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Old 10-23-2007, 12:16 PM   #21
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Good stuff.

The beagle is right that we don't sweat the small stuff. Once a year or so, I'll look at our spending and try to identify low-hanging fruit. Big impact spending with fairly painless alternatives. These are almost always monthly recurring expenses, like cell phones, TV, internet, etc.

So, we're in pretty good shape in terms of having streamlined the obvious expenses, bargain hunting, setting priorities, etc.

The potential problem is in "miscellaneous" discretionary budget categories. Mostly toys for me and clothes/shoes for her.

And it's hard to get a handle on these expenses since we use the same credit cards for buying both non-discretionary items and this discretionary stuff. We can't even detect a problem until after the overspending has already occurred and the data have been sorted and analyzed.

I like the idea of an "allowance" for discretionary purchases, but it still comes down to implementing it with credit cards since cash is practically obsolete.

So, I'm leaning toward each of us using a dedicated credit card for discretionary purchases with a fixed credit limit. So, it's easy to track and easy to enforce. Obviously, it's easy to circumvent too, but at least it'll require forethought and it'll be easy to make a mental note to take it easy the following month.
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Old 10-23-2007, 12:22 PM   #22
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Interesting question. Are you budgeting too little or spending too much?
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Old 10-23-2007, 12:36 PM   #23
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Sounds like you need to make more money.
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Old 10-23-2007, 12:52 PM   #24
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Are you budgeting too little or spending too much?
Who can tell without having an easy method to track the budget categories, ideally before the new spending happens?

We can easily increase the budgets -- that's not the issue. The issue is tracking and enforcing whatever budget we establish.

I suppose we could just say "spending is unbounded!" I wonder where that would get us.
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Old 10-23-2007, 01:07 PM   #25
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Hmm, sounds like a little unexpected inflation is affecting your budget.
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Old 10-23-2007, 01:15 PM   #26
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I'm overwhelmed by the sympathy I'm getting.

So, the take-home message is that nobody really sets, tracks or enforces their budgets?
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Old 10-23-2007, 01:20 PM   #27
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So, the take-home message is that nobody really sets, tracks or enforces their budgets?
I've realized establishing and closely following a budget month to month doesn't fit my lifestyle. Some months we spend a lot, some months we spend very little. I save a lot and whatever is left I feel it is ok to spend. If I see I have more and more money accumulating in my savings account, I feel a little more able to give to charity, give larger gifts or splurge on purchases. Similarly, if I know I have a big expense coming up soon (vacation, xmas gifts, insurance bill, etc) I'll try to let the savings balance grow a little to accommodate this expense.
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Old 10-23-2007, 01:21 PM   #28
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What we do is have a notepad in the kitchen and write down everything we spend. Later on, I am supposed to enter it into quicken, but I only made it through January. My plan is to enter the rest now that winter is here. Then we will see if we have to enforce a budget.

Right now we do not have a budget, this is the first time we have tracked our expenses. We do limit our spending by limiting the amount of money that is readily available.

So your exercise is interesting to me. But I am of no help to you.
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Old 10-23-2007, 01:23 PM   #29
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I'm overwhelmed by the sympathy I'm getting.

So, the take-home message is that nobody really sets, tracks or enforces their budgets?

Well, for me there is no budget... and I used to track my spending, but stopped a long time ago... I just don't spend money on something I do not want or need... "budget" problem solved.
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Old 10-23-2007, 01:26 PM   #30
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I budget for three types of expenses:

(1) the usual, recurring expenses like utilities, cable TV, gym membership, food, and so on.

(2) padding to cover unexpected expenses such as major A/C work, a root canal, a broken TV.

(3) Fun stuff.

I allow $800/mo for (1). That was $600/mo before Katrina, but inflation has been rampant here what with carpetbaggers and opportunists. If I don't use the allotted amount on (1), I will consider something in category (3) or else save the extra.

Category (2) has been running about $650/mo historically, so I allot that much for it. If nothing occurs, I let that pile up. If too much occurs, then any excess from the $800/mo for (1) goes to this fund rather than to (3).

After many years of credit card use, I decided that I prefer to have none.

