If you are anything like me you also hate keeping a budget for your daily expenses. Noting down every item you spend your money on, every coffee or bottle of water bought while out is such a pain. When I go out I just want to enjoy myself and not have that nagging feeling of remembering and noting every beer I drink. I just want to enjoy quality time with friends.
But the main reason why keeping track of my expenses does not work for me is that each time I created an excel file to keep track of my spending in the past, I quickly lost motivation to maintain it.
Making better use of your time
You surely can make better use of your time than maintaining a balance sheet. Let’s face it, that’s the reality for most people; how many have the time, patience, or for that matter, the passion to become small-time accountants.
The sole reason why you are being told by so many financial advisers to keep track of your spending is to not overspend, to keep you out of debt, and to help you save money. Of course you should know how much you are spending on insurance, car, mortgage payments and other regular, fixed expenses; but if you are a reader of Captain Finance, you are likely to be on top of that already.
For many years now a much simpler method has worked for me and certainly will do likewise for you: withdraw a particular sum at the beginning of each month that represents your budget for your daily expenses. If you are anxious about keeping a lot of money with you in your wallet, you do not need to worry. Keep the money at home. Every time that you have spent or are planning to do take some money from your stash.
An easy to keep budget
For our groceries, for instance, we use a designated box to hold the cash. As we visit the ATM twice per month, we, despite keeping the money in our house, never keep more than € 130 in the designated grocery budget box. As we tend to go shopping around the day of the withdrawal, the money we keep at home is much less and thus even less worrisome. But our fridge is always stocked for the next days.
Our total monthly grocery budget is € 260. At the beginning of each month, we get € 130 from the bank (half of our monthly budget) giving us a constant reminder of how much we have already spent and how much is left. Half way through the month, we again make use of an ATM withdrawing another € 130 – our budget for the 2nd half of the month.
4 budgetary advantages
Managing our budget in such a way has 4 advantages:
- We never have much money in our wallets and are thus not tempted to spend it
- We keep track of our spending and how well we manage our budget without the pain of keeping track in an excel sheet
- A visual reminder: Whatever notes and coins are left in our grocery budget box is the amount we are still able to spend
- This one is the most important one from a psychological perspective: Maintaining a budget sheet is a very abstract form of getting to grips with our spending habits. All we see are figures; they can easily be changed and they are only figuratively representative of our available resources.
Real notes and coins that you can touch and see are not abstract; they are concrete representations of your financial resources. Seeing, feeling, and smelling your financial resources is real and makes it much easier to stay within your budget. Just try it: touch, smell, and investigate the coins and notes consciously; your awareness for them changes.
Don’t trick yourself
‘But,’ you might ask, ‘if you run out of money, can you not always consult the little machine down the road again?’
A very simple answer: ‘No’.
In all these years where we have been doing it, we have never overspent. Conversely, many a month we had money left and spent that on a romantic dinner.
Admittedly, it has happened to me once (Mrs. Captain Finance has been better) that I spent € 60 over my leisure budget – never our grocery budget – because we had friends over for a week and wanted to enjoy the time with them. As you see, I keep two different budgets and apply the same system to the two areas of life: groceries and leisure.
But the answer whether it is acceptable to run down to the ATM is still a big fat ‘No’.
“Hey Captain Finance, whatever. You are joking, right? How did you pay for your breakfast cereals,” you are probably screaming.
I did by lending money to myself. When I overspent by these € 60, I refused to touch my principal and paid everything by credit card. I also wrote a little note to myself that the following months I had to withdraw less for my leisure budget until the € 60 “debt” was repaid to me.
Give yourself a credit line if needs be
You might say that reducing your leisure budget is a bit too much to ask fearing that your social life might suffer. But let me assure you, it does not. Instead of heading to a fancy restaurant, you picnic with friends by the Seine, the ocean, in the park, in your backyard, or whatever awesome place you can find, or invite people over for dinner and games night. You’ll be surprised that most people often enjoy the cheaper alternatives to the frequent restaurant or bar nights. Besides having a great evening with your friends, it helps you to pay back the loan to yourself.
By giving myself the € 60 credit and paying with the card I also benefited from earning interest and accumulating additional miles towards fun stuff.
Even if you run over budget just once, treat it like debt and as such as a scenario best to be avoided. The moment you think, well, only this once, your brain will translate it into an acceptable norm: I have done it before and it didn’t hurt. Surely I can spend that bit extra – what’s the harm. The harm is that you will subconsciously increase your spending, as your logic becomes skewed and you’ll find reasons each time for why swerving from your budget is okay.
Thus, find a budget that works well for you and stick to it. Some people prefer buying good quality food instead of the occasional drink. Others might prefer to enjoy weekend trips. The most important thing is that you are clear from the start about how much of your money you are ready to allocate to your respective budgets. But to make it work without the painful budgeting chores of noting everything down and repetitively failing to maintain said list, withdraw cash. The psychology of experiencing your money with all your senses and a shrinking stash as you spend will do the heavy work of controlling your budget for you; without you consciously needing to do anything.