Teach Me How To Budget

I am often asked about my personal financial management. Amongst my friends and family I am known to be the one who is “good with money,” so it is often assumed that I am a diligent money manager. What most don’t know is that this perception is the furthest thing from the truth. I stopped balancing a checkbook seven years ago and since then I rarely keep track of my spending. Until about a month ago the closest I’d come to budgeting was writing one. Yet somehow my bills are always paid on time, my savings grows, and my accounts are not overdrawn (mostly, and if it happens I am usually able to get a courtesy reversal).

how does that work

I am going to be completely honest. I do not trust myself with money. When I was a kid, money leaked through my pockets like STDs through a lambskin condom. When I was eight I made the decision to lie to my parents and tell them I’d lost the $50 my grandmother gifted me (and accept the punishment that came with that admission of carelessness) rather than admit I’d spent all but $5 of it in less than 3 weeks on the ice cream truck and gum balls from the cantina at Grafton Lake. It didn’t matter whether I received an allowance or had a job, from K thru 12 I stayed broke (and relieving my dad of the spare change he kept in a jar don't judge me). It only got worse when I went to college and was granted my first credit card. Being a fiscally responsible adult, I managed to wait until senior year to fully max it out, stop paying the bill, and get sent to collections. Knowing exactly who I am and the carnage of which I am capable I had a healthy fear of my money management skills, enough so that I knew the only way to avoid eviction from my first solo apartment was to keep as much of my paycheck out of sight as possible. I set up separate accounts for my rent and savings then managed what was left (which wasn’t much) out of my primary checking account. I have stuck with this basic framework since 2002.

I manage my money with an amalgamation of three methods: false scarcity, automation, and virtual envelopes. It has been an evolution driven by personal experience, following others’ examples, and trial and error. I have tried to set myself up to be able to easily handle any financial situation from an unexpectedly high gas bill (I’m looking at you winter 2006) to homeowners’ insurance deductibles when the basement floods (I didn’t forget you summer 2006). Here is a look at how I work with one month’s base salary. I get paid twice a month and split the deposits evenly between checks. Yes, these numbers are real.

Monthly $10,150
Pretax Deductions
401K $1,522.50
Ventra Card (Wage Works) $50
HSA $166.67
FSA $20.83
Post Tax Deductions
ESPP $203
Total $1,963.00
Net Income ~ $6000
Direct Deposits (Checking)
Mortgage $2,500
Student Loan and Insurance $1,160
Utilities $500
Sinking Funds $650 Non monthly regular expenses $200
Blow money $100
Vacation $150
Car Repair/Maintenance $200
Primary Checking Net
Direct Deposits (Savings)
Home Repair Fund $100
Emergency Fund $1,000

No. Your eyes are not deceiving you. I manage my finances through 10 active checking and savings accounts.

why

Ya know how some people don’t like the meat to touch the vegetables to touch the starch on their plate. Well, that’s me when it comes to money. It freaks me out when my money mingles. Some might consider it my makeshift way of budgeting or executing the Dave Ramsey envelopes. It started with separating my housing payment from the rest of my money and snowballed from there. I have always viewed the money in my primary checking account as my discretionary spending funds. Whenever I start to feel like I am too close to spending a fixed expense on something discretionary I set up a separate account to keep the money away from myself. I bank with a credit union so I use them for free accounts that don’t require a minimum balance. I may have money in fiftyleven locations but the only one I really consider mine to spend is whatever winds up in the primary checking account (hence the false scarcity). The rest is already assigned to something else, whether that be a monthly bill (which is on auto pay) or a savings goal. Typically, I use the primary checking to cover everything from groceries to entertainment to personal care, shopping, and other random crap I wanna spend money on. I have never felt any kind of way about what I buy with this money since I know everything else is already taken care of and then some.

I will admit that in the last year I’ve been feeling especially broke because less and less money is hitting that primary checking account due to increased pre-tax deductions and post tax direct deposits. I also have a tendency to overfund many of my accounts. For example, even though my total housing expense is around $2250/month (principal, interest, taxes, insurance and HOA) I put $2500/month in my mortgage checking account. I’d like to say it’s a buffer just in case of an unexpected increase in my bill, but considering the fact that my rate is fixed the chances of a huge spike is slimmer than that chick in Calvin Klein pants. While there has been a bit of fluctuation since I bought the place two years ago, due to HOA assessment changes and a property tax increase, I am still ODing with my contribution to this account. Same for my utilities. I’ve been setting aside $500/month for utilities ever since I received a $700 gas bill in January of 2006. True I lived in a 3 bedroom house with 60 year old windows when that happened and I now live in a 2 bedroom energy efficient condo, but what can I say…I’m scarred.

I could reallocate how my checks are deposited based on my current expenses. However, I like having my money out of sight. I would say that it keeps my spending in check, but that’s really not the case any longer. I have found that as my income has increased my control over my spending has decreased. I know where the proverbial bodies are buried and stay transferring funds between accounts. Last year I had to put my primary savings into a bank in another state (bank Black black power) and decline the ATM card to keep from touching it. Does keeping track of all these accounts get confusing?

absofuckinglutely

I have been hit with more than a couple overdraft fees because I’ve forgotten how much I’ve transferred to which account and which bills I’ve paid from one to cover me when the primary checking is short. Even though I’ve been able to get the majority of the fees waived, it’s starting to become a Grade A clusterfuck. Hence why I am making the move to a budget. Over time my habits have shifted from spending based on what’s in my primary checking account to spending what I think I can afford based on a vague idea of my income. This has caused me to lose track of where a large chunk of my disposable income is going. In order to make sure my six month emergency fund lasts through (f)unemployment, I need to be more aware of what I’m swiping on my cards and why. In order to do this I have to give myself less wiggle room on my fixed expenses and more flexibility with what’s left over. September went well. We’ll check in on October later this week.

 


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