tracking vs. budgeting

[PMolly]

Since I became a SAHM, I've been in charge of our finances. We are modest means people, living essentially paycheck to paycheck part of the year and saving part of the year. (DH is a seasonal worker, so we have "feast" in the summer and "famine" in the winter) I use an excel spreadsheet to track all of our expenses, and budget what our monthly bills will be. However, we don't have a BUDGET that says we should be able to spend X on gas or groceries every month. I've never liked the programs like Money or Quicken that help you do that, because they seem so overwhelming.

I usually track spending every other day or so (depending on if we're spending money, or bills are due, etc.) So I always feel like I know where we are and what we're going to need for the rest of the month.

My question is this: what is the advantage to having a budget versus simply tracking and managing my money? If we have a birthday and need to buy a gift, we do that based on what we have to spend, which might mean tightening our grocery spending up a bit. Also, I will add that we are working on paying down some debt (student loans and car loan) and whenever we have something extra (like income tax return, or money from when DH was working a lot) we throw it at the debt to help it come down. It just seems, for example, that if there is only $1800 this month to spend and $1300 of that will go to recurring bills, then I know that leaves $500 for gas/groceries and other expenses, do I really need to break that all down?

Thanks!

[ShaggyDaddy]

our budget looks like this:
income - Bills = Grocery, spending, entertainment

Any bill we can reasonably estimate we do so and put it in the budget. Any overpayment or prepayment of a bill is also in the budget. Savings also counts as a "bill"

All left overs are "mad money" that can be used for anything. It is not ideal, but we really enjoy food and cooking, so often our entertainment "budget" gets blown at the grocery store, but that's ok by us.

We have tried budgeting entertainment, eating out, and groceries seperatly and it just makes us miserable.

[Sarah8Jane]

I'm trying to be more intentional about monthly savings for annual expenses like renters insurance and car licensing so that when it comes due I don't have to cut back on groceries. What happens when you have $1800 for the month and the bills are $2000 because of a doctor's visit, car repair, and car license renewal, etc. all in one month? You don't have to take money out of the general savings account, or eat porrige all month. Just take the money you've been saving in the transportation account to cover the car and then use your medical account to cover the coinsurance bill from the doctor. At least that's my plan.

[zersha]

I feel the same way you do. I have been tracking our expenses for the past 4 months, and while I can budget for our fixed expenses, everything else has been very erratic.

So I keep a spreadsheet of all the bills we have to pay, and then add a reasonable amount for food and gas, and then everything that is left over is for misc. I just don't know how to budget for every last little thing. We do have savings already deducted in our fixed expenses.

For example, clothing. We don't buy clothing every month. We tend to go until we are desperately in need of alot of things (mostly because I hate shopping, even at thrift stores), and then do a big splurge on needed clothes (socks, shoes, etc). So since I've only been tracking for 4 months, I have no idea what we should budget each month for clothing. I guess I'll wait until I've tracked a year and then average it.

But I don't think this is necessarily bad if you only use the money you have and don't put things on credit. If you have an extra $100 one month and everyone needs new shoes, then you buy them, if you don't have extra, you wait another month.

I've just found it hard to budget for anything more than living expenses, gas, & food. And food & gas is even getting harder to budget for now that prices are rising.

[BetsyS]

I'm one that budgets for every little thing.

My dh and I actually had a big *discussion* about this last weekend. I do not understand a budget that leaves a big chunk of money at the end of the month, to spend willy-nilly. So, he always asks how much we spend every month, and I always tell him "as much as you make." Turns out, he wanted to know how much our fixed expenses were, not total expenses. Who knew?

For something like clothing, I just set a budget amount that fit into our income. I put that much money into an envelope every month. If we spend it that month, great. If not, it rolls to the next month. If dh or I or the baby needs something, we look at the envelope and shop based on that (or wait until the next month).

