|Budgeting is stressful. Here is a picture of a pomeranian falling asleep on my shoulder.|
Now my life is really different. I have one full-time job that has good job security. I now have predictable means to live within, but not much practice thinking about finances on any level.* I started reading some personal finance blogs - I especially like Get Rich Slowly - but didn't see much advice on how to set a budget, only on how to keep to one. There is an understanding, apparently, that certain percentages of income should go to various life choices, as mentioned in this Unclutterer post on budgeting, but I live in a Manhattan apartment rather than a house, don't own a car, don't eat meat and don't have cable. So perhaps my percentages are different.
I finally decided on a strategy to set my budget, but I resented every second of it. I felt I was reinventing the wheel - surely actual techniques are outlined for doing this? Could I just not find them? Was my Googling power somehow impaired? I'd be thrilled to hear how other people have handled this, or to see links to where other people have already dealt with this.
Here's what I did: I started with my annual income, after taxes. I took all my known, predictable expenses and converted them to annual costs (list follows). I subtracted the known annual costs from my known annual income. Then I divided by 12. I decided how much of that monthly income I wanted to have available, and how much I wanted to save. I declared the spendable part FREE MONEY, and I started keeping track of how/when I spent it in order to stay within my monthly budget.
Here are the categories of spending I could predict:
- Recurring medical costs (prescriptions, co-pays, contact lens purchases...).
- Groceries and household costs. For this, I looked at last year's credit card statements and took the average.
- Memberships and subscriptions, including annual charitable donations.
- Student loan payments.
- Subway, bus and commuter rail. Again, I used last year as a guide.
- Dog maintenance. Cody has predictable vet visits, food and dogwalker costs, etc.
- Utilities - for me, this means "phone bill."
- Holiday gift-giving. Again, I looked at last year's credit card statements to predict this year.
EVERYTHING ELSE is just a monthly expense to be noted - plane tickets, birthday presents, expensive shoes, charitable donations beyond my annual ones, restaurant costs, tips I give to delivery guys, etc. All of it.
Note: I had to decide when to track expenditures. I use credit cards and cash; I write checks rarely; I split some costs with my boyfriend. I decided to write down the expense when I spend. That is, I record the cost when I make the purchase, or agree to split the cost, rather than when the cost actually becomes "due" to me. Boy howdy is it totally very required to be consistent about this.
Also Note: I had to decide how I wanted to treat leftovers. If I'm way under budget in grocery spending one week, does that money get added to my "free" money? Or next week's grocery budget? Or neither? If I end the month over-budget, what happens? If I get a $20 check from an unlikely source, where does that money go? I decided:
- If I am under budget in any predicted category, that money gets saved and does not affect my "free" money or my budget in that category.
- If I end the month over-budget, I begin the next month with a correspondingly lower amount of "free" money. My friends, that happened this month.
- If money arrives in addition to my budgeted income (credit card rewards payouts, cash gifts, honorariums, etc.), that money is "free." I can save it, spend it on fancy chocolates, whatevs. It's free.
Also Also Note: I am going against conventional wisdom in a couple different ways here.
- One, it is generally acknowledged that a weekly budget is much better than a monthly one. I'm not sure why, and I think the monthly budget works better for me.
- Two, I did not divide my "free" spending. That is, I don't have a shoe budget, a theater budget and a restaurant budget. It's all fair game within a given month.
What I might modify: Your suggestions are very welcome!
* I am pretty certain that most of my readers are ahead of me on this topic. I am reporting here what I'm trying out, but I am very open to suggestions.