How my budget failed me big time

Published June 29, 2015   Posted in How to Save

I remember when I was a kid, maybe 15 or 16 years old, I wanted a small telescope to play with because I had an interest in astrophotography.  This telescope was relatively modest, and I spent several weeks saving up my money to buy it.  After all, my parents forced me to have a budget, so I knew exactly how much money I could spend.

Month after month, I continually added money into my budget until, finally, I was in the home stretch.  I was $20 or $30 short, and I happened to mention to my dad my plans for my purchase.

In my head, things were going along as planned.  I wanted to buy something, so I saved until I had the money to buy it.  I worked within the confines of my budget and followed all the rules of proper money management.  At 15, I felt proud of myself for doing so.

I was shocked when I heard my dad’s response.

You need to quit spending so much money!

Wait…what the hell?  I just spent weeks and weeks saving up enough cash to make this purchase and my dad tells me to quit spending so much money?  But why?  It was all budgeted!

Fast forward about 10 years.  I graduated from college and I was working for a large, multi-national corporation making decent money.  I had a little one bedroom apartment and living fairly comfortably.  Of course, I still had my budget.

Every two weeks, I threw money into my budget and watched some of the budget categories balloon – because naturally, money in each category would “roll over” from month to month.  I had a “fun money” pot, and I probably put 20% of my take home paycheck into it.

Doing the math, after five paychecks, I would have the equivalent of an entire paycheck of money sitting in my fun money pot ready to be spent.

Throughout my life, I had the habit of making larger purchases with my extra money rather than lots of little ones.  My stuff was big and expensive (remember that Vette?).  Cameras, car parts, I even had a phase in my life where I bought some guns to have fun with at the gun range.

Every once in a while, my fun money pot would grow north of $1000.  Once I was at the $1200 or $1300 mark, I was itching to spend that money on something nice.

“You know, I could really use a new camera”.  Or, “Man, a supercharger would make that Vette freaking hella-cool!”

After all, that money was all safe and secure in my budget.  I had the money budgeted for, so I was well within my right to spend it and not feel guilty about it.  After all these years, I was still very much unaware what my budget – a budget designed with the best of intentions – was doing to me.

My budget was screwing me out of my hard earned money!

I had the money budgeted.  Therefore, it was ready to be spent.  Just like that telescope that I wanted as a kid, I felt entitled to spend that money because I thought I did everything right.  I saved.  I spent.  Isn’t that the American way?

Re-thinking how budgets work

A couple years ago, right around the time that I was getting more involved with the personal finance and early retirement community, it finally sunk in WHY my budget was like a hole in my pocket, leaking change at every opportunity.

I thought of each budget category as money that should be spent.  I was mentally removing the element of judgment in this equation.  I now know that just because I have the money, that does not necessarily mean that it needs to be spent – even if it is correctly budgeted.  My dad tried to teach me that lesson as a child.  I was too damn dense to pick up on it.

Throughout my early years, if I had $1200 in my fun money account, I would look for where to spend it.  Surely, $1200 could buy something nice…and what a coincidence, I like nice things!

But in reality, that is not how effective budgets work.  My wife has written about how we budget on the blog in the past, and it has fundamentally changed the way that we look at the numbers in our budget.

I find the way we budget now to be pretty kick-ass. 

Distilling down my wife’s larger and more complete article above, here is what we do with our budget to make sure that it is as effective as possible:

1.  Each category has money that CAN be spent, rather than SHOULD be spent

2.  My wife and I both have “fun money” accounts, but they do not roll over each month; this is money to be spent on smaller “incidental” items for ourselves, and we each have the autonomy to make decisions about where this money goes

3.  We can make long term “roll over” categories on an as-needed basis, and these categories are funded out of our fun money pot

The key with our budget is balance our needs with our legitimate and reasonable desires.  Since our fun money accounts do not roll over, we keep ourselves from continually building up larger and larger spendable pots that can easily be wasted.

However, if our fun money never rolls over, how do we make some of these larger purchases?  I would never have enough in my fun money, then, for photography equipment.  This is where our temporary roll over pots come into play, and we fund these pots each month by taking money from our respective fun monies.  As the name implies, the money in our roll over pot will continue to grow to support larger purchases.

For example, I have a photography roll over pot that I devote $50/month to.  The $50 comes straight out of my fun money for the month, and the pot continues to build until it reaches a point where I can make a specific photo purchase, like a camera, lens, flash or anything else relating to photography.

