Friday, February 13, 2009

Could I give up my spending plan?

My spending plan is very important to me. I have created and followed my spending plan as it currently exists for four and a half years, so at this point in my life I should be ready to let it go and be able to spend without problems. However, when I consider removing my current planning structure, I get anxious. While I do not like change, I believe my anxiety comes from not having the neat little boxes to put my money in and from which to spend.

In contrast, one of my colleagues says she does not budget. She always knows she has money and just spends what she has. In fact, she usually has enough leftover after maximizing her 401(k) and Roth IRA contributions plus her normal monthly spending (mortgage, utilities, food, etc) that she can add to her money market account or purchase more stocks. This freeform lifestyle works for her and she can obviously live below her means. However, this approach is not for me.

With my personality, having specific spending categories each with its allocated money ensures that I do not raid my savings account for incidental expenses. I am far from perfect and do use the savings account for overages, a rare occurrence that does not total more than $20 in a month. With $45 budgeted for eating out, which includes vending machine snacks, I strictly ration the money. This is a category I could easily spend more on, but my long-term plans are more important than immediate easing of hunger.

Structure works well for me. I keep money out of my hands with automatic withdrawals when I receive a paycheck, I allocate funds in various slots for needs and wants, and record each transaction in my notebook (yes, I am old school with pen and paper). I have a running total of what is in my checkbook and what remains in my spending plan. I feel good about the method I use, making me justify the expense as I place it into a category. Furthermore, I have enough flexibility to change the specific amounts allocated if my circumstances change (e.g., gas prices increase or have a few more dollars as income).

What method helps you spend less than you earn?


  1. I am on a tight budget myself. I will be out of short-term debt by end of March, and completely out of debt by August (last car payment). I used to be like your co-worker, for years, but I was waitressing at the time, so money was always coming in. Now, I'm on a fixed income and I can't handle not having a budget. It's been a rough few years for me and a struggle of mine is to overspend in a panic when I feel like I'm in too big a debt hole - does that make sense? So in the past, for example, I've paid half the cable bill, and spent the other half on nonsense - kind of a type of "therapy" to keep me feeling like I'm not poor (it's silly when I re-read that, but I do have a fear of being homeless so it makes sense for me). In order to curb that problem, I started an Excel spreadsheet that keeps a running total of my income vs. all expenses - everything from rent to the exact dollar amount of my dog's meds. It's very detailed by date and I update it every day when I check my bank account online; and it covers 5 years at a time. This way, I see how tight the money is right now and it scares me into being thrifty; and I just have to scroll down to see how my situation will improve shortly - as long as I stay on track, my dream to own a house and save enough for my retirement will happen - and seeing my long term budget right before my eyes keeps me in check. Sorry, long comment here, but that's what works for me!

  2. @Rain,

    Great comment! You sound really motivated to get out of debt, always a worthy goal. I have only started keeping track of some aspects of my financial life electronically (e.g., net worth) so I do not have the longer term view you do, but having five years next to the budget sounds like quite the motivational tool.

    Some people seem to be able to ween themselves off the rigid spending plan like I have, but I am certain that I will keep track of my money and spending in this fashion for many years.

  3. Thanks! Reading your blog is a great learning tool for me. Debt scares me to be honest, well, debt without equity scares me. I guess my obsession with keeping track of every penny started for two reasons: 1. because I was in charge of cash flow when I worked. I designed the spreadsheet originally for work purposes, but it's quite handy for my own use; and 2. when one of my dogs had an accident in 2007, I had to plead with a vet to allow me to pay with a post-dated cheque, poor little guy banged into a sharp corner and his eye was bleeding - scared the bleep out of me that I had less than $2 in my bank account. The spreadsheet doesn't account for cost of living, but I've found that it's all relative, because I'm on government disability, I get an annual cost of living increase. I think the main thing is that it gives me peace of mind. I'm quite sure that once I'm out of the red (well, until I buy a house); I'll still be reliant on my good old spreadsheet! Good job on getting the taxes done too!