In coming up with our budget, we tried a ton of different systems to capture and manage the money in and the money out of our accounts. We’ve used financial planning software, complicated spreadsheets, online banking tools – and none of them worked.
Despite the alleged “real-time” nature of online banking today, things don’t exactly work out that way. Visa transactions take days to post. Withdrawls we authorized for the 1st of the month didn’t come out until the 9th, or even 12th sometimes. Post-dated cheques took up to 2 weeks to clear our account.
And every single month, no matter how hard we tried to keep good records of all these things, we’d miss something and end up back in the red again.
But we have finally found something that works, even when (especially when) the electronic banking systems don’t quite jibe: Cash.
I was really always trying to aim for this; Neil was a tough sell.
But if you’ve ever read any financial planning books or seen any shows (Till Debt Do Us Part comes to mind), the person who’s trying to manage his or her finances is always put on a cash only spending plan, at least for discretionary purchaes. And there’s a reason why: it works.
Every payday (twice a month) we take out $500 to keep in a jar for all of the month’s food, entertainment, clothing & personal care needs. If we know we have a gifting occasion coming up, or want to go out, or buy clothes or something for the house, or just need one of those rare but expensive purchases like another giant sac of dog food, we count out that money and paperclip it to a note so we don’t accidentally spend it before it gets used for what we need.
It’s also powerful to see where we’re spending money, and good for adjusting our expectations. Like when we took out our $500 on the 15th of January we thought with that money we could go out for a few dinners, buy dog food and get some shelves we’ve been eyeing at IKEA. After we did a week’s worth of grocery shopping, we realized the futility of our plan. It would’ve left us $8.27 for the remainder of January (including food for the last week). We wouldn’t have starved, since our larder is fortunately well-stocked, but it seemed a little ridiculous to struggle through the final 10 days of the month all for a shelf.
So we put aside half the money for the shelf in January, and the other half will come out of February (when we’ll buy the shelf), and that will be much more reasonable for the rest of January, and we won’t have to live on beans & rice for the rest of the month.
Revelations at every turn, I tell ya!
The rest of our expenses we manage with a simple checklist that we print out for each month that sits on our desk. When automatic withdrawls come out, or transfers happen to other accounts, or we pay bills online, we tick them off as having happened. That way we know everything that’s supposed to be occurring on our accounts is (and things that aren’t supposed to be occurring, aren’t).
It took us going through about 6 months of expenses to find exactly what our fixed expenses are and when they come out, so we don’t get blindsided by something silly that we’ve forgotten about. Because, oh boy, do we ever forget about things. Like our life insurance. It’s about $35/month, comes out on a really strange day (the 21st or something) and guess how many times in the past year that payment hasn’t cleared, because we forgot about it, drained the bank account, and we got dinged with an NSF fee? At least three. For a stupid $35 pre-authorized withdrawl.
This is another area the cash helps a huge amount with, because it keeps us from fiddling about with the contents of our accounts multiple times a month (which one of us is very fond of doing), and potentially over-contributing to the debt repayment accounts at the expense of missing other payments that we’ve forgotten were still coming *cough*Neil*cough*. So the checklist is a backup for that.
And I have to say, so far so good. Unless we manage to do something entirely boneheaded, it looks like we’ll make it through the first month of 2009 with our “spend $1000 on discretionary expenses” goal intact. And that feels pretty good.
Do you have a budget? How do you stick to it?
I do have a budget but seeing as I’m over-draft $ 200 I might not have stuck to my budget so well. But I think it’s more a reflection on having lost sight of the budget rather than my mis-budgeting 🙂
I do like your approach though!
I love the concept, but I just can’t do cash. Hell, I don’t even like the fact that I pay my rent in cash, but Nick doesn’t even use online banking, nevermind online money transfers…
But man, I know the “Wow, that was dumb” NSF fees. I’m just lucky that I managed to remember BEFORE my car insurance tried to come out on Thursday that I don’t have enough cash in my account for it and need to transfer some over. Damnit. I didn’t do so well with that in November, when I got hit with the $30 ICBC fee AND my banks NSF fee… expensive mistake!
I like your idea of a list for the monthly fixed expenses! I may implement that.
You say you have $1000/month for ‘discretionary’ expenses but you are buying groceries with that money as well. Do you earmark any of that $1000 specifically for groceries, or will you in future, do you think?
I tried the $$ software as well (Quicken – as it came with my Sony laptop back in ’06) – and I’ve tried some really complex spreadsheets. Seeing that I am self-employed, I need to keep track of the GST & taxes I will have to pay back every year, as well as the dental/health care/monthly prescriptions, etc will cost me straight out of pocket. I also am in the process of paying for 11k worth of school that I am taking for the next 18 months (in your neck of the woods, I think – BCIT). You get the idea. So it gets really complicated and nothing was working. What I did was go back to my old school roots – what I used to do in the ’90’s when I was in my early 20s and trying to budget (as you can imagine – beer and fun took up a lot of the cash back then!). So at the end of 2007 – I dug out one of the 88 cent Hilroy notebooks and wrote out my budget. 6 months at a time. Yes – in pen! And guess what? Except for when I lost my main contract last year for 5 months, I was able/am able to stick to my budget. I’m in debt up to my eyeballs, in my opinion, filled with unfortunate timing/luck/poor decisions – but now I actually see light at the end of that crazy consumer debt tunnel.
