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We have lived on a monthly budget for over 15 years now. Although many people have a negative reaction to the word budget, over that time, we have found it freeing and it actually causes fewer fights about our money. Let’s come right out and say that living on a budget does not equal not having any fun.

In full disclosure, we don’t always spend within our budget every single month, but when we overspend it, we know where that money went, why it happened, and make adjustments as needed. We overspend on the same things all the time. It’s a pattern and weakness – too much on groceries, too much on dining out, trips to Target, and Amazon purchases that evade detection.

Dave Ramsey’s Budgeting

The very best budgeting resource we’ve found is Dave Ramsey’s Total Money Makeover: have a monthly budget meeting before the month starts, spend only within that budget, and you’re all set. It sounds easier than it is. We have been doing budgeting for so long now that it’s just habit.

We used the cash envelope system while we were getting out of debt, but after doing this so long have found it less necessary. We also found an accountability weakness in that my wife would move money across envelopes in her purse so we weren’t really tracking to the budget we set out with anyway. By spending everything through a debit card, our monthly statement can easily be sorted into categories to make sure our spending for each area is in line with our goals. After so long, we’ve developed habits that we know what living on this budget feels like so the week by week tracking really isn’t necessary for us anymore (but it’s taken a very long time to build this through repetition).

We Still Tweak and Adjust Our Budget

We’ve discovered that as much as you can generalize about a “typical” or “ideal” monthly budget, every month is different. Different things come due so no two months are ever the same. One of the surprising things we discovered when we started budgeting was that if you’re paid every two weeks, there are actually a couple months a year that you get 3 paychecks. As people who thought they were pretty smart, embarrassingly, that was a surprise.

Having a different budget each month can be confusing at first, but once you take notice and realize what is going on, it’s not an insurmountable problem. When we were out of control with our spending (and debt), every month being different seemed like it was impossible to tame and is what made it difficult. Every single month there would be large one-off expenses we had to accommodate. After many years of doing this, we’ve come to terms with the fact that every month is different but we still need to play by the same rules – spend less than is coming in.

We use our emergency fund for real emergencies when we need to and replenish it quickly in the months that follow so we’re ready for the next major appliance to go out.

Give Yourself Some Room

Every budget needs some flexibility, otherwise it does feel too restrictive. We allocate money for each of us every month that we can spend however we want (“blow” money). We still have the same amount of monthly “blow” money we started with 15 years ago. With few exceptions, we each get $100/month to spend on whatever we want. No questions asked, no discussion. My wife, the spender, spends hers. I’m a saver and tend to hang on to it for a couple of months and make bigger purchases. This “no judgement zone” line item in our budget has been a marriage saver.

Our Budget Categories

We’re nerds, so spreadsheets come more naturally to us. This is our 30-ish item simplified budget that we’ve used to get out of debt and stay on track to our FIRE goals. This works for us, what works for you may look different:

• Tithe
• Charity
• Retirement Savings
• College Savings
• Home Repair
• Electricity
• Natural Gas
• Water
• Trash
• Cell Phone
• Internet/Phone
• Gas & Oil
• Car License & Taxes (infrequent)
• Home/Auto Insurance
• Term Life Insurance
• Babysitter (but our kids are older now)
• Hair Care
• Education/Tuition for our kids
• Gym
• Pet Supplies (vet visits can be infrequent and expensive)
• Netflix
• Beer (having a separate line from groceries keeps this in check)
• Groceries & Toiletries
• Restaurants & Entertainment
• Children – Clothes, Activities, Snacks
• Gifts and Generosity
• Blow money or “fun” money: $100 each
• Car Repair (we save a little each month to cover repairs)
• Real Estate Taxes (Due once a year but we save a little each month to cover it)
• Medical
• Miscellaneous One Off Expenses that we see coming up. This is a “sinking fund.”  (see below)

Some things are identical every single month so they don’t really need to be discussed in our budget meetings (like insurance, for instance). Other things we have much more control over and we need the accountability of talking through them each month.

One thing we’ve discovered is that no matter how much we put in our grocery budget, it is always hard to stay within it. We’ve tried a bunch of things over the years with some successes and some failures. This year we’re trying online ordering and grocery delivery to eliminate impulse buys. We’ll see if that works.

Monthly Budget Meetings

As Dave Ramsey says: “On paper, on purpose, before the month begins.” This is the only way to go. The early ones would take forever and always cause a fight, but we’ve gotten much better over the years and can get away with a quick monthly check-in these days.

Weekly Check-In

Depending on where we’ve been on our journey, we’ve found that checking in weekly on how we’re doing against our budget is important. Otherwise, we end up at the end of the month way off track and have to sort out how we get there.

