Well! Only six more days till the end of the current budget cycle, and an amazing $352 is left in the kitty. Not, we might add, through any extreme deprivation: I’ve gone out to eat with friends four times in the past three weeks; bought $38 worth of scrumptious wine at Costco (some of which I enjoyed last night with steak, asparagus, and a mighty tasty avocado salad); spent over $80 on gasoline; and had my hair done. Two women have even asked who does my hair! Since I cut the budget to $1,000 preparatory to canning day, having some $350 left with a less than a week to go is a very positive development, indeed.
How is this happening? Since January, on a $1,200 kitty I’ve run over budget five months out of nine. Of the four months in the black, only one of them came in with expenditures of less than $1,000; a second was close, but no cigar.
One explanation, I think, is stockpiling: at the start of this cycle, the freezer held plenty of food. Yet I’ve spent about $317 at Costco, much (but not all) of it on food. There have been no extraordinary bills (yet): no vet bills, no car repairs, no plum…oh, wait: there was a plumbing bill. Hmmm…
The big change is that I decided to abandon microbudgeting and see what would happen if I set up virtual “envelopes” for the month instead. In microbudgeting, the budgeted amount for the month is divided in four and allocated to four periods of roughly a week each. With the envelope system, you establish an amount to spend on each of several categories, and then quit spending on a given category when you reach its limit.
Presently, the result looks like this:
In this first experiment, it appears I’ve overbudgeted for Costco and underbudgeted for gasoline and hair. Since I don’t get my hair cut every month, I figured I could think of $20 as a kind of “average,” but maybe it would be better simply not to have a “hair” budget in the months when I don’t need a trim. No law says you have to have the same budget categories, month in and month out.
I hardly ever go out to eat—really, it’s a rare month when I spend as much as $50 in restaurants. For some reason, this month all my friends have been asking me to join them, and since I have precious few friends, I incline not to turn them down. At any rate, it’s covered by the savings from the pool and Cost Plus categories.
So the question is: Does a virtual “envelope” system, even when the proprietor cheats here and there, work better than microbudgeting?
Psychologically, it may: with the weekly microbudget, one feels it’s OK to spend all the way to the hilt. In fact, when the overall monthly budget gets tight, it’s difficult not to spend the entire week’s microbudget: $250 is not much to cover all one’s bills, from food and gasoline to pet care and property maintenance. One $200 run on Costco plus a tank of gas and you’re over budget…and how often can you get out of Costco for under $200?
With the envelope system, you don’t feel so constrained: you have all month in which to spend the money allocated for groceries, clothing, gasoline, and the like. One $150 trip to Costco came nowhere near running me into the red, but if I’d spent that much out of a one-week microbudget and then had to spend $35 on gas and $30 on the hairstylist, I’d have had $35 left to last the rest of the week. One trip to Safeway would have blown it. With the virtual envelopes, it’s easy to see what remains in the budget for specific purposes, making it easy to back off some expenditures as needed.
Clearly I’m going to have to reallocate allowances for some of the categories: less on Costco and more on gas, for example. But if I’m right that this approach works better than microbudgeting, the implication is huge.
It means that next year I should easily be able to live within my much constrained means, without having to hold a fulltime job and without even having to crank any freelance work. Combined income from Social Security and part-time teaching should more than cover my needs!
$14,400 SS + $14,160 teaching – 20% tax = $22,848 net income
$565 monthly recurring costs + $1,000 discretionary budget x 12 = $18,780 routine expenses
That leaves me almost $4,070 to the good. From what I can tell, that extra amount will just cover the cost of Medicare, which should run around $300 a month, by the time I’ve cobbled together all the aspects that go to creating full coverage. It doesn’t leave anything for emergency savings, but I have $10,000 in that fund to cover 2010; in the following year I’ll be allowed to earn more money.
So, if I don’t get the Glendale Community College job, it won’t much matter: as long as I can keep discretionary spending to around $1,000 a month, I should be fine.
And in the unlikely event that I do get the job, it would make sense to stay on this budget and save all the unspent net income, thereby making it possible not only to buy a car in cash but also to replenish savings with new earnings.
Either way, the new budget is a winner!