Author Topic: Budgeting per year or month?  (Read 2496 times)

kay02

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Budgeting per year or month?
« on: October 15, 2020, 12:14:15 PM »
Maybe this is a stupid question but do you guys budget by the month or year?

Monthly makes more sense to me because it feel like I don't know if everything will be the same a year from now, but yearly could make more sense since some months spending is way higher than others depending on situations.

I'm not too concerned about my spending but I'm trying to put together a budget for the first time and it really shouldn't be that bad but it feels a little overwhelming.

Malcat

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Re: Budgeting per year or month?
« Reply #1 on: October 15, 2020, 12:36:54 PM »
I don't budget.

Have you started with just tracking your spending?

NotJen

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Re: Budgeting per year or month?
« Reply #2 on: October 15, 2020, 12:38:59 PM »
I like looking at my spending in annual terms.  Monthly changes so much (I've never done sinking funds and all that), that it is many times meaningless.

While working, I didn't bother with a budget.  I had annual savings goals, and as long as I was meeting them, spending did not need to be controlled with a budget.  I have always religiously tracked my spending, though, and I look at my annual totals each year and make changes as needed.

Now that I'm in my first FIREd year, it's the first time I've made an actual budget.  I set up annual numbers for all my categories, and then I check monthly to see where I'm over- or under-spending.  Even though it was based on previous years of spending, I got a few categories wrong, but my overall spending is on track, so I'm calling it good so far.

v8rx7guy

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Re: Budgeting per year or month?
« Reply #3 on: October 15, 2020, 12:39:54 PM »
We budget monthly, but at the end of the year we take a look at the big picture from a yearly perspective .

Zikoris

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Re: Budgeting per year or month?
« Reply #4 on: October 15, 2020, 12:55:35 PM »
We generally try to keep our monthly spending in the $1,400-$1,600 range, but don't worry too much about category by category in that time frame. We prefer to look at category spending on an annual level, because the monthly fluctuations can be quite large, especially for things like travel.

It's surprising how consistent things can be after many years. Some of our categories are literally within a few dollars of the previous year's spending.

Paul der Krake

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Re: Budgeting per year or month?
« Reply #5 on: October 15, 2020, 01:04:47 PM »
I don't budget or track anything. It doesn't provide any value if you're already a disciplined adult not living on the brink of ruin.

If I want something, I buy it, and just eyeball the spending down the nearest 10k on a yearly basis. I know our spending for 2020 is going to come in somewhere between 40k to 60k, and can't be bothered to analyze it more closely. Some months we'll spend next to nothing, some months it will be thousands of dollars. Regularly I will reevaluate current consumption trends to see if individual expenses can be optimized, but this is done as routine and not dependent on an imaginary line.


secondcor521

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Re: Budgeting per year or month?
« Reply #6 on: October 15, 2020, 01:10:53 PM »
I don't budget in the traditional sense.

Why do people budget in the first place?  I suppose it's to spend in alignment with their values and goals, communicate with their spending partner, and ensure that their needs are met.

As for aligning spending with goals, I track everything in Quicken and regularly review my past six month spending amounts and ensure that what I have spent is in accordance with my written goals.  After having done that for ten years, it's pretty much automatic now, and it's pretty rare that I'll spend on something that isn't important to me.

I don't have a spending partner, so that doesn't apply to me.  When I did, we didn't manage communication or mutual finances very well, which is probably part of the reason I don't have a spending partner any more.  ;-P

I ensure my needs are met by spending on those first when possible, and ensuring by other metrics that I have enough money in the bank to meet upcoming future needs.  For the next thirty to sixty days cash flow, I look at the projection in Quicken which tells me if I have enough cash to cover bills for that period of time.  Over the longer time frame, I monitor my withdrawal rate and life expectancy periodically using FIREcalc or cFIREsim to ensure that my withdrawal rate meets my standards for safety with additional margin for even more safety or unexpected expenses.

If there are other reasons to budget, I can't think of them offhand but I'm sure if there are then I meet that need just through a different method.

charis

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Re: Budgeting per year or month?
« Reply #7 on: October 15, 2020, 01:37:07 PM »
We never strictly budgeted either, but back when money was tighter, I started tracking our spending by category on Mint to see where we had room to cut back. After that I monitored it to make sure we stayed within a general spending range.  I still track for FI planning purposes, but the savings is on auto pilot.