We attempt to keep these accounts fairly well regulated.  For example, it completely defeats the purpose if we setup a roll over pot and devote 100% of our fun money into this pot every month.  We keep ourselves honest because when we cheat our budget, we ultimately cheat ourselves.

Today, our budget no longer drains money out of my pocket.  The difference between looking at each category as money that CAN be spent rather than money that SHOULD be spent is as fundamental as the difference between black and white.

It is making our budget wickedly effective for us, month after month.  It works.

What about you?  How do you ensure that your budget isn’t draining money out of your pocket every month?  Or, do you even need a budget?

We track our net worth using Personal Capital


10 responses to “How my budget failed me big time”

  1. I would run into the same problem as you when I had my first job. I never had a budget per say, but I knew my take-home pay and I knew my expenses. What was left over either went to pay down extra payments for student loans or on casino and golf trips with the boys. But now I look at all my extra money as money that can go into my Vanguard account and speed up my FI date!

    • Steve says:

      Yup, totally. You probably look back at your casino and golfing days and think to yourself, “Yeah it was fun, but I’d rather be that much closer to retirement right now”, eh? Me too. My main vice was going out to eat at restaurants as well as all the expensive toys I bought. It was fun, but I’d rather be jobless! 🙂

      Thanks for reading.

  2. So interesting to think about how we’re all taught so differently about money! If one of us had saved up money as a kid over the course of several months in order to buy something, we surely would have been applauded, not scolded!

    We aren’t budget-focused per se, but do what we’ve learned is known as paying ourselves first. Basically we just have a lot of things automated so that what we have left to spend is pretty small, and what we save is pretty big. Our 401(k) contributions come out off the top, of course, but then we have our paychecks split to send large parts to savings accounts that draft to Vanguard twice a month. Also, as you surely agree, just tracking everything is super motivating. Even without a line-item budget, we still never want to cause any of our numbers to get smaller!

    Once we get closer to ER, we’ll have to figure out if we want to start budgeting. Without income streams and the same need to save, we may need a new system. But we’re not at that point yet.

  3. Amber tree says:

    Sounds like a familiar story and journey.
    Budget is indeed money that can be spend, it should not be spend.
    Most of our unspend budget rolls over in bigger upcoming cost pots, avoiding thus to use the emergency saving.
    We still devote each month an amount to the emergency saving. If this pot goes beyond a certain amount, it is used to invest or pay back a part of the mortgage.

    It is good to read there are other similzr people out there.

  4. SavvyJames says:

    Interesting way to look at the issue of managing money. instead of ‘budget,’ which has always struck me as a negative approach to managing money, I prefer to manage my money by utilizing a ‘spending plan’ as it more more accurately reflects how I want to direct my money. Whereas budgeting makes me feel like I am forced to allot money for things I would rather not be spending money on, a spending plan feels like I am more in control of how I want to allocate my resources. Of course, savings and investments receive priority in my spending plan.

  5. Chris Muller says:

    I can honestly say we have tried so many times to budget and it just never works for us. For me, it’s too time consuming to figure out what category different expenses go in. Also, like you said, I would feel that it was more than okay to spend the money budgeted in an account, because hey… it’s already budgeted!

    Our method of budgeting is usually to pay ourselves first and live on the rest. Right now we’re taking out 50% of our paycheck and putting it aside for savings, debt, etc. and living off a cash diet for anything non-need related. It’s definitely been challenging , but it seems to be working for us.

    With a cash diet we don’t have to worry about whether it’s going to eating out, buying beer, buying coffee, or anything else. Once it’s gone, it’s gone. The thing I will miss though is looking at our expenses over the course of a year to see where our money was going – with cash we can’t do that.

    Great post, love the story too.

    • Steve says:

      Thanks Chris! Good on you for finding a way that works for you guys. There are definitely benefits to a cash-only diet for sure. It tends to simplify everything. I love it when things are simple. 🙂

  6. […] a previous life, I completely sucked at budgeting. I had a budget, but it wasn’t doing me much good because it didn’t constrain my spending. In […]

  7. Gary says:

    Hi Steve,

    Here is the most important sentence you wrote: “The key with our budget is balance our needs with our legitimate and reasonable desires.”

    If you can do that, you don’t even need a “budget.”

    • Steve says:

      Thanks Gary. Yup, that balance is critical. Without that, you’re maintaining a budget for no good reason. I was doing that for the first 10 years of my life, unfortunately. Ugh!

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