagine living without internet at home.

* I used to have a prepaid cell phone, but with my busy schedule, having my calendar, to do lists, and (personal) email on my phone eventually became incredibly helpful, so I bit the bullet and got a smartphone last year. I’m still not convinced that it’s worth $80+ per month, but it’s definitely worth at least $50 per month to me.

* I don’t see a point in paying someone to clean my apartment when I can do it with minimal effort since my apartment isn’t too big and one small person doesn’t create too much of a mess.

* I prefer to buy clothing from brands where I know exactly how a particular item will fit. This saves me a lot of time since I can buy some items online by buying the same brand and size, such as shoes, socks, bras, sportswear, etc. I finally found a particular brand of jeans at Nordstrom that always fits me and they do alterations in-house which makes jeans shopping so much less stressful. I pay for some of these conveniences, but it is worth it to me.

* I love traveling, even though I have barely enough vacation days to take any long, interesting trips. This is important though and can add up quite quickly.

* I eat out for lunch almost every day. I find that eating leftovers for dinner is more time and cost efficient than for lunch since I pay an average of $7/meal for lunch out, but dinner would run closer to $20/meal out and I just don’t eat enough of the portions for that to be worth it.

* My health and mental sanity is incredibly important to me. I will spend whatever it takes to work on that.

* I like having a small laptop computer that can actually be used for something beyond just going on the internet. (No, I don’t play video games.) But that adds up – the one I bought in 2011 cost about $1,500 and my previous one cost about $1,700 four years prior to that. This laptop was worth every penny of that to me.

* Investing for retirement with the power of compound interest is important to me. My goal right now is to invest 20% of my gross income for retirement by maxing out my 401(k) and my Roth IRA if I’m eligible.

So what does this financial picture look like if we try to categorize it and put it in a priority order, with my average monthly spending in 2011?

  1. Housing ($1,700) + down payment savings ($2,500)
  2. Retirement investing ($1,800)
  3. Health and Fitness ($200)
  4. A car that reliably gets me from point A to point B ($250) + car replacement savings ($250)
  5. Travel ($170)
  6. Electronics ($160)

In 2012, my travel spending is going to go up, but my electronics spending will go down. Since my housing expenses have gone up, I’m saving less money each month towards a down payment, so I doubt I will average $2,500 per month in down payment savings this year, but slightly over $1,200 per month would help me hit my new down payment savings goal.

Readers, what are your financial priorities?