After initial tracking, I got a good sense of what we needed in the checking account to cover monthly expenses.  To keep a lid on lifestyle inflation, I adjust auto payroll deductions upward so our "take home" stays basically the same every year and is correlated to our spending. Thus, we are voluntarily living "paycheck to paycheck" with a 60% savings rate.

kay02

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Re: Budgeting per year or month?
« Reply #8 on: October 15, 2020, 01:45:11 PM »
Thank you everyone!

I'm trying to track my spending first, and I'm not concerned about spending too much money or anything right now.  I'm just trying to get a good handle on my finances and this seemed like a good place to start.

Shane

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Re: Budgeting per year or month?
« Reply #9 on: October 15, 2020, 02:00:07 PM »
DW and I currently use the AndroMoney app on our phones to track daily, monthly and yearly spending. If you prefer Apple devices, the Trail Wallet app also works well. It's nice that both apps allow multiple users to sync their spending into a single budget. I find that the easiest way for me to remember to input my spending is to do it right away, usually as I'm walking away from the cash register, or right after I purchase something online, I type it into the budget, so I don't forget.

englishteacheralex

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Re: Budgeting per year or month?
« Reply #10 on: October 15, 2020, 02:44:05 PM »
I have been running a monthly budget through Mint for about ten years now; I like the data analysis involved and it helps a lot with making larger decisions about money to know exactly what our numbers are.

So this is the perspective of someone who really, really likes a budget. I've noticed that many people are dismissive of budgets, but we had quite a tight income for many years and having a detailed budget was key to our being able to save and donate money effectively, without worrying about whether we would also be able to keep up with our expenses.

We budget both monthly and annually. There are many larger expenses such as Christmas, life insurance, car repairs, etc. that do not come up monthly, but are vital to factor in. We divide our typical annual spend on such things by 12 and then add them to the monthly budget. We actually go into even further nerdiness by having sinking funds for those categories, so for example we budget $100/month for car repairs and registration and then actually have a bank account into which we drop the $100/month...and from which we take out the expenses for car repairs and registration as they come up.

We also budget our income this way, because both of us are paid bi-weekly, which means that some months are higher income than others. Instead of having high income months, we artificially create a stable monthly income by averaging the annual income into twelve months and budgeting accordingly. This is facilitated by always having $1000 cushion in our regular expenses checking account, so on the low income months we don't bounce checks at the beginning of the next month.

Though this amount of record-keeping strikes many (including MMM) as overly persnickety, for me it gives me enormous peace of mind to have confidence that the money is being used as efficiently as possible and that we already made the decisions about how much we were going to spend in which categories. We could dial it back by not having all the separate sinking fund accounts, and sometimes we consider just moving to one large slush fund for all irregular expenses, but something about that makes me feel very nervous. The separate sinking fund accounts for things like vacations, clothes, haircuts, and Christmas keeps everything clean and organized in my mind.

The funny thing is, I'm not a very organized person in most other capacities of my life. When people who know me discover how carefully I budget, they are shocked! I'm known for being kind of messy. I think that's why budgeting is so important to me, though; when it comes to money, I don't want to waste anything and I know without a careful system I might be prone to making a mess.

Malcat

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Re: Budgeting per year or month?
« Reply #11 on: October 15, 2020, 04:18:14 PM »
Thank you everyone!

I'm trying to track my spending first, and I'm not concerned about spending too much money or anything right now.  I'm just trying to get a good handle on my finances and this seemed like a good place to start.

Figure out first what you want to accomplish, then decide if a budget will help you. It's not a given that it will.

Freedomin5

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Re: Budgeting per year or month?
« Reply #12 on: October 15, 2020, 04:57:14 PM »
If your goal is to get a good handle on your finances, then first track your spending. Then youíll get a sense of how much you need to budget or whether you need to budget.

We donít budget. We do track our spending, which averages about $1000 per month. I have a separate account set up with just living expenses, and I spend from that account each month. That way, I can see how much money I have left to spend at any given time, and I wonít go over the amount Iíve budgeted. If there is leftover money at the end of the month, I just transfer in enough to get it back to $1000 for the next month.

