To Get an Accurate Monthly Budget, Start With What You Want to Buy
How do you decide what monthly budget to allocate for each category?
Are you letting your budgeting app decide for you? Are you using the same numbers as last month, or are you cutting them off by a few hundred dollars because you’re trying to spend less?
Or have you taken the time to think about everything you need to pay this month – from brunch with a friend in out of town to a new pair of shoes – and budget accordingly?
I started using the line item budgeting system about four months ago and it gave me a much better idea of where my money is going – and if I can afford what I want to buy.
The desire to spend a certain amount is not enough
Many of us use the budget “I usually spend $ 600 on groceries and $ 300 on clothes every month” or the coveted budget “I want to spend $ 400 on groceries this month.”
But wanting to keep your expenses below a certain amount is not enough, especially when you are in the middle of the month and have already paid $ 350 for groceries. Instead, you should find out how much what you need to buy actually costs.
I use Mint to keep track of my budget and expenses, and while Mint would be happy to create categories and budget amounts for me based on my spending history, I take the time each month to adjust my Mint budget based on what I’m actually going to spend. this month.
For instance:
- I look at my calendar to determine how many trips I make this month. I then make a list of all Lyft airport rides, airport food and Gogo Wi-Fi rides that I might need, along with an estimated cost for each. Once I figured out how much the trip to and from my destination might cost , I start adding other travel expenses, such as dining out.
- I also check my calendar for birthdays, out-of-town visits with friends, and other social events that I know will cost me money. I add those expenses – gifts, dining, extra Lyft rides – to my budget.
- If I plan on buying clothes, I think about the number of things I’m likely to buy (three shirts? Five shirts and one pair of jeans?) And how much can I expect to pay for each item.
In other words: I’m not saying to myself, “I want to spend $ 150 on restaurants this month.” I tell myself – and my budget – that this month I’ll probably eat five courses at a restaurant, and three of them might cost as little as $ 30, but two might be closer to $ 60. So I need to allocate $ 210 for restaurants and choose menu items accordingly .
If you are using YNAB , you are probably familiar with this type of budgeting. YNAB helps people to save money in advance for irregular expenses such as gifts or car repairs. But even YNAB isn’t asking you to think about your restaurant’s budget based on how many meals you plan to eat away from home this month – and if you’re looking to get your budget as accurate as possible, it’s worth considering.
Change your budget when your plans do
I know your first question will be, “What if something changes? So, this is how I deal with unexpected expenses.
First, I always build in a budget buffer, because I know that I cannot live a whole month without something that I did not plan to buy appears.
Second, I know that overexpenditure in one area can mean cutback elsewhere. This summer I made a list of everything I thought I might need or want to buy between May and August (along with the estimated cost of each item), and when I overspend or added new items to the list, I deleted others or figured out ways to cut back. For example: instead of buying expensive food at the airport, I started putting together my own TSA-friendly lunches to take with me to the airport. (YNAB users will be familiar with this technique too!)
I also received additional income to cover some expenses that I had not planned on. (I’m a freelancer, which means it’s relatively easy for me to take on an extra assignment when I need it.)
You might be thinking, “Why bother planning such a detailed budget when you still can’t anticipate all of your actual costs?” For me, making a list of what I want and need to buy each month – and how much it will cost – helps me make smarter decisions when these unexpected costs do arise (and they will).
In other words: if I say yes to this new opportunity, what do I need to say no to? If I am invited to an unexpected dinner at a restaurant, does that mean I need to plan to bring food to the airport with me? If there are large expenses, do I want to: A) pay with my savings, B) cancel this month’s shopping trip, or C) get additional income to cover them?
Take time now and save money later
It takes time to think about how much you plan to spend each month, down to lunch in a restaurant, a car trip, or a T-shirt – and you don’t need me to tell you that the more people in your family, the more difficult it gets. …
However, now my budgets are much more accurate, so I started counting every item I was likely to buy and then figuring out how much to put in each category.
Yes, I know this method may not work for everyone, but if you are having trouble meeting your budget categories each month and want to know how much you should actually budget, this might be for you.