Wednesday, March 9, 2016

Women's Money Week: Budgeting & Spending #WMW16

Dirty confession: I haven't had a budget in years.

I think there are two ways to approach personal finance, and I've done both. One is a zero-based budget, where each dollar is assigned to a category and once you run out of money in a category, you don't get any more until the next pay period or month. The other way is to track every dollar you spend, so you can monitor trends and adjust as needed. Both work very well, if you're diligent, but I think they work for different circumstances.

I did a zero-based budget when I was living paycheck-to-paycheck. I had very little wiggle room and needed to be the boss of all my dollars. I had specific bills in specific amounts and also specific savings goals that I wanted or needed to reach, and that's the only way I can think of to manage that kind of situation. I even did an envelope system for a while, where I cashed my paycheck into certain denominations and kept the cash in envelopes marked "groceries," "eating out," "household stuff," and "mad money." It was hard to borrow from Peter to pay Paul because it was so obvious what I was doing and when I couldn't afford to do it. During this time, I didn't have a credit card, so cash was my only option.

As my financial situation stabilized and I had a bit of cushion in the bank, plus the confidence in my ability to be disciplined in my spending, I transitioned to tracking each dollar instead of specifically budgeting and when Peanut and I merged finances after our wedding, this is the only method we've used. We have had budgets for specific things - our wedding, our cross-country move, our house purchase, traveling - which we've stuck to, but our organizing financial principle now is tracking our spending instead of budgeting.

If you've tried one method or the other and haven't liked it, I encourage you to try the other - budgeting feels very restrictive when you don't really need to do it, but tracking gives you all sorts of awesome data about your financial life.

If you've never tried budgeting at all, however, I also encourage you to do it for a while - it's a necessary skill to achieve any level of leadership in most professions, and my practice budgeting for myself has given me the confidence to manage budgets with lots more zeros than my personal accounts will likely ever see.

2 comments:

  1. Great post! We do track our spending so we know what we're spending on everything but a zero based budget has never worked for me.

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  2. That's a good way of looking at it. I'm definitely of the second category. Have gotten into a routine, so I have a good idea of what to spend and then tracking is what I do nowadays.

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