I’ve spoken with my bank and I’m going to meet with them in a few weeks for a full financial review, as I communicated my concerns, plans, hopes and fears to them. They were so accommodating and I believe that it will be of much benefit to me. They let me know it will probably be a monthly visit to them for some time, so we can make sure things are going ahead as planned. It’s one appointment I cannot wait to make monthly, as crazy as that sounds.
I use the credit card when I know I have to (register for courses online, work expenses, etc) but what I’ve been doing for a few months now is I transfer the funds to my credit card first, so the impact isn’t as deadly and my balance never increases. It took me the last 4 years to take my debt to another (really crappy) level, but now I’m on my way of reversing that, whilst still being able to plan for the present and future.
I have a $5000 move coming up next month, and it practically came out of nowhere, so the 5000 I had to knock most of the smaller credit card balance is now shot – but I’m still planning ahead. We all have to learn to anticipate and accomodate change when it comes to finances too (something we all know, but it’s not always easy to follow).
I also cannot stress the importance of rainy day money tucked away, as I had one hell of a major storm come my way in 2008 and it saved my butt when I lost my job, without warning (being self employed – there was no package or EI benefits, etc).
Gail Vaz-Oxlade is a complete goddess. She rocks those glass jars like nobody’s business. I absolutely love her (just wish she would let singles like moi on her show!) and I think her simple, yet though provoking concepts are right on the money.
Glad you are liking your jar method – whatever works for you is the way to go.
Bottom line – debt repayment is so very hard and very personal. However, I believe it can be done. I’m sweating blood as I am on my way to prove it.
Much luck to you both!
Cheers
Raul, Donna, hope you guys find systems that work for you! I’d love to hear what they are.
Erin, we generally take a look at what we’ve got going on over the half of the month we’re working in, and try to segment things out based on that. So while we don’t have a specific amount earmarked for groceries, we do set some aside out of our jar for food – it just changes a lot based on other commitments and the state of our pantry.
Sid, thanks for sharing your story! I hope things start looking up for you – keep us posted on how the bank meetings go!
My system is alarmingly weird: SPEND NOTHING IN THE BANK ACCOUNT OH MY GOD FOR THE LOVE OF GOD NO.
It’s, uhh, not much of a system. But since I work in a tipping industry it works. Basically I don’t touch anything in my bank account. My auto-deductions come out of this account and after the first cheque that gets deposited after the 1st of the month I go in and pay all my bills online at exactly 12:15am. I actually stay up late in order to do this.
Then I don’t touch until the next pay cheque after the 1st of the month.
If I didn’t make enough in tips? I modify my grocery list. Or don’t go out or don’t buy that new pair of shoes. I generally have a pretty good idea of when I need to save money for an expense in the near future and tend to hoard my cash in those situations.
The only time that I break the DON’T TOUCH THE BANK ACCOUNT rule is when I need supplies for work, and then I cringe and hand over my debit card. This is an improvement as I used to use my credit card for these things. Credit card debt makes me have anxiety attacks. I discovered the hard way that cringing is better than anxiety attacks!
I’m a little bit weird with money though in the respect that I don’t spend it. Even the cash in my wallet I am really frugal with since I never know how much will be coming in the next week. It’s not entirely uncommon for me to phone my dad and ask him if it’s not completely unrealistic to spend money on XYZ.
I won’t even talk about how I feel about my student loan debt 😉
I really like that you’re being so honest with us about this stuff. It’s a difficult thing to get ahold of, and even harder to talk about with people!
I have to say I have found your posts on budgeting most interesting! Being a student for nearly 10 years it has only been the last 3 or so when I’ve needed a budget that was more complicated than ‘spend as little as humanly possible’.
My budget now is only slightly more sophisticated. Up until this year I put a chunk of money in my savings account each month, 3/5 was for debt repayment and 2/3 was short term savings (I don’t have credit cards so it’s for things like flights, computers, dSLRs). I keep track of this money on a spread sheet so I don’t spend my debt money. I know it doesn’t make sense to save while i have debt but having SOME fun money keeps me sane. From the remainder automatic payments are deducted (rent, phone bill, contact lenses, gym membership etc) and then the rest is for food, socialising and shopping. I pretty much can keep a mental track of how much I spend so very rarely end up going into my overdraft and if i do I deduct money from my short term savings to cover it. My spending is worse when I have cash in my wallet rather than using my debit card. Cash just seems to evaporate. My one quirk, as it were, is that I only save money for 10 months of the year. I give myself Dec and Jan off which makes it easier to manage those expensive months.
This year I’m going to try something a little different, a) I’m putting a small amount of money away each month into a long term savings account and b) I’m going to try giving myself a weekly budget. I make ends meet and my debt (student loan) is decreasing but I still fritter too much money away. I’m hoping with a weekly budget I can put a little more towards my loan and get it paid off within the next 2 years. I just need to come up with a realistic target!
When Julie and I change countries, we usually undertake an intensive budget tracking approach like you describe for the first few months. We never know how much money we’re going to spend, or where it’s going to go, so it’s important to keep an eye on these things. We do the ‘withdraw chunk of cash, stuff it in a jar for the month’ thing too. It’s doubly practical when you’re living somewhere where people still mostly operate in cash.