There was a budget system that was quite big in the news a couple of years back, called the 60/40 budget. I use a modified/customised version of that method and it has freed my financial life.

I used to use the envelope method and keep all of my receipts and audit everything monthly. I spent hours each month reconciling all of the items and making sure everything was under control (I still have boxes of receipts – shudder). I got caught up in the categories and details and lost site of the big picture. Living my life!

The 60/40 budget says that your total household expenditure has to be 60% or less of your take home pay (ouch!). But you need to take care of the 40% first, 10% into Retirement, 10% Long Terms savings (House, car, etc.), 10% short term savings (emergency fund), and 10% discretionary spending. You pay yourself (40%) first. Never try to save what’s left at the end of the month, if you’re like me, there won’t be anything.

The 60% becomes one giant category. It doesn’t matter where I spend the money as long as the total never breaks 60%. I can spend every single penny if I want to, because all of my savings are taken care of. There’s an added twist if you have debt to payback, but once you are debt free it really is that simple. Spend too much on gas? cut back on eating out. Spend too much on cable TV? skip a trip to the mall or cut back on a hobby. Once you shed yourself of the categories, you feel better because you no longer have to punish yourself for ‘guessing’ wrong at the beginning of the month.

I do budget, I need to budget, but I don’t use categories and sub-categories and miscellaneous categories etc. So I can kind of agree with what the author said…

Budgeting has allowed us to understand our spending, let us lead a balanced life (we can save, invest, yet still do things to make life enjoyable in the present), let us plan ahead for financial issues, and so on.

To each their own, I guess. The best advice is to do whatever works for you.

I wouldn’t disregard budgeting in general however… it’s still a great tool and one that will work better than just tracking your spendings for some people.

But Budgeting is a great tool manage your personal finance and expense trackign is a part of it and should be part of it. Just expense tracking won’t do much good. You have to know how much is coming in to your pocket, how much you can spend and how much you can save. Budgeting helps you do that..

VIJAI

As for having money left over after a month in a category say clothing; you can transfer that money over to a savings account and put it in a clothing category. You may not have bought any clothes this month, but you may need to spend more money in the next two or three months and the money is there.

I also have a category for a catch all that I allocate each month. I pay out all of the bills and then I allocate money to items that could fall into a miscellaneous category. It could be purchasing photo prints, purchasing stamps, stationary,etc. Your electricity bill may have been higher and you have the money to cover it.

Budgets free you to direct how your money will be spent not the other way around. I find budgets freeing.

Some people are naturally frugal. Others need some structure. I need the structure.

Oh, and we put 5% of pretax income away automatically, and put 36% of post-tax income toward debt repayment (not counting mortgage payments). So the disciplined budget is helping us reduce our debt dramatically while still saving a tiny bit.

A good budget includes an “emergency fund” to cover unexpected overages. You know how much you’ll spend on groceries and gas, and you can always put in a category for “car repairs.” If a car repair comes up that is over the amount you have saved in that budget category, you dip into the emergency fund.

Budgeting tells your money where to go, putting you on a written plan. “You happen to your money, instead of your money happening to you” as someone once taught me.

Of course, what do I know. My wife and I only live on half our income, saving the other half for a full 20% downpayment on a house. We’ll actually have close to 40%, plus a 6 month emergency fund, when we’re ready to buy. But if you think budgeting doesn’t work, more power to you.

For me, the only way to keep control of my spending is to both track it to the penny and to budget our money carefully. I use a computer version of the envelope system and zero-balance budgeting.

If your method works the best for you, that’s great. My method is the only one that has worked well for me so far and I plan to stick with it.