Our main categories, beyond our fixed expenses, are food, gas, cable, entertainment (which includes TIVO and blockbuster rentals, plus anything else), eating out, cash money (our pocket money or "allowance"), vacation, christmas, clothing, hair, pets, cars (for maintainence, oil changes, tires, etc), gifts, books/magazines, and household (gardening stuff, repairs, decorating, a very wide range). We can fit most anything into these categories. I imagine other people need other categories.

[zersha]

Originally Posted by BetsyS

Our main categories, beyond our fixed expenses, are food, gas, cable, entertainment (which includes TIVO and blockbuster rentals, plus anything else), eating out, cash money (our pocket money or "allowance"), vacation, christmas, clothing, hair, pets, cars (for maintainence, oil changes, tires, etc), gifts, books/magazines, and household (gardening stuff, repairs, decorating, a very wide range). We can fit most anything into these categories. I imagine other people need other categories.

All these categories make my head spin. :

Maybe someday we'll be able to do that, but for now it's just too much. Dh just got a raise & promotion, so hopefully we'll go from barely living paycheck to paycheck to being able to put aside money for these types of expenses. Before, if after fixed expenses we didn't have the money for clothing, gifts, entertainment, allowances etc, then we just didn't have those things. It's only in the last couple months we can actually start trying to budget for those things, but it's still hard to set an amount since we have nothing to go by.

[BetsyS]

Originally Posted by zersha

All these categories make my head spin. :

Maybe someday we'll be able to do that, but for now it's just too much. Dh just got a raise & promotion, so hopefully we'll go from barely living paycheck to paycheck to being able to put aside money for these types of expenses. Before, if after fixed expenses we didn't have the money for clothing, gifts, entertainment, allowances etc, then we just didn't have those things. It's only in the last couple months we can actually start trying to budget for those things, but it's still hard to set an amount since we have nothing to go by.

See, some months only $1 or $2 goes into the gift category. Some (flush) months, then $20 will go in there. Some months, only $1 goes into pets.

But, it just adds up over time. And, like I said, I just can't wrap my head around not having the categories. If the envelope for the category is empty, so be it, but at least I have an envelope. LOL. I think it's just one of those ways of how you see the world, nothing right or better about it. Just left versus right brain.

[SusannahM]

We just track it to see where we can spend less. We're kind of in the opposite situation, though, we've got a lot more coming in than we spend and put a whole lot into savings. So, at this point, I just do it to see how we can save more and because I think it's silly and wasteful to spend more than you have to. If there is something I can cut back on without impacting my quality of life, then I want to cut back on it, I don't want to be spending extra money for no good reason.

I think if you're disciplined, then tracking is a good way to go. I really think budgeting is more for those that might be prone to spend more than they have to spend, it puts a limit on things.

So, I think I'm basically saying what PPs have said , it's just a matter of what works for you.

[annethcz]

We budget with big, broad categories.

First I pay the bills and put money in savings.

The rest is budgeted in big categories:
-groceries
-eating out/ take out/ entertainment
-gas
-household/ misc (includes anything we need for the house, clothes, shoes, kids field trips, anything that doesn't fit into the above categories)

DH also takes cash out- he gets the same amount every month and uses it to pay for his gas, lunches out and he also has enough to splurge on a few fun things.

[Mama Rana]

I recently bought the YNAB (You Need A Budget) software from ynab.com, and I'm really liking it. It helps you keep track of expenses, and to plan for annual expenses and variable ones.
[and for anyone who's wondering, NO, I don't work for this company, make no money or benis from rec'ing them, and have no other affiliations with them. I just was told about it, and have really found it useful, so if you've seen me rec'ing it around here a lot, that's why! ]

[Piglet68]

So, the question as to whether you need to set aside amounts each month for various things...it really depends on your situation.

If money is very tight for you, you make just about the same as what you spend, then having envelopes for every little thing is a really prudent and effective way to go. If you are on a tight income then suddenly needing a new pair of work shoes can mean taking food out of your mouth or leaving a bill unpaid.

