Open Focus Wednesday – Spilling Buckets with Leslie & Ryan
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Having come across a good deal of great writing, it’s not often that you are able to find great writing when it comes to finances: that can be downright dry reading! But Leslie and Ryan over at Spilling Buckets mix it up with a style that is refreshing and succinct. Please join me in welcoming them with their first ever guest post, to Open Focus Wednesday! Step forward, you two! Glad to have you here!
A budget can be a powerful tool, one that can keeps you on track towards the achievement of both long and short term financial goals; but it’s easy to think of a budget as a series of confinements and restrictions. We often quickly get wrapped up in how much our lifestyle may need to change in order to stick with a serious budget. Additionally, something that’s both a challenge and un-fun is hard to carryout for the long term. So when Kris asked us to write a guest post on budgeting and productivity we were excited to have the opportunity to try and dissolve some of the negative associations with budgeting and get to the good stuff: Faster more productive progress towards your financial goals without agonizing over inflexible categories.
A budget is simply an allocation of income towards certain goals or obligations, but it doesn’t have to be confining or strict in all categories: You can add some flexibility.
When Ryan and I sat down to look at our finances, we quickly found an obvious division in our spending: certain expenses exist that we can’t really avoid and have little control over – paying rent, fuel, utilities, tuition, etc – and of course variable expenses that were necessary but more controllable – food, entertainment, cloths, etc. First, we tried allocating every dollar before it even arrived, spending on paper, and putting a cap on each category while doing our best to stay within it. While this rigidity may work well for some families, it just didn’t seem to work for us. We found that agonizing over inflexible limits, in what always seems to be a very unpredictable life, actually hindered our motivation and desire to stick with the plan. So what could we do instead?
We came up with three main tenants:
- Forced Automatic Savings
- Forced Fun Money
- A frugal lens on all the rest
It seems like it could be a challenge to set these ideas into motion but it’s actually quite simple. We instituted the idea of a tax and decided that any income should be immediately taxed by 15% for retirement savings and by 5% for fun money. The retirement tax was easy to establish, we set that up automatically at work through 401Ks and any non-employer income we contributed manually to our IRAs. The fun tax we did ourselves; we kept a spreadsheet and with each paycheck or income deposit and we would update the “fun fund” with new tax revenue. Then when we wanted to do something fun that costs money, like go see “The Dark Knight” at the local IMAX, or go out to eat, we would consult the spreadsheet and see if the funds were there and we could do it – subtracting as we spent and adding as we earned.
Rather than being confined to a strict amount for each remaining category we began taking a frugal approach to each daily transaction and purchase, analyzing each situation separately to come up with the best solutions. Do we really need this monthly service? – premium cable, magazines, etc. Do we need name brand grocery items or will store brand do?
Having this flexibility really allowed us to stay productive and work towards our first goal of a six month emergency fund, which we were fortunate enough to be able to accomplish this June. Each month we tracked expenses, and at the end of the month any extra income that wasn’t spent was poured into the goal.
While this flexible system may not work for everyone, we encourage you, no matter what your spending habits may be, to develop some kind of budget or tracking plan and take charge of where your money goes. When you control your money and prevent your money from controlling you, not only can you get more done by eliminating money worries, but you will also be able to make better decisions with a clearer financial picture.
Some links to other great posts by Spilling Buckets:
Emergency fund goal completed: http://spillingbuckets.blogspot.com/2008/06/bucket-1-emergency-fund-full.html
Our current income and expenses tracking sheet (in the process of being updated but other past months are complete): http://spreadsheets.google.com/pub?key=pJdlnDT3BnD4Tq7XyCULvKA
Original description of the budget sheet and a link to download the spreadsheet file
http://spillingbuckets.blogspot.com/2008/08/tracking-income-and-expenses-achieve.html
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