Budgeting and finance have been significant interests for me for years, and I’ve gone through many phases of restructuring our family finances and investments with varying degrees of success–not to mention marital conflict. This year I took another stab at it. My general lifestyle philosophy is try things, see if they work, stop doing what doesn’t work, try new things. So on the umpteenth budget restructure, I was on the lookout for new strategies since past strategies didn’t stick. One thing I determined was that past budgeting approaches, such as the popular zero-based budget method that you find on many finance and lifehacking sites, failed to stick because of burdensome recordkeeping. I looked for solutions that were automatic, and required as little recordkeeping as possible. We ended up trying a number of techie-solutions, and a couple of very old school ones. We’re on our fourth month on the new system and it’s working EXTREMELY well. This post would be 70,000 words long if I included the rationale for everything we tried based on our individual family needs. Instead, I’m just going to say that each person, couple, family are unique and the key is to make sure solutions are appropriate for your unique situation. Big factors in ours included medical debt, variable freelance income, and a large mortgage.
Put the money in separate bins
In the past, I’ve relied on meticulous daily recordkeeping to make sure we were staying within our budget for each category of spending. That was never sustainable, because who has time for meticulous daily recordkeeping? We can’t even keep up with laundry and dishes consistently. Instead, I found ways to separate spending categories and put automatic limits on it.
The rough categories we ended up with were: stable, predictable, and fixed expenses; groceries; discretionary cash; long term savings; business and taxes; and holiday/mad money.
Stable, predictable, fixed expenses
We know how much our mortgage is, our car payment, insurance, etc. We used Mint.com to set up a basic budget for all categories, including the stable expenses. Mint.com links to your bank account, and will collect data on your spending and estimate budget amounts for you. This is the basis of our main budget. These expenses vary little from month to month and are trackable by logging in to Mint.com. Because the stable categories don’t change much, they require the least maintenance, and so this part most closely resembles a standard budget.
We went with the envelope system for groceries. Food and groceries are one of the most variable expenses, and easiest to overdo without being aware of it. I take out the week’s grocery money in cash from an ATM each week and put it in a literal envelope. I then shop with cash in hand. I take my list with me and keep track of the cost of items in my cart by rounding to the nearest dollar. I save a lot by shopping at Aldi for most of our needs. This system works beautifully for a couple of reasons. For one, it prevents a lot of food impulse buys. For another, by restricting what we can spend, we are wasting much less food. No overbuying “just in case.” One interesting observation is that your cash envelope weekly budget needs to be divisible by $20, because that is what you can get from an ATM. Unless you want to wait in line at a brick and mortar bank each week to get your $137.56 in weekly grocery cash. Nope.
Money for fun things, personal indulgences, dinners out, impulse shoes, and other “little things” has been a big problem for us. How much can we afford to spend? How can you keep track of it? How do you justify spending money on fun stuff when you have debt? I solved this problem by opening two online bank accounts with Moven.com for me and my husband. Each month, we transfer a bit under 5% of his take home pay into each account for our individual discretionary use. This is guilt free money we can save or spend as we choose. Moven comes with an app that you can check any time and will give frequent updates on your spending. Using separate accounts for “fun money” has been a good source of both discipline and freedom. Discipline because in the past we’ve used irrational justifications for “fun” expenditures and having an account with actual numbers forces rational choices and prioritization. Freedom because the spending truly is guilt free.
Long term savings
Right now, our long term savings is mostly in the form of debt paydown, but we have systems for all of it. Since my freelance pay is highly variable, we’ve designated my paycheck as the primary vehicle for debt payoff and savings. We have minimum payments in our regular budget on Mint.com. When I receive a freelance paycheck, it goes through its own algorithm. The basic breakdown is as follows:
20% stays in my business account for taxes and business expenses
10% goes into our fun money accounts on Moven
70% goes to the current priority debt payment
However, since our budget is pretty tight, some months (ok, so far every month) we end up a little in the red. So far, it’s been around $200-$300 each month so far. So before paying down debt, I have to bring the previous month into the black. The modified algorithm is like this:
20% stays in business account
10% to fun money accounts
[overbudget dollar amount] stays in checking account to cover previous month’s budget overrun
[remainder] is used to pay down priority debt
So last month we were $310 in the red. Let’s say I receive a $1000 check. I would leave $200 in my business checking account, transfer $50 to each of our fun money accounts, put $310 in the primary checking account to cover the budget overage, and make a $490 payment to the credit card account. Boom.
This eliminates a lot of temptation and confusion about what to do with intermittent variable paychecks and windfalls. For a windfall such as a gift or other unexpected income, the breakdown is the same, except no money is diverted to the business account. Our priority is still paying down debt, so there’s no surprise vacation or whatnot from a windfall. It’s just chop wood, carry water, until the debt is paid.
I made an arbitrary rule that every time I get a receipt from a store with a savings card or loyalty program, I would put the amount under “You saved” into our long term savings account. It’s maybe $5 or $10 each time, but it slowly adds up. Once our debts are paid off, I would like to start filling up the savings account to the point that we can weather the occasional car repair or big medical copay without resorting to credit. That will be the next goal. For now it’s $5 at a time.
Even more savings
I signed up for a bank account with Digit.co to squeeze even more savings out of our current structure. The idea of digit is that it links to your main bank account, and, using its own algorithm, figures out how much you can “afford” to spare, then covertly withdraws it for you. It’s fun, you can take back the money any time, and you don’t have to think about it. Unfortunately, we’ve had trouble with digit taking WAY too much. I’ve tried dialing back the settings and complaining to the company, but for now I just have to turn it off for weeks at a time to make it stop taking withdrawals from our account. I hope they can tweak their algorithm to make it unobtrusive for us once more. It worked really well when it was taking small amounts. Even though I’m not 100% happy with it, digit has accumulated enough of a balance that it should cover Christmas for us, so that will help keep the credit card from taking the usual holiday hit.
Budgeting is super frustrating because life throws unexpected expenses at you pretty fast and hard. Medical costs are going up for everyone because insurance companies now think we should all be “coinsuring” with them so that we shop for the best deals. Stuff happens to your car, the dog eats something strange and has to go to the vet, you get caught speeding, your kid needs $700 for a school fundraiser, etc. etc. My budget hasn’t been able to account for all of this, but it has allowed us to get back on track faster when these things happen. It’s still a work in progress, but I really think that physically separating different categories of savings and using technology to automate recordkeeping have been a gamechanger for us. I hope this information helps you, too.