Budgets. It’s funny how they have such a bad reputation. Even among FI bloggers, it’s not uncommon for people to say things like, “I don’t budget; I just bank 50% of what I make and do whatever I want with the rest.” I’ve had other people tell me they don’t have a budget, because once their bills are paid and groceries are purchased, they have nothing left. The thing is, those are both budgets, to a degree. A budget is just a plan for where your money goes. It doesn’t necessarily mean that you are making arbitrary rules about what you are allowed to spend, which a lot of people seem to think.
A useful budget is a bit more challenging. A budget that will let you build a nest egg big enough to consider yourself safe during long-term unemployment is even more so. Until recently, my budget was essentially 1) pay mortgages 2) put extra money on mortgages 3) pay bills 4) Spend! 5) Check to see if my bank account balance is higher at the end of the month than it was at the beginning. If so, I win!
However, now that I’m looking back at all my bank and credit card transactions from the last year, though, I’m seeing a lot of flaws in my previous budget. I frittered away money that I’d love to have back now. The vending machines at work and the coffee shops that were in the area made it too easy to spend a few dollars here and there on snacks and drinks. I splurged on a few impulse clothing decisions that I didn’t need, and can’t really justify. What’s really frustrating is that I see cash withdrawals that I have absolutely no record of what the money was used for. Damn it, I thought I was better at this!
No more slacking off- I have created a real budget. We know how much income we bring in each month, and are going to know ahead of time where it all goes. I don’t think I’ll put all the details here, at least not now, but the new order goes:
- 25% to savings (RRSPs and TFSA)
- Pay mortgages and extra payments on both properties that we still owe on (approximately 40% of our take home pay)
- Pay bills
- Allocate $600 to food and household budget
- Allocate $300 to gas, car, and transit costs (my husband works out of town and drives, and I walk/bike to work and take public transit or cabs anywhere far)
- Whatever is left is spending money for everything else. Of course, the plan is to not spend it in total each month, because it will also slowly build up throughout the year and be available for any larger expenses that come up.
Because we’re going to be putting so much into RRSPs, we should be getting a decent tax return each year, and that will become our vacation fund without even having to sacrifice anything for it!
The biggest difference here is of course that savings are being transferred out first, before we have a chance to spend them. Out of sight, out of mind (or at least, that’s the idea). I’ve been hearing this my whole life, and yet have never personally implemented it. Why? I have no excuse. But with my new goals in mind, I hope it will be easier.