BTDretire

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Re: Budgeting per year or month?
« Reply #13 on: October 15, 2020, 05:59:03 PM »
Married 39 years and we never budgeted. We were/are frugal so it never mattered.
Our first year of marriage we earned $18k and saved $6k. From then on our savings kept growing.  Now we are retired, I didn't get a good handle on what we spent in our first retired year. So this year, in January, I guessed at our spending and put a lump sum in a checking account for the year. I just calculated, 79% of the year is gone and we have spent 61% of the dollars I put into the checking account. Doing good, thanks for pushing me to do that. That makes my evening!

 Edit: just noticed it's you Kay02, my post now seems a bit irrelavent because of your age and I'm taking about my (65 year old) system. Leaving it up for others.
« Last Edit: October 16, 2020, 06:30:14 AM by BTDretire »

AMandM

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Re: Budgeting per year or month?
« Reply #14 on: October 15, 2020, 07:35:50 PM »
I'm another budgeter. I didn't realize we were in such a minority on the forum!

I use YNAB to budget and to track our spending. I budget monthly in the sense that I allocate a monthly amount for each category; for expenses like semi-annual insurance premiums or Christmas presents, the allocated but unspent money accumulates in the bank and is ready when the lump-sum payment comes around.

Unlike many others, we have come to want a budget more as our income has increased. When we were poor young grad students, we didn't budget because we basically bought almost nothing beyond rent, groceries, and gas for the car. (I'm exaggerating, but you get the idea.)  The answer to "should we buy X?" was almost always "No." Now that we have more money, the budget is a tool that allows us to figure out when the answer can be "Yes."

Steeze

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Re: Budgeting per year or month?
« Reply #15 on: October 15, 2020, 08:10:35 PM »
I budget -

My investing is automated, so I have to figure out how much I can set my automatic withdrawals from my checking. I have a spreadsheet that budgets every dollar earned, taxed, spent, or invested.

I broke down my spending into categories and subcategories, trying to be very honest and thorough. I go through my actual spending once or twice a year to compare. I break everything down to a monthly number, including long term spending like replacing my phone every 5 years or my car every 10 years.

I have to make sure my bi-weekly paycheck covers everything also because a bunch of my income comes at the end of the year.

For example, I budget $3600 for a family vacation to China every year ($300/mo) whether we spend it or not. That money doesnít go into the investment pot and instead goes into the checking and eventually the savings account. When we go on vacation I spend freely from the savings account knowing we budgeted for it. Same for a new phone - in a few years when the iPhone 15 or 16 comes out Iíll pick one up knowing I saved up $25/mo for the last few years. But it is all one account and I can buy whatever I need, but at least I have a framework.

Basically- I want to be FI by ďxĒ date and I need to save ďyĒ amount per month to make that happen, what can I spend on different things and still hit that goal? Can I afford that fancy gym membership and go to China? Can I afford the fancy daycare for my son?

The important number is the investing number. I buy shares everyday. I want to know if I can buy $100/day, $200/day, $300/day? Can I make it $305? $310? A budget helps me set the auto investments up and not have to make adjustments. I can try to maximize the auto investments instead of having a large margin for error.

I donít track my actual spending very much though - itís more of a feel. And itís always evolving. For instance, i didnít have a spending budget for replacing appliances because I never had to. But, since I own several and they wear out, I should be setting aside some loot for that. I could just invest everything and sell shares when the refrigerator breaks, or I can throw an extra $10 a month into the savings and buy a new fridge without selling shares. In the back of my mind I know a fridge should last 10 years and I can spend $1000 or so in one.

When I got a raise the other day I went to my spreadsheet, punched in the new number, found out I can invest an extra $16/day and went to vanguard and made the adjustments. Nice and easy.


