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How Do You Organize Your Budgeting?

Here’s the question: Is it better to mound up your spending money in one big pile, or does it make more sense to divide it into “piggybanks” dedicated to one purpose or another? Is it an overcomplication to dedicate x or y amount to, say, groceries or eating out? Wouldn’t it be simpler to give yourself a set amount of money to spend for a given period, and not obsess over how it’s spent?

In the envelope system, for example, you convert your month’s income to cash and literally stuff chunks of it into various paper envelopes—this much for groceries, this much for gasoline, this much for entertainment, and the like. When you run out of cash in a given envelope, you quit spending on that category until you get another paycheck.

Many of us do this in a virtual environment. A program like Excel makes it easy. I certainly do: my discretionary budget allocates specific amounts to various categories such as groceries, gasoline, etc.

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The greyed-out figures are charges and returns that have been posted in the “Left from $500” column.

The nondiscretionary budget does the same, only in a different format because I have little choice over how much will be spent:

In this case, the greyed-out figures represent bills that have yet to arrive. The $130 I’ll have to spend this morning on getting the hated palm trees trimmed will come out of last month’s black ink. Next month there won’t be any residual black ink: power and water probably will exceed the budget. But that’s neither here nor there. The issue is…

Discretionary budget? Nondiscretionary budget? The first contains 11 items. The second contains 10. That’s 21 items I’m tracking in two subbudgets. But in any given month, a specific amount of cash is available for spending—in the summertime it’s $1,745. Does it really matter where the money is spent, as long as no more than $1,745 goes out the door?

Sometimes I think the business of tracking ever penny that’s spent on this or that category is just obsessive. Personally, I worry that if I don’t keep a grip on expenditures, at the end of the month there won’t be enough to buy groceries or pay the utility bills.

But maybe that’s wrong. Maybe it would be simpler (and saner?) to regard the $1,745 as one big pile of dough from which little bread loaves are baked when needed. If instead you planned that all extraordinary expenses—anything other than recurring bills and bare subsistence—would be covered by savings and then stopped worrying about what you spent in any given category, would you be at any more risk of running out of money at the end of the month?

We know that last January J.D. over at Get Rich Slowly stopped tracking his spending altogether. The roof apparently hasn’t fallen in on him, because he’s still posting to his blog (unless he’s posting on his iPhone from debtor’s prison).* He compares the practice of tracking each transaction, which he had long advocated, to training wheels, and suggests that after habits of mindful spending become engrained, it’s no longer necessary to track every single penny.

I’m none too sure about that. In the first place, there  have been a few times when a transaction came into question, and it sure was handy to be able to search a year’s records and find it instantly. And on occasion, various store clerks, managers, and bureaucrats have been mightily surprised when I came forth with a three- or four-month-old receipt. And third, sometimes it’s useful and convenient to be able to see at a glance how much I’ve spent and how much is left.

My thought is nowhere near as daring as JD’s. Rather than quit tracking altogether, I suggest that there may be no real reason to detail budgeting and spending. Maybe just establishing a puddle of money and staying aware of what you’ve spent overall, on everything, compared to the amount available, would suffice.

Is it enough for you simply to know you have $x,xxx this month to spend? Or do you want your budget organized into categories and subcategories?


* Update: As a matter of fact, more recently J.D. decided the better part of valor is keeping track of every penny, after all.

12 thoughts on “How Do You Organize Your Budgeting?”

  1. These days I get paid once monthly & have a good feel for normal monthly expenses, so I basically go by the declining balance remaining in our checking account.

    But back in the days when I got paid every other week (not twice monthly, but every second week), I had to track more closely to be sure I kept enough money in the bank for all the big expenses when they hit. Otherwise the paycheck just before the 1st of the month was GONE on the 1st & no $ left for groceries, etc.

  2. Those spreadsheets make my head spin. I have one mass of money in a moneymarket acct–where my checks are deposited. This also functions as my emergency fund. I charge almost everything on Amex. I only write a few checks a month and hardly carry cash! I throw all receipts into a shoebox and can find things on the rare occasions when I need to.

    I’ve moved a lot out of the money market b/c of low interest rates.

    With your dog and home maintenance, you have more unpredictable expenses than I do. I would rather do anything than keep such careful track as you do. So if my budget were tighter, I would hold off on optional expenses–like meals out or clothing–till the very end of the month.

    I think tht for me, it’s easier to be frugal than to make spread sheets.

