What’s the Best Way to Budget?
March 14th, 2006
I read a post recently at MyMoneyBlog entitled “How do YOU budget?” I wasn’t sure how to answer that question. What does the word “budget” mean? I think for most people it means pre-determining how much money can be spent on each expense category per month; for example, $100 for food, $30 for entertainment, $75 for gas, etc. This type of budgeting is often compared to losing weight by dieting because, like dieting, it’s tedious and requires a lot of motivation to stick to it. It seems to focus too much on the “means” rather than the “end”, and that’s not satisfying. This is not the way I budget.
Another way to budget – the way I prefer – is to compare all your monthly expenses (out-goes) to your monthly income (in-goes) with the goal of being cash flow positive each month. This type of budgeting seems to be more effective because it eliminates the tedium of budgeting for each specific category. To stay consistent with the “losing-weight” comparison earlier, I would compare this second type of budgeting to playing sports as a way to lose weight and become healthier. Unlike dieting, playing a sport is enjoyable to most people, but can still achieve the same result (weight loss). The out-goes vs. in-goes method of budgeting, like sports, focuses mostly on the end result – win or lose. To simply see each month if I’ve won (out-goes < in-goes) or lost (out-goes > in-goes) is much more motivating and easier to stick to than the first method. Budgeting for each individual expense category becomes unnecessary because the motivation to “win” encourages me to manage all my finances responsibly.
Which type of budgeting do you prefer?
Entry Filed under: Debt Reduction, Firevalt, Frugality, Saving
7 Comments Add your own
1. Debt Hater | March 17th, 2006 at 9:51 am
I might be doing a combo of both. First, I tracked all my spending for a few months to see what exactly I spent on what. Then I compared that to my income. It left me in the negative. So then I set pre-determined limits on spending categories to stop me from going in the red every month. Uh… I’m not sure I succeeded. I’ll crunch the numbers this month.
2. AllThingsFinancial »&hellip | March 20th, 2006 at 12:36 am
[...] What’s the bestway to budget? [...]
3. CaseySoftware.com&hellip | March 20th, 2006 at 5:14 am
Carnival of the Capitalists - March 20 2006…
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Before we get into the Carnival, Robert and Jay asked me to annouce Jotzel. If you need a daily fix of the Carnival, check it out and get your …
4. Free Money Finance&hellip | March 21st, 2006 at 4:32 am
Festival of Frugality…
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5. Michael | March 21st, 2006 at 5:04 pm
This method worked great for me when I was single. Now I find that my wife’s motivation to “win” might not be as strong as mine, so it’s much easier to sit down in advance and come up with some guidelines that we both agree on for each budget category.
6. Marilyn | March 23rd, 2006 at 5:41 pm
I do both; general guidlines for the various categories with an overall maximum amount. I also include about $250/month for “stuff” that comes up throughout the year - pool membership, daughter’s ballet lessons every 8 weeks (and costume and pictures and recital tickets), quarterly life insurance payment, Christmas gifts, amusement park visit in the summer, HOA fees in January, etc., etc. It all averages out to about $200 a month through the year, so I put in $250, just in case! If I took each of these and divided them by 12, I’d never, ever do it.
7. Harrison | March 26th, 2006 at 1:00 am
I prefer to use both of them. I will make a budget plan like what you said, $100 for food and so on. After that I start the game, the game where I try my best to get some positve cashflow from each category. For example, instead of spending $100 for food, I only spend $80 and have $20 extra money.
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