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.
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…