My Budgeting Method

A little over a year ago I spent hours putting together a budget with my favorite financial software for Mac, iBank.

I haven’t looked at it since.

It’s not that I don’t budget, I just do it differently than most people (except maybe the only ones reading this site!). My biggest concern each month is that I don’t overdraft my checking account.

Allow me to explain:

I purchase everything on credit card and pay off the bill in full each month. This bill is automatically withdrawn from my checking account when it is due so I never have to worry about missing a payment and incurring interest charges. In fact, since I got my first credit card as a freshman in college in 2003, I have yet to pay anything to the credit card companies in interest. (They’ve paid me thousands in cash back though.)

I know exactly how much money is on my bimonthly salary check and, therefore, know what I’m able to spend after accounting for my expenses.

The “what I’m able to spend” category is a fun category. While I do occasionally treat myself to things like a new TV (recently, my 26 incher was just getting a little too small to watch sports or movies on Netflix) and go out for dinner/drinks with friends, the purpose of this category would be more accurately entitled, the “what I’m able to invest” category.

Rather than a budget, I have a spreadsheet on my computer named “Funds Available for Investing.” Yes, that is exactly the name of this file. I have expense categories of rent, disability insurance, utilities, misc expenses paid via check, and then the balance and due date of my credit cards. On the next column I keep track of the current balance on my checking account.

Then, I figure out how much cash I can transfer out of my checking account each month into my brokerage accounts. I usually draft my checking account each month down to around $100 or so.

Since I know exactly when the credit card bills are paid each month, I’m able to time the withdrawals so that I have as little cash as possible sitting unused.

This also means that I have exactly zero dollars in any sort of emergency fund. My theory is anything that comes up I’ll be able to cover on a temporary measure via credit card and then I’ll just pay it off in full when I get paid. Thankfully I have a secure job as well, which helps. If something major comes up, then I might need to sell off some investments or redirect dividends to stay as cash and not get automatically reinvested. Since I’m single and have no dependents, this will work fine. Once I’m married and have kids, I’ll keep a portion of my money in more liquid assets and/or laddered bonds/CDs.

There are many things you can spend your money on, but budgeting for investing is not only needed, it can also be truly fun. For me, it is as exciting picking up more cheap shares in oil companies than it would be going into Best Buy with $1000 to spend.

6 Responses

  1. Scott, prior to getting married, this was exactly how I “budgeted.” I always knew exactly how much I was spending (not sure how), paid off my credit card each time and put the rest into savings. Even during the month I’d transfer into savings and back out to eek out and maximize every little bit of interest income. Of course, now that I’m married, things have changed, bills are bigger, and there is a bit more security in having a ‘minimum balance’. Currently we assume a $5,000 “zero” balance and otherwise continue along the same path as I was before.
    writing2reality recently posted…Passive Income and Pageviews – December and Overall 2014 Goals UpdateMy Profile

    • scott says:

      W2R, that’s a good way to approach it too. Having that $5,000 reserve at least means you probably won’t have to sell at the wrong moment. I’ll probably do something like that too whenever I do get married.

      I had been transferring cash back and forth between savings and checking as well, but since my savings account only pays 0.02% more, I now just leave everything in checking.

  2. FerdiS says:

    Excellent way of building a strong credit rating. Paying everything on your credit card when due is a good philosophy to live by. Like you, I don’t like having too much money sit idle in my bank account. It is important, though, to have some cash for emergencies in case one can’t use a credit card for some reason.
    FerdiS recently posted…Annual Review, 2014My Profile

    • scott says:

      Thanks! It definitely is a great way to build a strong credit rating. I’m not anticipating needing any loans for awhile, but it will be nice to know that I will be able to get favorable ones if I need to.

      You’re right that it is important to have some cash for emergencies. It’s probably not the best to do what I do, but if I need cash I just wait until my paycheck comes in every two weeks. If something stopped me from doing my job I do have short-term disability through work and same job long-term disability that would be sufficient at this stage in my life.

  3. Justin says:

    “There are many things you can spend your money on, but budgeting for investing is not only needed, it can also be truly fun. For me, it is as exciting picking up more cheap shares in oil companies than it would be going into Best Buy with $1000 to spend.”

    Whew! And I thought I was the only 30-something who felt this way! Great website…looking forward to following your journey.

    • scott says:

      Justin,

      Great comment! It’s good to know that there are others out there too. In fact, many of the people that I link to in my blogroll are still relatively young. Been busy at work but will soon hopefully make some further purchases in the Roth. As a hint, I’ve been reading about the asset management companies…

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