If money is not so tight and you usually have stuff left over at the end of the month then you can get away with having more generalized categories with bigger dollar amounts that are more flexible. In other words, for us needing a new pair of work shoes just means we'd have one less "extra" item that month (eg. put off buying that new ergonomic pillow you want until next month).

I find setting budgets useful in two ways. First, it puts a limit on things. We ourselves have set aside a certain amount of money each month for "miscellaneous" (everything other than bills, gas, and groceries). We track our spending to make sure we don't go over that amount. We can actually afford to spend 3x that amount so it isn't a question of just "spending until it's all gone". We want to limit ourselves and the amount we've set for that is based on our financial goals.

And that's the second reason. We have a financial goal to save up a certain amount of money this year to fulfill our dream of buying a small acreage. Every penny we save each month adds to that dream. We sat down together and decided how much we wanted to spend on groceries and miscellaneous in order to fully maximize the growth of our savings. Setting those amounts in a budget gives a clear idea of exactly how much, at a minimum, we will have at the end of this year for our dream.

HTH!

[PMolly]

Thanks, all, for the replies. I think we might try a mild combination of both, and see how that works for us. If we can keep our misc. expenses down, we could save more (or chip away at that darn student loan debt more). I think that might be where we would see the biggest results of budgeting instead of just tracking what we spend.

Originally Posted by Piglet68

If you are on a tight income then suddenly needing a new pair of work shoes can mean taking food out of your mouth or leaving a bill unpaid.

I can see what you're saying here, but it just seems like there are too many variables. Maybe I DO need a new pair of shoes, but I could buy some less expensive ones, or find some on sale, or second hand (not very likely, that one). And it might not mean food out of our mouth, but we might have to eat beans or just whatever we have on hand. Of course everyone's lifestyle is different, but we always have food in the pantry and in the freezer. We really could probably go a month without buying and still be okay. But, some things could mean leaving a bill unpaid. I guess I feel like we're not living that close to the edge that it would make a huge difference.

[Shellie]

Check out YNAB.com. Since I started using that, I went from simply tracking what we spend (but not being able to really change it) to planning and making huge changes in where it goes. Eventually we will have savings built up for certain categories as well, so help with the non-regular expenses. The built-in budgeting has been amazing for me. I wish I'd found it a lot sooner.

[velochic]

Most financial gurus will tell you that every dollar you earn should have a PURPOSE. Even if that purpose is your "Starbucks Fund" or "Spend on myself Fund", everything should be earmarked.

What this allows you to do is to adjust your amounts prior to the actual spending of the money so that you do not end up in a situation where you have a shortage and resort to credit. The people who typically have large credit card debt are not planners. They *react* to their finances rather than being proactive. They are aware of what the fixed bills are, but then "all the rest" is spent without a purpose and that is where overspending often occurs.

A budget allows you to estimate what your expenses will be rather than making up later for miscalculations. There are times when you have to go outside the boundaries of the budget, but that is what the emergency fund is for, and a budget helps you to put that money back into the emergency fund.

So, I'm a big fan of budgets and they have helped us over the past 25 years or so to stay on target for retirement and other investments.

[BetsyS]

What velochic says rings true for us, at least.

The reason we went to a many little envelope system is that, well, we were in credit card debt. And not from anything huge. Just clothes and eating out and this and that. And we HATED the debt. And it was huge. (it's now paid off!)

So, this has enabled us to stick to a budget. Like I said, it might not work for anyone, but it works for us.

[MistyB]

We do not budget and probably never will. We try to track most of our expenses somewhat closely but do not keep track of our money like many people do. I think we would go crazy trying to do so. We autopay all of our bills. We review the amounts each month to make sure they are correct. We put most expenses on a reward credit card that we pay off twice a month. We review the bill together online and comment on all purchases and whether they are things that we needed, out of the ordinary due to something coming up, something we should focus on watching etc.

We each get a consistent small amount of cash eack week for random expenses like drinks, lunches etc.