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?