Expense Tracking, Finance

Why I Shouldn’t Be Making Budgets And Our December Expenses

โ€œBudgeting has only one rule: Do not go over budget.โ€

โ€• Leslie Tayne, Life & Debt: A Fresh Approach to Achieving Financial Wellness

“Not so sure I agree”

BusyMom

[ Day 49 of 2000 ]

Every single financial article and blog out there told me to make budgets. And I did exactly that, for 2018. For the first time in my life. Let me tell you, I am not very happy about it.

Before I get into details, let me tell you this – Even though I never made a budget in my life, I have done pretty well in terms of how much money I spend. Like I said before, I keep track of everything we spend on mint. Of course, there are some expenses that mint doesn’t know about – The deductions that happen even before the money hits the bank. It doesn’t know about our health insurance premiums (subsidized by the employer), our car insurance payments, and the part that goes towards mortgage interest and property taxes. Those are huge expenses, I agree.

However, the purpose of tracking for us, is to see if we can live within 40,000 dollars per year in retirement. The health insurance premiums are going to go up and the car insurance will go way down – we will sell one of our cars, and keep only the part of the insurance that covers damage to others. We plan to pay off mortgage by then, and will drastically reduce the property taxes when we sell this house in 5 more years after retirement.

We also do not include travel expenses – mainly because that is budgeted. We move a fixed part of my husband’s bonuses to another bank account, and use that money for travel. I then move half of anything left in there at the end of the year to bring down our mortgage balance.

We do not travel a lot – a one week long break to some part of the US we haven’t seen yet, and one or two weekend getaways to which we drive. The weekend getaways are usually very cheap – we stay with a friend, or get the rooms for free through points on credit cards. I also fly once a year to meet a friend, and the expensive part is the flight tickets. Last year was our most expensive year travel wise – We drove cross country and flew back. Car rental was so costly that we spent close to 8000 dollars on travel.  Usually, we spend less than half of that per year.

Now that I have explained what I don’t track, I can assure you that we spend around 35,000 dollars per year for the rest of our expenses. I know this because I have been looking at expenses after the fact. Once a month, I pull up the expenses on mint, and go through them. If either of us had to travel on work, I would have to tweak it a bit, but the whole exercise takes less than 30 minutes.

When I set out to make the budget, I expected that it would be around 40,000 dollars per year. Because that is what we normally spend including travel. Two hours later, I came up with a budget for 75,000 dollars!

Okay, so I included the items that I don’t normally count. But even if I take them out (the last three rows), it still comes to $53,145. Let me assure you, we haven’t spent that much in any of the last 4 years. Including travel, it comes to somewhere between 35,000 and 40,000 dollars a year.

So what did I do wrong?

Over estimation. I am a kind of person who cannot make a budget and then go above it. The only way to avoid something like that is by estimating more than I think it will take.

This is how I think – That 4000 dollars for gas and maintenance? We normally spend about 100-120 dollars in gas per month. That would come to 1200-1500 dollars per year. But then, we take the cars for servicing twice a year; times two for two cars. What if they cost up to 600 dollars each time? I don’t think that has happened in any year before, but the cars are getting older.

Oh, and the 1350 dollars for cell phones? After I told you not to buy a phone and that we use Project Fi? Well, currently we spend about 65 dollars per month on the phones. That is for two of them, and paying off BusyDad’s phone (We didn’t pay outright because we were getting it for 0 percentage interest). It is going to come down soon because the phone will be paid off. That is about 700 dollars on phone, how did I get to 1350? I was thinking about his phone being 2 years old, and considering that his last phone promptly stopped working once it hit the 32 month mark. I don’t think it is likely he will need a new phone this year, but it is possible.

Once I realized what I was doing, I went online looking for directions on how to make budgets. As usual, all it told me was that I am not normal when it comes to money matters. Most of the links told me to first find my income, use a certain part of it for needs, another part for wants, and save the rest. And the percentages were ridiculous – I would end up saving only 10-20% of my income. No, thank you! I do much better than that already.

