It occurred to me the other day that I don’t think I’ve ever discussed how I budget.
I know. Crazy, right? Budgeting is such a fundamental part of personal finance – how could I have never discussed it here?! To be honest, I kind of think “How I Budget” posts are boring. Usually. But from time to time, I like reading about how other people manage the actual mechanics of money in/money out. Like, not just “this is my monthly income, these are my monthly expenses” but delving into how they’re sure their bills get paid on time, how they make sure the credit card gets paid in full, etc.
I’ve experimented with a lot of different methods of budgeting over the past couple of years, but the way I’m doing it now seems to be working the best. I’ve been using this strategy for about a year, so it seems like a good time to discuss it!
Something to keep in mind is that my whole “budget month” is based around when my credit card bill is due. I use my credit card for everything that I possibly can in order to capitalize on the great cash back reward my card offers (sorry Dave). Since my credit card bill comes in on the 15th or 16th of the month, my “budget month” runs from the 15th of the month to the 15th of the next month. So, my “budget month” and the calendar month don’t match up, which sometimes gets complicated, but usually works out fine.
Another factor that makes budgeting a little tricky for me is that I get paid every other Friday, so my paychecks fall on different dates every month. One comes around the middle of the calendar month and one comes towards the end, but this gets super screwy a few times a year when I get a “third” paycheck. This is also why it makes sense for me to establish a set date that the “month” begins and ends for me, money-wise.
From there, I just do some simple math to figure out what I’m working with. Let’s use this “month” as a typical example of what I’m looking at:
Pay Dates: April 27 and May 11
Total Income: $2630 ($1,316 per pay)
Break-Down of Expenses:
Rent: $1007 (paid out of the April 27th paycheck)
Student Loans: $219.72 (paid out of the May 11 paycheck)
Roth IRA Contribution: $416.66 (paid out of May 11 paycheck)
Car Insurance: $69 (paid out of May 11 paycheck)
Renter’s Insurance: $11 (paid out of May 11 paycheck)
Pet Insurance: $23 (paid out of May 11 paycheck)
Cable/Internet: $100 (paid out of May 11 paycheck)
Groceries: $250 (charged throughout the month)
Gas: $175 (charged throughout the month)
Health/Beauty: $25 (charged throughout the month)
Household Items: $25 (charged throughout the month)
Discretionary: $300 (charged throughout the month)
*I charge my groceries, gas, health and beauty and household items, and all of my discretionary purchases. These all show up on my credit card bill when it comes in on the 15th of every month. I pay it in full and move on to the next month!*
Ok, so here’s something a lot of you might disapprove of: as you can see, the “budget month” started on the 15th of April, but I didn’t get paid until the 27th. At the point that the 15th rolled around, all the money needed to pay the rest of my April bills had been accounted for – some of them don’t come out until around the 20th, but I had the money earmarked to be withdrawn. However, I hadn’t actually made the money to cover my other spending in the new “budget month” yet. Again, the first paycheck of my next “budget month” wasn’t coming until the 27th, so technically I did end up making charges that I didn’t have the cash to cover for another week or two. Maybe this is risky, but I have a system that works for me and I don’t want to change it because of some hypothetical situation (like my employer screwing up my paychecks or something) that seems pretty remote.
So that’s basically it! What do you think? Is this very different from how you budget? As always, I love comments/suggestions/questions! Leave me some below 🙂