Accountability is Key

We hold ourselves accountable to ourselves and to each other. After our monthly budget meetings, we know our budget is like a contract, or a promise. We need to do what we said we would. We can’t go rogue and overspend at Home Depot or order a bunch of stuff on Amazon without taking away from something else we promised we’d do.

When you think about your spending with that filter, it becomes easier. It also helps with delayed gratification and impulse purchases. If I spot something I want at Home Depot that isn’t in this month’s budget, it doesn’t mean I can’t have it. It just means I need to bring it to the next month’s budget meeting and we’ll figure out how to adjust to make it happen. 

You Have to Be a Nerd (At Least a Little Bit)

Peter Drucker is quoted as saying that “you can’t manage what you can’t measure.” When it comes to your budget, you have to compare your actual spending to what you said you would do during your budget meeting. The good news is that we live in a time that there are amazing tools to do this. From budgeting apps on your phone to easy online access to your checking account online. It’s easier than ever to see what money came in and what money went out (and where it went). If that doesn’t work, maybe the cash envelope system is the best for you as you get started.

Budget Busters

“I deserve it.”

This is a lie we tell ourselves. It may be that you had a hard week and “earned” a treat. I don’t know. What we’ve found is that when we use that language, it quickly becomes a weekly (daily?) mantra that allows you to overspend with abandon. We’ve stopped using that language.  We prefer “I’ve earned it.” But even that can be problematic. The best is “I’ve planned/saved for it.” 

Sinking Funds Are Hard to Wrap Your Head Around

Big one-off, unexpected, or once in a while expenses are hard to deal with. We spend a month’s salary on property taxes due once a year in November. If we come to our November budget meeting and remember then that our taxes are due that month, there is no amount of eating Ramen that will help us out. We have to plan ahead. Property taxes (or Christmas gifts) are a little easier since we know how much it will be and when it’s due so we can save a little every month spread out over the whole year.

But what about a new furnace, roof, tires, etc? It’s best to get a quote, set aside money every month for as long as you need to save that much, and then make the purchase. That’s if you see the expense coming.

What About Emergencies?

When you don’t see the expense coming and it just blindly hits you, that’s when you use your emergency fund. When we were starting to get out of debt, $1000 in the bank was ours. As we got out of debt we’ve maintained 3-6 months of expenses. Right now, we have 3 months that we don’t touch as our emergency fund and other savings we can get at if we have a bigger emergency.

When we spend out of our emergency fund for a legit emergency (we just had to fix the AC on Jennifer’s car for $285 for instance), we figure out in our next budget meeting(s) how to adjust our living expenses to replenish it as soon as possible. That might mean we don’t save as much (for our dreams) those months or that we cut back on eating out for a while.

Thankfully, we’ve never unexpectedly lost a job in our family. However, this fear was one of the motivations to become financially independent. Because we spend so much time worrying about it, we came up with a plan for exactly what we would do if the day comes that we get that news. That plan relies heavily on tapping into our emergency fund to pay our necessary expenses while we sort out the loss of income. In times when loss of income seemed more probable (recessions, turmoil at work, etc), we saved more just in case we lost our jobs.

Examples of Emergencies vs. Sinking Fund Expenses:

Emergencies

• AC went out in the car before a big road trip
• Flat tire
• Dog got sick and needed surgery

Sinking Fund Expenses

• House needs a new roof
• Vacation
• Christmas gifts

Windfalls (Irregular Income) Are Hard Too

If unexpected expenses are hard, so are unexpected windfalls. Sometimes I get profit sharing checks unexpectedly from my job or sometimes there is a tax refund, etc. We don’t treat that money like a free-for-all. We maintain a list of irregular expenses, luxuries, and one-off “nice-to-haves” for just such occasions. This also helps with delayed gratification and the feeling of restriction that I can’t have what I “deserve.”

Many of the things on that list tend to be home projects that don’t fit into our monthly Home Depot budget. Whenever we come into some cash through an unexpected event, we go down that list and spend it from top to bottom until the money runs out. Before we do though, if the emergency fund isn’t topped off, we have take care of that first. We also treat those couple of months a year with three paychecks in the same way.

Examples of Windfalls:

• Tax refunds
• Insurance payments
• Extra paychecks
• Company profit sharing

Irregular Income Wish List:

• A Vacation
• Fixing the Fence
• New kitchen tile
• Necessary but not urgent car repairs
• Furniture

Personal finance is personal. What has worked for us may or may not work for you. We know that getting on a budget is the only way to increase the gap between your income and your expenses and allow you to invest for financial independence with the intensity required for early retirement. How can we help? Where are you prone to overspend?  Let’s talk about it!