My expenses do not depend just on my income. Nor should yours! Click To Tweet

Budget Alternatives

I also looked for viable alternatives – Didn’t find anything! Please let me know if you know of something.

If you are struggling with containing your expenses, don’t listen to me – please go ahead and make a budget. It will make you think before you spend, and what I do normally is essentially the same – Except I do it retrospectively. It makes you analyze where you spend, and helps you think of how you can make specific spending patterns better.

I have given up trying to make a better budget for now. But since I started it, I want to continue using it for a year, as an experiment. To see how it goes. I do most of it anyway. Additional work is just updating the spreadsheet. Will it actually cause me to spend more just because I allotted it? That budget is at least 25-30% more than what we normally spend. I will keep updating my expenses every month.

If you know of a better resource that will help me trim my budget to more reasonable numbers, let me know. I really could do with some help.

Our December expenses:

December was an expensive month. It always is! Click To Tweet

Even though we don’t buy too many gifts for us, we still need to gift others around us. But then, I am not going to subtract anything from the expenses (like I did in November), because there is a December in every year.

Our expenses not typical of every other month also includes soccer ($290), Russian School of Mathematics ($800+), a new chromebook for my blogging – didn’t want to use my office laptop ($200). The rest of it is typical.

Not so bad! Especially if you remove the 1,300 dollars that is not typical of every month. The “shopping” category is mostly the chromebook and my usual stuff at Amazon  – BusyDad jokes that they should pay me for keeping them profitable. (I do get 5% cashback for using their credit card.) I find buying everything online helpful because whatever I want is home even before I get a chance to stop at a shop. This time, all the gift giving from Christmas was part of that expense.

Now, the important question is if we can maintain this in spite of having a budget ๐Ÿ™‚

Let me know of what you think, whether you think there is one particular area we should curb our expenses.

Here are our expense reports from other months:

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About BusyMom

Mom, Software Engineer, Dreamer - Can't wait to be less busy! . Please leave me any feedback you can think of. I am still learning and anything you can tell me about making this blog better is very much appreciated. .
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11 thoughts on “Why I Shouldn’t Be Making Budgets And Our December Expenses

  1. I never made a budget in my life once, and I still got to financial Independence! That said, I might have gotten there sooner if I did budget, but it always seemed too restrictive to me. I did, however, always mentally track my spending in a general sense in my head. That’s system worked well enough for me.

  2. My two suggestions:

    Number one, any chance of palming your kid off to someone else? Haha, just joking, but they are so expensive. Mine our older, 19 and 22, but when they come home for the holidays, our costs go through the roof!

    Number two, at the moment, I’m monitoring our costs but not setting a strict itemized budget, so this may sound like a “do as I say, not as I do” comment. But if I were to set a budget, this is what I would do:

    – I think you said that you have your itemized expenditure from the last few years. That would be my starting point, and I would look at these and plug in similar figures for the new budget year. If some lines vary wildly, you will have to make a call on which to take, or whether an average seems best.

    – After doing this, I would look at the line items and see if I was happy with them. If I’m looking to save, I would look at the items that seem discretionary and decide if I can do without or cut these down – if you feel you can, then reduce these in your budget. And then look at the non discretionary items and consider if these can be reduced – can you get cheaper utilities by changing provider, car insurance, shop at different supermarkets etc?

    – And what I wouldn’t do is add contingencies in each line item. I think the line items should be kept clean – if you spend more than you want, then that should be shown, and not covered up by a contingency. You could add a single contingency line separately, but I would tend not to – I think it encourages overspending, which is not what you are wanting to achieve.

    Well thought out budgets can help with managing expenditure, and therefore assist in increasing savings, which is what gets us to financial freedom earlier. You’ve obviously got to enjoy life too, but a good budget can allow for that and for increased savings too.

    Sorry, this has got a bit long. I’m not saying all of it’s right, but it’s what I would do. I look forward to seeing how you get on.

    1. The first suggestion- That would definitely bring our budget down! ๐Ÿ™‚
      Second one – I get what you say, let me answer each point.
      I did look at what I spent for the last 20 months or so,and came up with the budget. I know where I overspend.

