As many of you know from our monthly budget update, we rely on a budget to help keep us on our goal to Financial Independence. But, budgets seem to be sore subjects. We either love them or we hate them. Take a look at how our 2015 budget worked for us.
We love keeping a budget, but we approach budgeting in a slightly different way than most.
Instead of a straight monthly calculation of anticipated 30-day expenses, we calculate our anticipated spending numbers for the year and then break down those numbers into their respective amounts per month. We focus on yearly expenses because we have a number of expenditures that do not apply on a neat monthly basis, making a straight monthly-calculation a poor indicator of frugal spending.
Ultimately, this means that if we go over budget on a particular month, it’s not a big deal so long as our yearly expenditures are on target.
This also means we have to be disciplined enough throughout the year to not blow through our discretionary funds too early because if we have a few months of over-spending, we may find ourselves in the position of having very little cash left at the end of the year to use for holiday spending.
Luckily, we don’t tend to have that problem because the budget helps keep our spending to a reasonably consistent level all year long.
We don’t say, for example, “Hmm, I don’t really want to cook tonight, let’s check the budget to see if we can eat out.” Instead, we plan special lunches out a couple of weeks in advance and make sure we’re doing okay budget-wise before we actually go.
We also adjust our budget categories as we go. For instance, we managed to shave off some of Steve’s cellphone payment about half way through the year, so our yearly budget for cellphones went down as a result. An example in the wrong direction this year was our grocery budget. We started the year with a monthly budget amount of $300 and we stuck to that pretty well. However, due to food sensitivities, I completely changed my diet (and for support at home so did Steve) midyear. Let me tell you that cauliflower is expensive! We’re still trying to get our grocery budget back down to $300, but when it kept falling at $350 no matter what I tried I upped the budget amount for the year. We stay flexible and realistic.
Our 2015 budget update
This is the first full year that we’ve tracked our spending as a couple and the first year we tried to stick to a budget. How did we do?
In the Fixed Costs category we did well at 102% spent. We are over a bit on the year for what I anticipated but that is due to our home refinance.
One more month and we would have broken even on that deal.
This category is staying the same to start 2016. However, it is going to change DRASTICALLY once we start selling the houses. Thus, this category will have to be extremely flexible in 2016. You can check out my upcoming article on what we anticipate our budget to be once we hit the road full-time. I will also be writing a budget update for the months we are living in the Airstream and still working full-time.
In the Utilities and Other Necessities category we are under budget for the year at 94% spent! There are a couple of subcategories where we went over (Insurance and Car Repairs) but multiple where we stayed under, so it evened out. Again, this whole section will have to change drastically some time next year when we move into the Airstream but I plan to keep the same dollar amounts to start 2016. Except maybe Insurance. I need to figure out why that was higher than we anticipated.
I’ve already mentioned that we needed to increase our budget for Groceries this year. We are just about perfect for our yearly adjusted budget, so yay! (100% spent) This is one of the categories we need to stay on top of the most. I have great plans on how to shrink this number down even more and still maintain our gluten-free, dairy-free and mostly vegan lifestyle full of fresh veggies and fruits. My plans involve creating a capsule pantry/kitchen and I’m excited! Maybe that will have to be a future post if people are interested (*wink*).
Lastly, the Fun category. We are under for the year here too, though not by much. (98% spent) Again there are some subcategories here where we went over (Health being the main one due to the unfortunate knife incident). I’m definitely upping the Health Budget for next year. It was a total guess since I had never tracked that before. I’d rather budget on the high side so if an accident does happen we’re prepared. We’re thinking about shrinking our lumped Fun subcategory a bit more next year. This is the one place we sometimes will buy something because we have the budget for it and lowering the amount would put a stop to that. We shall see.
Overall we were under-budget for the year and I’d like to keep it that way! Since we do budget for emergencies most years we should be under budget and that’s what needs to happen, especially once we’re on the road full time. Once on the road we’ll be pulling a certain amount out of our investments to cover our living expenses. If we don’t budget for emergencies we will have to scramble if something happens to get the funds. If we do budget for emergencies then the money will slowly accumulate in our account so that when something happens we are ready. But this only works if we stay on budget everywhere else.
2015 was a great learning experience. 2016 will bring with it a HUGE amount of change. Our budget will change with it but what we’ve learned this year will help us make the best choices when we need to.
Steve is a 38-year-old early retiree who writes about the intersection of happiness and financial independence. Steve is a regular contributor to MarketWatch, CNBC, and The Ladders. He lives full-time in his 30′ Airstream Classic and travels the country with his wife Courtney and two rescued dogs.