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 This bill is automatically withdrawn from my checking account when it is due so I never have to worry about missing a payment and incurring interest charges.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.