I have tried to make budgets work multiple times with varying degrees of success. And through the multiple attempts at making budgeting stick, I've noticed a few key learnings on what works or doesn't work for me.
Now, I do like personal finance, but the idea of logging every single purchase and the necessity of checking my bank apps multiple times a week (or day) is a horrifying prospect for me. This is something I did not know when beginning, but now is clear as crystal. After many attempts I believe I have settled on a way of budgeting that works best for my preferences.
|There is no 1 way to budget, and the method should be tweaked to best suit one's personality|
1. Knowing your WHY is the single most important factor
Saving money for the sake of saving money is boring. It is also extremely uninspiring and can feel like an unnecessary leash holding you back in enjoying life. However, that is exactly NOT the point of budgeting. Budgets can help you prevent wasting resources on things that don't mean much to you, and enable you to divert them to things that bring you joy and add to your life.
In my opinion, knowing what exactly you value, and what you would like to spend your money on is a one of the best motivators. So, with every paisa saved, you count a paisa towards your goal - something you really value doing and find joy in too. This can make budgeting more meaningful and can be the single most important factor that decides if you continue with it or not.
2. Automation can make it easy to follow through, but has a risk
I started off with an iPhone app called "Buddy" that needed me to key in every single expense. As the initial enthusiasm of sticking to a budget waned off, I tried using multiple apps that could auto-import my bank statements and account for them. Not only was this complex, since I needed to categorise the spends anyway; I realised that auto-imports caused me to over-spend and lose a grip on the allotted budget categories. A part of me felt disconnected to the budgets I had allotted and I could never remember or have a "feel" for how much is okay to spend.
But I realise this is a choice :)
3. Flexibility is key to make budgeting work
I believe that rigidity in staying within the budget was the biggest reason for me to lose interest in budgeting altogether. Previously, I tried to restrict my spends to the allocated amounts, not accounting for unexpected expenses or for the occassional "pamper-myself-bill". This was a disaster!
These days, I am open to moving money between my allocated budget categories (or pots). So, if I allocate €300 to groceries and €200 to "fun-money", I am okay spending €330 on groceries, since I can move the additional €30 from my fun money account into the groceries account. That way, I just spend lesser on fun activities like eating out, and I am still within budget :)
On another note, there are some months where I spend more than I earn, in which case I reduce the money to spend for next month. For instance, if I usually allocate €2100 to spend every month, and end up spending €2450 this month, I'd try and take the extra money spent out from the next month's budget. This would give me only €1750 (i.e. 2100-(2450-2100)) to spend next month.
4. Planning ahead is key, but being very conservative is a trap
The points above talk about the ability to execute a budget, but that is only possible if the budget is planned and thought about meticulously. I try and analyze my spends every month, and tweak my next month's budget accordingly (while also taking into account any new upcoming expenses).
That being said, I always budget 5-10% more money than expected, for every category (while ensuring that my spending is still lower than my earnings). This allows me to be prepared for any bill that may have missed my mind, and removes any "ambitiousness" bias which may have led me to allocate less money than I need for some categories.
5. Communication with my partner can keep me accountableBeing in a relationship is never a one-man (or one-woman) game. My girlfriend and me are a team and I recognize that she can help me stay accountable to the budget I have planned for myself. Also, it is worth noting that my spending (or lack thereof) affects her life too, so being on the same page is absolutely imperative.
I regularly try and communicate my planned expenses to her, while allowing her to hold me accountable to staying on track. I also realized that regular conversations on these topics can lead to productive brainstorming, where she can help me see a problem from a viewpoint I may have missed. An example of this is a recent suggestion to try an online grocery shopping service. While I prefer grocery shopping in a store, an online store allows us to select our groceries and plan varied meals together, all while ensuring that we remain within budget. Another benefit is that online stores are generally cheaper than their brick and mortar counterparts, since they don't have any rents to pay.
What do you think? I'd be more than happy to share my planned budgets every month.