September 15, 2019
budgeting

Budgeting Outside the Box

Budgeting gets a bad rap because it sounds tedious, time-consuming, and boring, among a laundry list of other descriptors. It’s one of several tasks that fall to the bottom of the ‘to-do’ list just about as fast as filing taxes or making a doctor’s appointment. However, as a Pocket Changer, we’re going to get comfy with budgeting. It comes in many shapes and forms, and honestly, this is likely part of the problem. The other part of the ‘problem’ with budgeting is discipline, but we’ll get to that later!

Budgeting Methodology

If you could describe budgeting, what would it sound like to you? Limit your spending, tracking every penny spent, or living paycheck to paycheck? Those aren’t necessarily wrong, but not quite the answer we’re after. I quickly petitioned Mrs. Pocket Change for a response on how she would describe budgeting, to which she replied, “I don’t know, we don’t do it! We don’t use it!” There you have it. Budgeting is out the window folks!

Not so fast… (collective sigh from the crowd).

What she’s actually referring to is the methodology. Many folks who follow conventional financial wisdom choose a methodology, and to execute it they create a budget. In Dave Ramsey’s program, one would create a zero-based budget in an effort to put any leftover funds towards debts. The actions steps ultimately lead to giving every dollar a job, conveniently also the name of Dave Ramsey’s app, EveryDollar! Or consider YNAB, also a zero-based system, with a methodology instructing followers to build up a buffer. This buffer is used to pay all the upcoming bills by the beginning of the next month, effectively breaking the paycheck-to-paycheck cycle. If you’re interested in giving YNAB a try, they offer a 34 day trial and webinars to get you going. Give it a shot and see how you like it!

Yet another budgeting tool is Mintboth a website and an app that is very user friendly. Mint is extremely useful in reviewing spending habits and check on budget categories throughout the week. We’ve used Mint for years, and is very simple to figure out. The only issue I have with their site is the number of ads and product offerings. Keep your eyes peeled!

Among the various methodologies, the reason Mrs. Pocket Change said “I don’t know” is because we don’t follow these normal methodologies. We’ve cherry-picked what we like and what works for us on our journey to financial independence. Our life and financial goals don’t line up with the traditional financial livelihood, which logically means we need to rethink the way we budget. That’s why we’re here– to bring you along with us as we learn more about our finances along the path to financial independence.

Understanding the Shift

In order to reach our overall goal of Financial Independence, we need to think outside the box of conventional financial wisdom. Essentially, we need to recreate the traditional budget. We’re specifically targeting what is effectively referred to in the FI world as our Savings Rate. To summarize what this is, take the total amount you are saving (including 401k contributions, etc.) and divide that by your total income. NOTE: Considering how big a part it plays in reaching our goal, stay tuned for a post specifically on the savings rate!

Our Savings Rate will be one of the biggest factors in reaching our goal of financial independence. The higher this number is, the closer we are to reaching our goal!

I’m sure you’ve heard the adage, “Pay yourself first” and that’s a large component about financial independence. It’s not even a new bit of information! For us, this means turning the budget upside down and inside out to reap the benefits of our earned income and saving as much pocket change as we can! To start working towards this goal, we need to know what funds are currently available to us, which was achieved in our Taking a Financial Inventory post. Now that we’ve got our list of accounts and balances, we can evaluate our financial surroundings and develop a plan of attack towards the target in mind – increase our savings rate!

You see, there’s a shift in thinking that occurs with these financial independence concepts. Instead of pursuing material possessions  like a new car or the latest phones or technology, our focus is on the bigger picture, on how we’re going to spend the next 30+ years. We don’t want to sit behind a desk for those thirty years because just because we need money to pay our bills. We want to be free from that restriction, and financial independence is the answer.

Reviewing Our Budget

Before we truly start working towards financial independence, we need to review our budget for correctable spending habits, or expenses that don’t makes sense, etc. We also want to make sure that we can account for where our money is going. Often times, folks who don’t use a budget have no idea where their money is going, and we do not want to fall into that mindset. Another great benefit to reviewing your budget is you’ll end up finding more value out of your income already coming in! I find it helpful to categorize the budget items by type of expense, such as housing, monthly bills, etc. This allows me to analyze the data in different ways. Here’s our May budget categories and amounts:

Budget Categories for MayAmount
Housing$740
Monthly Bills$570
Transportation$200
Living Expenses$820
Savings (includes 401K, IRA, and regular savings)$1,670
Total$4000

As you can see, there’s not much to it. We’ve written down our categories, notated what we need to pay, but we are also taking advantage of company matches and doing our best to pay ourselves first. As I mentioned before, the Savings Rate will be the biggest factor in reaching our goal, so the more we can put into our savings bucket the better!

QUICK TIPS: Within the past year, we’ve reduced a number of expenses to make our money go further. We have signed up for automatic utility payments for a discount, switched phone plans (saving $1,000+ a year by doing this!), reduced our car insurance because we shopped around for a better rate, and meal planned to further reduce our eating out spending. Look for items in your budget that aren’t fixed (rent, mortgage, etc.) and find ways to reduce these expenses!

What About Your Budget

Where do you stand with your budget? Do you have one on paper, or do you use any of the apps or sites mentioned above? Do you follow strict predetermined spending limits, or are you a free spirit?

2 thoughts on “Budgeting Outside the Box

  1. Nice article! I have managed to get my yearly cost of living down below 15K, this should make for an amazing savings rate, however I am still in post-graduation limbo trying to find full time work haha! Hopefully I’ll land a nice job and be disciplined enough not to succumb to lifestyle inflation 😉

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