I’m a budgeter. My partner, Jan, is not. Her approach is to allow herself a certain amount of money a month and to spend no more. If an emergency car repair happens then something else has to be deferred a month. That approach would drive me crazy because I would never know exactly where I was going, only where I had been.
We aren’t the extremes – Jan at least knows how much money she has to spend and stays within her limits. My budgets have enough detail to suit my needs, but a CPA wouldn’t be impressed.
Budgeting should be a tool, not a shackle. It should provide guidance, not lock you into an immutable set of decisions. I worked hard to earn my money and it makes sense to me to make sure I don’t fritter it away through inattention.
If you think a budget makes some sense, but you’re not sure how to go about doing it, I’ll give you some suggestions on Friday.
If you are like Jan and think budgets are constraining and you believe you already know where you spend your money, I’d like to suggest you do this experiment for two months. Keep track of everything you spend money on, down to the penny. If at the end of two months when you total up what you spend on each category, if you are not surprised, then I will agree with you that you don’t need a budget—you have an internal mechanism that works for you.
I have some friends who, at the time they did this two-month experiment, were approaching retirement. They paid off their credit cards monthly, contributed to 401(k)s, even had money left over at the end of each month to save. But they weren’t quite sure where their money was going and before they committed to retiring, they thought they should know.
It turned out wine was a much larger percentage of their spending than they expected. Whenever they ate out, which was regularly, they each ordered a glass or two of wine. They had wine most evenings at home—and they weren’t drinking “Two Buck Chuck.” Could they afford the wine? Yes.
When they considered the importance of drinking wine as compared to other things they wanted to do (travel more was one), they realized they could easily cut their wine budget in half and get nearly the same enjoyment from wine and free up money for other things.
I’d be interested in hearing about any discoveries you make.