Budget Philosophies


(Dave Berry) #1

I thought it might be helpful to think about budget philosophies as January is on its way. I’ve used three main budget systems over the years. We lived without a budget as such for the first six years we were married, but then we were both working, so it was all OK.

The Annual Spreadsheet
When I became a student Vicar, we did spreadsheet forecasting. All our income for the year went on the spreadsheet and then what we were planning to spend for the year. It took me about three years to realise that we were redoing our annual spreadsheet every six months and each time we were planning to spend more in the first six months of the new budget period that would be balanced by the last six months. Over time we got ourselves on the ‘credit card float’. That is, we paid our bill in full every month, but with that month’s payday, so we had to use our card to get us to the end of that month etc.

YNAB
Realising that this wasn’t good, we moved to You Need A Budget dot com. This was a revelation. YNAB has four rules to follow. First, give every dollar a job [it’s American, but it works ;)] (and you can only budget cash you’ve got in the actual bank right now). Save up for the annual costs that catch you out like car insurance and Christmas every month. Deal with the fact that your budget will not work exactly as you planned and lastly try and keep your money in the bank as long as possible, if your money is in your possession for thirty days or more, if there is a budget shock (you are made redundant, your spouse runs away with the DPD driver etc.) you have a little extra breathing space to make a plan. This really worked for us, we reined in our spending massively in the early days and got ourselves stable and off the credit card float. It had a high level of admin required though to keep on top of everything, the number of budget categories was getting out of control, and because we were spending on AMEX for cashback, our bank balance was really healthy, so we did splurge more often than we should and weren’t making as much progress with our savings goals as we wanted.

Summary and Pots
We went #fullMonzo in October and have stopped using our credit cards except for purchases over £100 (for s.75) and we pay those off immediately. We use pots to save for our annual costs and towards our savings goals. That this money is hidden from our main balance is great. Summary then helps us work out how much we have left to spend before payday and a quick glance every day keeps us on track. The green, amber and red ring is great. The prediction of what we’ll have left at the end of the month is never right, but it’s just for fun! We no longer care about categories and we know our Aldi shop is going to cost us about £100 a week so as we get near the end of the month we think about how many Friday’s there are. We do get Tax Credits and Child Benefit payments, and in line with the YNAB rule about ageing money, we move them into a holding pot and empty that into our account in payday. The time gained from not keeping track of the credit card and other faffy things separately and re-entering all our transactions onto another system is awesome.

Sorry for the long post, but I’d love to hear how you manage your budget too - I’m always looking for tips…


#2

Nice post!

How do you incorporate your credit card spending in your budgeting or tracking? Lack of credit card awareness of Monzo summary presumably presents a challenge.


#3

Excellent post, and a good analysis on how you budget. I’ve mentioned how I manage my money many times and sorry to the legacy community members who may have read this already :sweat_smile: .

I budget based on a fixed amount of spending money each week that I don’t need to account for. Everything else I have automated through direct debits or standing orders bouncing money about or deducting it. I do very little to do with bills anymore except adjust it when I gain a new long term bill.

My Budgeting:
My salary enters account A and my bills (direct debits etc.) come out of that account as usual. If bills fluctuate, I budget whatever was the highest I ever paid for that bill even if it has since dropped. I have then worked out my surplus money after all my billing deductions. I have standing orders set weekly to automatically move money from account A to account B to use as weekly spending money and monthly to account C for my savings. I should have an account D for yearly debits like @garete uses in his setup below.

If/when I run out of money in account B I have to wait until the next ‘weekly payday’. I could cheat but it physiologically helps better spread my payments as I only ever look at the balance of account B. I never look at the balance in account A (except, as I said, to do any adjustments), I treat it as if it isn’t there. Any spare money in Account A is swept into my savings before payday and I will get warning texts if it somehow is about to run out of money early. All my non-bill spending, including food and travel, needs to come out of account B.

Essentially, I try to imitate https://squirrel.me/ without actually paying for their service. I’ve tried to use services like YNAB but I find its not worth the hassle. In the end, I worked out how to live within a fixed budget each week without thinking about bills at all because of making sure my main account is always in a surplus. I have been thinking of moving to a daily budget but never get round to sorting it out.

@garete made an excellent illustration of his similar setup which I always seem to use in my explanations.


(Dan) #4

Love this. I just need someone to teach me how to be disciplined with money then I’m all set.


(Dave Berry) #5

When we went #fullMonzo we ditched the credit card. I have one we use for work expenses only which encourages me to submit my expenses on time every month so I can pay it off. If we buy something for more than £100 (which is pretty rare, apart from the Aldi shop which I don’t need s.75 protection on!) we pay it off immediately from Monzo to keep summary in check. Like I say it’s not often.
I decided that the £90 a year cashback we were getting from Amex wasn’t worth as much as my time keeping track of everything in YNAB, and we won’t be paying for YNAB this year which is a £30 saving too!


(Splodf) #6

I put my Aldi and Lidl shops through Curve and Tandem.

Nets me a free lunch every fortnight for nothing. I just pay them off on the car home (and budget them appropriately on Monzo).