Previous Post: Monthly Net Worth Check Point: September (down 6.1%)
Four Techniques for Executing a Spending Plan
I am sure that none of you have ever experienced this, but it turns out that It has been very hard for me and my family to stay on a strict budget. Luckily, with an emergency fund in place, we have not suffered any major financial consequences to date.
Creating budgets is not-so-hard, sticking to them seems to be much more so
I have tried a number of times to create a budget. They all look so pretty in my spreadsheet application (some even have different colors!). In my current spending plan spreadsheet, I have exactly nine different budgets. The problem is not in creating the budget but in sticking to it (again, I’m sure I’m all alone on an island here, but I’m just trying to be honest). In this post, I’ll explain some of the budgeting techniques I’ve tried and hopefully one or more will resonate with you and enable you to execute (as in follow-through on) your spending plan instead of getting frustrating and executing (as in, well, executing) your spending plan!
Those non-scheduled expenses always destroy the budget
Even when I create and actually start using a budget, it is typically busted by the non-scheduled expenses (even the budgets with the fancy colors!). It is easy to account for the monthly bills (especially when you use the equal payment plans). We have never been good, however, at forecasting how much will be spent each month in categories like groceries and restaurants and other miscellaneous expenses. These are the expenses we typically put on our credit cards each month for convenience. Of course, this sometimes leads to bills that are quite large at the end of the month. Over the years we have tried a few different techniques to keep these under control or to at least monitor them and avoid surprises.
I used to write every purchase down
At one point I had a piece of paper on the refrigerator to write down every expense. Believe it or not, some of my friends made fun of me, though I think one actually implemented the exact same technique. Earlier this year I just wrote down every expense on a piece of paper and added all the categories up periodically. This worked fairly well but was annoying and I didn’t like the idea that I would have to write down every expense every month for the rest of my life!
I tried to get in the habit to checking the credit card statements periodically
After getting bored with writing down every expense, I told myself that I would just periodically check our credit card balances to achieve the same goal. The thing is, this didn’t really work for me either. I’m not sure why, it seems like a reasonable technique.
I then created the "Check-Point" budget
Drifting further to the side of convenience, I then created what I call the "check-point" budget (I’m going to call it CP because it is annoying to type). I’m sure I didn’t really invent it as it seems to be common sense, but I had never heard of it before.
The CP works on the theory that if your income is fairly stable and you have done a good job of planning for all your expenses and savings, your checking account balance should be about the same at a certain point each month. For us, I check the value immediately after our mortgage payment is deducted. If the value is at or higher than the "CP" value (the value it was the previous month), then our spending was not out of control the previous month. If the amount of money in the account is significantly lower than expected, then it is time to tighten the reins and get more proactive about our budgeting and spending. I also instituted a sub-CP at the middle of the month to try to catch any deviations earlier in the cycle.
Of course, there is the old standby: Cash
I think the CP technique is pretty good (especially from a convenience standpoint) but I am still looking for the ultimate blend of convenience and effectiveness. The CP is still a bit reactive instead of proactive as you could get yourself in a lot of trouble by the time you check it the next month. As a result, I keep coming back and evaluating the use of cash instead of all these other (and sometimes annoying) techniques.
This doesn’t say much about me, but I had an "aha" moment about using a cash a few months ago: the best thing about using cash is that there is no more writing stuff down! You look in your wallet, if you have money, then you can spend some. If you don’t have any money, then you don’t spend it. Easy. Unfortunately, this doesn’t integrate well with the way my family lives. Yes, I admit that is a cop-out. Of course, If we really wanted to, we could use this system. (Ergo, I guess we don’t really want to)
We’ve tried all of the above except …
So, we’ve tried a number of things. Some have worked fairly well, some are annoying, some are both. The one thing we have not tried is the full cash system (sometimes called the envelopes method). I haven’t decided that we should make the jump to this method and, frankly, I think I would have a hard time convincing the rest of my family to try it. What about you? Do you have any other good budgeting ideas that seem to work? Have you tried all cash?
Related Posts:- November – Living our First Dave Ramsey Cash Flow Plan...
- Guest Post – The Best Definition of a Budget?...
- Financial Peace University Lesson 3 – Cash Flow Planning...
Related posts brought to you by Yet Another Related Posts Plugin.
If you found this post informative or entertaining (or both), please subscribe to my RSS feed or subscribe via email to receive future Borrow From None posts.
Thank you for visiting!
Comments
4 Responses to “Four Techniques for Executing a Spending Plan”
Leave a Reply
Subscribe to Borrow From None
Affiliates
-
Social Networking
Links of Interest
What is RSS?
We did the full blown cash envelope system as we got out of debt (except the house). I am trying quicken on line (2nd month) and just the debit card but still not making fast headway in saving 6 months of living expenses. Thinking of going back to full blown evelope system again. At first wife didnt like the cash idea but it worked.
@GHolmes – That’s good feedback. It’s interesting that the envelope system worked much better than just the debit card. I guess a debit card is too much like a credit card in that you still don’t “feel the pain” of the purchase like you do with cash?
We will see on the debit card as it is only the 2nd month for us. Quicken requires I sign on and then let wife know where we are at. Last month we overspent on pets and household without knowing it. With cash envelopes we would have seen we were out and made the decision to wait to the upcoming payday or reallocate from another envelope.
I think that it is also important to get the whole family involved in budget planning as it means that they have an understand of the financial pressures that the family are under and have a better understanding of why they can’t keep spending without regard for others
Jonathan@Friends&Money´s latest blog post…How To Talk About Debt Problems With Family Members