Every morning over coffee I log into my online bank account. All my bills are on automatic bill pay, so I check them, check the amounts, and think about any that are excessive ("hmm, wonder if I should nudge the thermostat a little?" and so on). I check to see how I am doing at meeting that $800 goal, both for this month and in the long term. If I am behind, guess what? Cut back on (3). I just tell myself that I can get whatever-it-is later, when I have the slack in my budget. Waiting a month or two is no big deal and just allows me to anticipate the desired purchase much more. If the problem continues in the long term, I have to check price increases and consider increasing my budget as I did after Katrina.

Actually, this is all kind of fun for me. I get a big charge out of making a plan and watching it actually happen right before my eyes!!

I agree so much with those who say the recurring expenses make more difference than you might think.
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Old 10-23-2007, 01:34 PM   #31
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Originally Posted by twaddle View Post

Both DW and I have multiple credit cards with absurd limits, and we use them for almost all of our purchases, so I don't really see an effective way to enforce a monthly or even annual budget.
Have you thought about putting the credit cards in a drawer and using cash - most people overspend when they use cc.
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Old 10-23-2007, 01:37 PM   #32
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I'm overwhelmed by the sympathy I'm getting.

So, the take-home message is that nobody really sets, tracks or enforces their budgets?
I do and as I said before I use the allowance system, but I use the same credit cards to pay to food, gas, and all discretionary expenses covered by my allowance.
I don't nickel and dime every spending category, but I know my credit card bill has to remain under a certain amount each month (My wife has her own card with identical rules).
So for example if I budgeted about $1000 a month for mandatory expenses that I charge to my card (I am in charge of grocery shopping for example and I use my card to pay for it) and $500 a month for my allowance, I would make sure that my credit card bill does not come above $1500 at the end of the month. Now it also means that if in any given month I spent only $900 on mandatory expenses, I could spend up to $600 on frivolous stuff, nobody would ever know . The important thing is that each month the total does not go beyond $1500. That way you can include that fixed amount in your budget and not have to worry about tracking every cent.

So our budget categories look like that:
Mortgage, phone bill, insurance, my credit card bill, her credit card bill, Electric bill...

instead of:
Mortgage, phone bill, insurance, groceries, gas, clothes, entertainment, fun money, Electric bill...

groceries, gas, clothes, entertainment and fun money for example are all grouped under my credit card bill and her credit card bill.
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Old 10-23-2007, 01:38 PM   #33
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I budget for three types of expenses:

(1) the usual, recurring expenses like utilities, cable TV, gym membership, food, and so on.

(2) padding to cover unexpected expenses such as major A/C work, a root canal, a broken TV.

(3) Fun stuff.

I allow $800/mo for (1). That was $600/mo before Katrina, but inflation has been rampant here what with carpetbaggers and opportunists. If I don't use the allotted amount on (1), I will consider something in category (3) or else save the extra.

Category (2) has been running about $650/mo historically, so I allot that much for it. If nothing occurs, I let that pile up. If too much occurs, then any excess from the $800/mo for (1) goes to this fund rather than to (3).

After many years of credit card use, I decided that I prefer to have none.

Every morning over coffee I log into my online bank account. All my bills are on automatic bill pay, so I check them, check the amounts, and think about any that are excessive ("hmm, wonder if I should nudge the thermostat a little?" and so on). I check to see how I am doing at meeting that $800 goal, both for this month and in the long term. If I am behind, guess what? Cut back on (3). I just tell myself that I can get whatever-it-is later, when I have the slack in my budget. Waiting a month or two is no big deal and just allows me to anticipate the desired purchase much more. If the problem continues in the long term, I have to check price increases and consider increasing my budget as I did after Katrina.

Actually, this is all kind of fun for me. I get a big charge out of making a plan and watching it actually happen right before my eyes!!