  3. I use the “puddle” approach to budgeting. I don’t worry about every little item, although I roughly know what I spend on the bigger categories. It works for me, and I don’t waste time on the little things.

  4. I’m a big fan of the chunk o’money approach. When we get paid, I move a set amount of money into our savings to grow that account, and the rest of the paycheck $$ stays in checking to pay for everyday expenses/monthly bills. Anything left over also gets pushed into the savings account. I don’t zero-out the checking account before the next paycheck comes in, though. It’s not perfect, but it works for us (probably because we’ve never needed to watch our finances that closely and don’t have debt/spending issues). We do try to keep our spending down in the areas of entertainment and groceries. We allow ourselves 2-3 meals out a month (takeout, usually) and spend about $200-$250 on groceries.

  5. After years of “shared” expenses, I’m comforted by tracking every penny that comes and goes. I don’t actually do much with the numbers so I’ve backed off on how the spreadsheets are put together. Instead of tracking the number coming out of each category, I do a complete cash flow spreadsheet with a sheet for each month. If I wonder about any transactions or a particular month’s spending, I refer back to that spreadsheet. I just try to keep any month’s credit card bill below a certain amount and monitor loosely.

    It’s probably not a great way to do it now that money’s become even *more* tight.

  6. I use to be a neurotic tracker of every dime. Like you, I questioned the sanity in I was loosing in favor of “controlling” all of my cash flow. In January, I took small baby steps and began consolidating some of my ING savings accounts. I still track a few things such as a self-impossed loan repayment to my husbands estate and what I need to sock away for my bi-annual LP gas purchase, but slowly I have released the need to know what I spent on food, gas, etc.

    There have been a few times that I’ve needed to find something and can’t because I no longer track it, but I maintain that those few times do not warrant the stress that I was going through trying to record each and ever tansaction. I’m glad I did it!

  7. My tracking is about seeing where my money has gone. When money gets tight I go NOWHERE. No gasoline usage, no groceries, eat from the pantry and freezer, no money spent.

    Can you set up your utilities to pay a set amount each month? I love no surprises after the a/c has been on. Have you tried fans and wet neck cloths to keep you cool, not the house?

  8. @ Brenda– Actually, I deliberately have not set up the utilities that way. Under normal circumstances, I can afford to pay the summer bills (I don’t LIKE it, but I can…). The winter bills are very low and that leaves me with plenty of cash between October and June. It means there’s something extra to buy Christmas gifts and to entertain around the holidays. The electric bills in particular would be over $100 a month if they were prorated over the year–compared to $60 in the winter months. Things are tough this summer, but I hope that next year, with the Social Security earnings limitation gone, I’ll be able to earn a halfway decent income, and halfway decent is really all I need on top of SS to pretend to a middle-class lifestyle.

  9. Instead of totaling everything up and deducting it from my income and ending up with some random left-over figure, which can lead to overspending and ending up in the hole, I prefer this method.

    I take the individual amounts for everything (bills, savings, living expenses, such as gas, groceries and spending money) and figure out where they’re going to get funded from (I get paid from a few different sources). If I need to earn more based upon my needs, then I just make adjustments in my work flow (being self-employed allows for that flexibility of adjusting your earnings to suit your needs). I never come out under or over and above because I pull it out and it all evens out. And when there is excess, instead of working less, I just put the additional in savings. Typically what happens is that I want to save more, so I work more.

    My categories and subcategories are very basic, like Internet, groceries, dog food, cash. I’m not interested in tracking how much I spend on certain food types, or clothes or personal care, and so forth. And my cash amount can go for anything I want. I don’t care whether it’s for fast food, a birthday cake for a family member or for a t-shirt. I think some freedom within boundaries is important.

  10. Very helpful post, thanks. I’ve been mulling over the same concern for several months now.

    One thing I’ve noticed is that even tho’ we’re long time frugalists, it still helps to see pretty precisely where the $$ goes, to help maintain good spending habits. Otherwise it’s too easy to slip into squandering bits here & there.

    I do our tracking in Quicken, however, because it’s much easier for me than tabbing & mousing endlessly in Excel (and cuz I work in Excel all day long and get sick of it). That’s my compromise, I guess.

  11. For all spending after the utility bills etc, I use the old fashioned envelope system……has worked well for me for many years. In the old days it included kids allowances and bus money envelopes… it is things like movies, haircut and clothes envelopes.

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