      Main culprit, food. I could definitely shop at a different place, but then grocery shopping will become another chore that I really need to allocate a chunk of my time. I am not able to decide whether I want to spend more money or more time. Right now, the one I go to is expensive. But it is also next to my gym, very close to the Russian School of Mathematics I take my son to every weekend, and on the way to/from everything we do routinely. I just stop by while I am out doing something else, and actually buy the groceries every weekend. The nearest Costco/BJs is about 7-8 miles away, If I decide to do there, I may just not buy them every week.

      BusyDad handles all the insurance stuff, and if I meddle, that too will land on my shoulders.i have been trying to get him to call them, hadn’t happened yet. Bringing me to the next issue –

      He is not on board with spending less. He doesn’t spend much, but he hates it when I try to reduce spending. He wants the freedom to do whatever he wants. He says he will work slightly longer if he has to, but he doesn’t want to worry about spending less. Since he doesn’t really spend anything, I let him believe that we are not cutting expenses. But that also causes sudden extra spending at times because he doesn’t care. For example, he doesn’t buy clothes at all because he is too lazy. And then one day he will decide that he really needs new clothes and buy a lot at full price. Since that happens once in a year or two, I just ignore such behavior.

      The contingencies – that is all me. I know how much we should be spending on each, and will just spend that. Having the contingencies will make me feel better, but I am going to not use it ๐Ÿ™‚

      Thanks for that detailed comment. I love to hear what others think, because it is going to be different from what I think. I am going to look at the budget again the way you suggested. May be make another column for the actual budget and ignore the current one ๐Ÿ™‚

  3. I just started budgeting last September. It was the right time in my life to do so. However, when I made less income I was actually fine not budgeting. I set up direct deposits into earmarked accounts and spent the rest as I pleased. Because I automated my savings from the jump I knew that I was reaching my goals and didn’t have to put much thought into the rest. Here’s my post on it.
    http://openmouthsgetfed.com/2017/12/31/all-hide-no-seek-you-dont-have-to-budget/

    Do what works for you, instead of trying to fit into this perfect “personal finance” model. Maybe a year from now a budget will be more your speed, but for now it’s ok to have an alternative.

    1. For now, that is what I am planning on. Continuing whatever I do, and just look at it at the end of the month.

      Thanks for your comment, I have already seen that post. Was written well.

  4. I give you a ton of credit for pushing yourself to make a budget and keep to a 40K ceiling. I’m still trying to figure out how to get there, and we only pay $4,000 a year in property taxes. Yeesh!
    I’m more a fan of “expense tracking” than “budgeting” per se. With a budget, you’re giving yourself permission to spend. With simply tracking, you’re telling yourself not to spend if can avoid it, but you know you’ll incur something in category x, y, or z.

    1. I agree, it is easier to make a decision as to whether I want something or not. I don’t usually think about whether we can afford it or not – we can afford every thing that I would consider (I wouldn’t even consider the rest!). I have been trying to think about whether this would fit in our budget or not, and that is not working for me so far. How do I know if it will fit in or not without knowing what the rest of the year has in store? May be it will get easier with time.

  5. I used to neither budget nor consistently track expenses in the past. We did monitor expenses by category a few months in 2017, but generally just ended up checking the savings rate for the year every other month or so. As long we were on track with the savings rate we were happy. Spending decision in 2017, were based on need at than point in time rather than being governed by a pre-defined plan.
    For 2018, though we went ahead and prepared a budget more or less on the lines described by David above. Again the purpose was to identify what we would be able to save across the year, rather than trying to control expenses.
    We did stick to what we would actually spend without contingencies. I have added a Miscellaneous item though at the end that is about 5% of our monthly spend. That was again to check if we would meet our savings rate even with an increased spending. Thinking back, I believe I will need to remove it so we have the increased saving as our target for the year.

    1. Do you use something like Mint? Mint automatically records all transactions.

      When we were in India, we used to write it down by hand. Let’s just say that didn’t go very well. It was useful in a different way – it helped us identify some of GBoy’s allergies. Because we could reconstruct the entire month by looking at that. But we would have lots of unaccounted spending because we were not accurate enough.

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