Friday, February 29, 2008

What to do with money leftover at the end of the month

I have a spending plan that I adhere to each month. I organize my spending into several categories, designate an amount to be spent and live within the plan. However, there are months when I have more than a few cents leftover in a category at the end of the month. Typically, I allow the money to carryover to the next month. For some categories, this is necessary (e.g., car insurance where the twice yearly expense is distributed over the year). For others, I just spent less than was allocated.

There are a few categories that I just keep accumulating money and I wonder what to do with it. Some I know that I could go on a shopping spree and then drain the account (e.g., clothing). Others, should I just keep carrying the total over to the next month and add it to the category? Frankly, it really depends. I will mention the various categories in which I keep accumulating money and how I plan to address the excess.

Last year, I calculated my yearly bills for natural gas and electric/water/sewer. These bills are from two separate utilities and so are allocated into two separate categories. Basically, I took the totals for the year, divided it by 12 for a monthly number and then rounded up (e.g., $38 to $40) to account for a modest increase in costs for the utility. During the summertime, the only natural gas I use is to heat water, not a large demand item. However, in winter, the natural gas use increases dramatically. Therefore, I accumulated excess money in the "Natural gas" category to be spent mainly during the winter months. This is a known increase and was budgeted over an entire year. Therefore, I continued to carry the money over until needed. This same behavior applies to the electric/water/sewer utility with a more modest increase in the summer and decrease in the winter.

Gasoline for my car is a necessity for me but the variability of the prices means it is difficult to figure out how much to allocate. In January 2008, I increased my spending by $10 and so far, it has worked well. Since I am not driving to work for a week, I need one less tank fill up for February. Of the leftover money in this category, 66% will go into savings (and added to a secret tally of gasoline money in savings for potential future use) and the rest carried over to the next month. In April, I plan on increasing the amount of money for gas by another $5 and may consider placing any leftover money in excess of $10 into savings without reservation.

I also have a category for car maintenance. Since this is a sporatically used category, I continue to let the money carry over. However, I have designated $200 as the limit so when this number is reached, the excess will be funneled into my auto savings account. This helps me for the future and most of my maintenance costs are approximately $200.

Generally, I spend most of the money in the "Eating out" category. However, this month I have spent only half of the allocation. I have an internal battle over spending the excess on something special (Pizza Hut pan-style pizza is the only restaurant pizza I really like and have not had in a year) or saving my money to forward my financial goals. The latter would be more sensible and frankly, I cannot justify eating a medium-size pizza myself. I have settled on getting the pizza only if I have a friend over and saving the money if I do not purchase it today or tomorrow. March is a new month with a fresh spending allocation!

While I have an allocation for "Entertainment", I rarely use it, even less now that I have gift certificates to Amazon and iTunes to use. Books, DVDs and music all entertain me, hence they fit into this category. When I hit the $75 mark, I plan on moving the excess into savings. While I do not get out much, I do have a big upcoming expense (two summer theater tickets and paying for a third as a birthday gift) and I plan on hosting a couple parties this year.

"Clothing" is another expense I find I have excess money. For this category, I decided to accumulate to $100 and then start saving the rest. Since I have made all my clothing purchases for the last three months in the thrift store, my spending plan was not hit as hard. I do not intend to make a large purchase as my winter coat is in fine condition and should last me several years, but if there is larger purchase that needs to be made, I anticipate $100 should cover it.

When I calculated I saved just over 31% of my gross income, I did not factor in any bonuses or deposits of money accumulated in my spending categories. If I want to reach my goals, saving more money will help me achieve further financial independence and bring my country home closer to reality. A future challenge for me: do not buy anything except necessities (gas, groceries, medication) for one month. I could save over $200 if I met this goal. I look forward to trying this experiment!

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