Jan 17, 2008

Why and how I budget

Flexo at Consumerism Commentary wrote an interesting post about budgeting the other day, which I highlighted in my daily roundup. But I've been thinking about it since, especially as I come across other posts on budgeting, most notably FMF's post yesterday about how he budgets.

Flexo's post suggested that stringent budgets that account for every penny are a useful tool in certain situations - for example, when money is so tight it's hard to make ends meet or when trying to get out from a mountain of debt. Flexo further suggested that when a person/family has a comfortable income and doesn't need to track every penny, budgets can be "looser" but still helpful. In fact, Flexo created a budget for himself for 2008. FMF's budgeting post caught my attention because his description of how he budgets was similar to what Flexo suggested.

Flexo and FMF got me thinking about how I budget. Maybe this is because I've been thinking that I need to update our budget in Quicken. I usually re-visit our budget when there is a significant change, such as a raise or a new (or eliminated) expense. It's important to me to update our budget at such times because what I use my budget for is to figure out how much I can direct to savings and debt repayment each month.

Basically, I enter all of our expenses into Quicken. Whatever's left can go toward savings and debt repayment. If I'm not happy with those figures, I take a closer look at our discretionary expenses and see where I can make cuts. These days, our discretionary spending is about as low as it's going to get, at least in the budget. But that's okay, because I'm pretty happy with our savings and debt repayment plans. I'm not as diligent as I probably should be about tracking expenses, but every so often I do get caught up and then I can check to see if our spending is in line with what I'd planned for. If I'm lucky, I'll see that I over-budgeted in a category and that we can increase our savings and/or debt repayment, although more often than not, over-budgets and under-budgets cancel each other out. The most important thing? Our budget works for us.


Anonymous said...

So I just got back from a no-internet vacation and browsed among some blogs. And I happened on this post and THANK GOODNESS!!! My husband and I just had an argument about budgets last night! I checked some of the links you listed and now I have something to really dig into and do research on to see how we can manage our money better.
I knew there had to be a better way than tracking every penny and putting it into categories with limits, but I didn't know where to start. Thanks for a supremely helpful post with links!

Chief Family Officer said...

@Margo - I'm so glad I could help! For what it's worth, I created our budget in Quicken Basic, which is fairly inexpensive (I couldn't find a 2008 version of QB at Amazon, but Costco usually carries Quicken at this time of year; the office supply stores also usually have them).

Also check out programs You Need a Budget and Mvelopes. I don't use them personally, but there are quite a few personal finance bloggers who like them a lot. Hope that helps!