I agree so much with those who say the recurring expenses make more difference than you might think.
I like your system, simple yet powerful.............. And, it worked in a Katrina affected area, proving that it can work anywhere..........
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set and track, but do not enforce
Old 10-23-2007, 01:52 PM   #34
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set and track, but do not enforce

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I'm overwhelmed by the sympathy I'm getting.
So, the take-home message is that nobody really sets, tracks or enforces their budgets?
We do set and track, but do not enforce.
Both DWs and my discretionary purchases are below our allowances.
Nevertheless we already blew our original 2007 budget in several categories.
As long as we are not in red we do not make a big deal out of it, just chalk it up to "we'll do a better budget next year".
Examples of budget overruns:
1. Little sailor school requires payment upfront ( Children:Tuition 50% overrun)
2. DW took a normal vs. online class at a University 35 miles away twice a week - ( Transportation:Fuel ~ 30% overrun)
3. Groceries:FoodStuff is about 30% over, but I like DWs cooking so no complains from me
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Old 10-23-2007, 02:13 PM   #35
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So, the take-home message is that nobody really sets, tracks or enforces their budgets?
We don't set a budget, so there is nothing to "enforce". We do track spending.

As described in The Millionaire Next Door, we live in a self-created environment of "artificial scarcity":

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What about those millionaires who don't budget? How did they become millionaires? How do they control spending? They create an artificial economic environment of scarcity for themselves and the other members of their household. More than half of the nonbudgeters invest first and spend the balance of their income. Many call this the "pay yourself first" strategy. These people invest a minimum of 15% of their annual realized income before they pay the sellers of their food, clothes, homes, credit and the like.
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Old 10-23-2007, 02:42 PM   #36
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We don't set a budget, so there is nothing to "enforce". We do track spending.

As described in The Millionaire Next Door, we live in a self-created environment of "artificial scarcity":
This is the approach I attempt. Some months I get it wrong and end up over spending out of my safety net
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Old 10-23-2007, 02:46 PM   #37
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In fact, that's exactly what I'm trying to do -- create an environment of artificial scarcity. We're already retired, and we're living on well below 4% of the nest egg.

So, setting an annual budget and "imagining" that it reflects a real spending limit helps a bunch.

But here's the deal. The breadth and depth of stuff you can buy over the net has increased a bunch. And it's only one click away. I see an increasing number of boxes arriving at our door.

We could nip this in the bud if we tossed out our credit cards, but that's not an option. So, I'm trying to create a negative feedback loop in the face of this large internet buffet laid out before us.
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Old 10-23-2007, 03:04 PM   #38
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In fact, that's exactly what I'm trying to do -- create an environment of artificial scarcity. We're already retired, and we're living on well below 4% of the nest egg.

So, setting an annual budget and "imagining" that it reflects a real spending limit helps a bunch.

But here's the deal. The breadth and depth of stuff you can buy over the net has increased a bunch. And it's only one click away. I see an increasing number of boxes arriving at our door.

We could nip this in the bud if we tossed out our credit cards, but that's not an option. So, I'm trying to create a negative feedback loop in the face of this large internet buffet laid out before us.

Well, heck, if you know where it is happening... then you can turn it off...

OR, put in a certain amount of money into a paypal account and you can ONLY buy stuff online if you have money in the paypal... no money, no buyey
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Old 10-23-2007, 03:07 PM   #39
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Well, heck, if you know where it is happening... then you can turn it off...
OK, I'll spill the beans.

Easy for me. Maybe not so easy for DW, and I don't want to nag her. She's not easily going to adopt this mindset of artificial scarcity I'm trying to create. But she's willing to work within a budget, so I need an enforcement mechanism.

The paypal thing could work, but I think they require a credit card on file, and some merchants automatically hit the credit card -- bypassing any cash limit you want to impose. I'll look into it, though.
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Old 10-23-2007, 03:50 PM   #40
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In fact, that's exactly what I'm trying to do -- create an environment of artificial scarcity. We're already retired, and we're living on well below 4% of the nest egg.
Given the above, I wouldn't worry about your wife's purchases. There's no apparent reason why she shouldn't enjoy herself, free of artificial restrictions. It doesn't sound like there is any real danger that your future financial wellbeing is in any jeopardy, and there's no point in accumulating more savings just for the sake of a bigger number.

Simply monitor the situation and, if your overall expenses begin to exceed a reasonable annual amount (4% of liquid assets, or whatever other rule of thumb you wish to use), that would be the time to consider economic restrictions.
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