Shane

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Re: Budgeting per year or month?
« Reply #16 on: October 15, 2020, 09:07:26 PM »
It's interesting that many in this thread seem to clearly differentiate between "keeping track of spending" and "budgeting." My wife and I use an app on our phones to track spending. The same app also allows us to set daily, weekly, monthly and yearly spending goals, which we call our "budget." It sounds like some others have much more detailed budgets than we do. All our budget says is that we hope to spend $x per day; $365x per year; $365x/12 per month. Keeping close track of our everyday spending allows us to know that we are within our budget. If we were consistently over budget, we could easily use our budgeting app to see which categories we were spending too much on, and then we could adjust, as necessary. So far, both our tracking of spending and creating a yearly budget that increases each year to keep up with inflation are more for our own peace of mind than anything else.

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Re: Budgeting per year or month?
« Reply #17 on: October 16, 2020, 07:54:46 AM »
You don't need to decide, just do both. When I used to keep a detailed budget, I had one column for monthly and another column for annual. For fixed monthly expenses, like internet, multiply by 12 for annual expenses.  For annual expenses like income tax, just divide by 12 for monthly expenses. It's easy to do with and excel spreadsheet.

WSUCoug1994

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Re: Budgeting per year or month?
« Reply #18 on: October 16, 2020, 08:38:43 AM »
I have been running a monthly budget through Mint for about ten years now; I like the data analysis involved and it helps a lot with making larger decisions about money to know exactly what our numbers are.

So this is the perspective of someone who really, really likes a budget. I've noticed that many people are dismissive of budgets, but we had quite a tight income for many years and having a detailed budget was key to our being able to save and donate money effectively, without worrying about whether we would also be able to keep up with our expenses.

We budget both monthly and annually. There are many larger expenses such as Christmas, life insurance, car repairs, etc. that do not come up monthly, but are vital to factor in. We divide our typical annual spend on such things by 12 and then add them to the monthly budget. We actually go into even further nerdiness by having sinking funds for those categories, so for example we budget $100/month for car repairs and registration and then actually have a bank account into which we drop the $100/month...and from which we take out the expenses for car repairs and registration as they come up.

We also budget our income this way, because both of us are paid bi-weekly, which means that some months are higher income than others. Instead of having high income months, we artificially create a stable monthly income by averaging the annual income into twelve months and budgeting accordingly. This is facilitated by always having $1000 cushion in our regular expenses checking account, so on the low income months we don't bounce checks at the beginning of the next month.

Though this amount of record-keeping strikes many (including MMM) as overly persnickety, for me it gives me enormous peace of mind to have confidence that the money is being used as efficiently as possible and that we already made the decisions about how much we were going to spend in which categories. We could dial it back by not having all the separate sinking fund accounts, and sometimes we consider just moving to one large slush fund for all irregular expenses, but something about that makes me feel very nervous. The separate sinking fund accounts for things like vacations, clothes, haircuts, and Christmas keeps everything clean and organized in my mind.

The funny thing is, I'm not a very organized person in most other capacities of my life. When people who know me discover how carefully I budget, they are shocked! I'm known for being kind of messy. I think that's why budgeting is so important to me, though; when it comes to money, I don't want to waste anything and I know without a careful system I might be prone to making a mess.

Almost exactly what we do except I get paid once a year.  I am shocked at how few people on here budget.  I am hyper-anal about it and I look at our spend on a weekly if not daily basis all through Mint.  I find it decreases my anxiety about spending if I know where each dollar is going and I can spot negative trends (eating out, travel, etc) before they get out of range of the budget.  Our spending has become much more dynamic since having kids.  Some expenses we average over our budget lifetime (been doing this in Mint since 2016 before all Excel) and some things we average over the prior year.  I get it isn't for everyone but I feel this is the most powerful tool for us to manage our finances and I really enjoy it.

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Re: Budgeting per year or month?
« Reply #19 on: October 16, 2020, 09:29:08 AM »
I don't really budget in detail but I do have a little note that tracks my current account balances and upcoming transactions including income, bills, savings and investments. I also have a very generic budget that lists all my monthly fixed expenses and savings goals, based on typical spending patterns. Some months I end up with lots of lumpy expenses and I don't meet my goals, other months I am able to put away extra so it all balances out. I'm in a position where I know I'll be able to pay all my expenses and the only variation will be how much I manage to save, usually +/- $100-200 dollars around my goal.
If I didn't have my system yet, I'd probably try to figure out what my problem was (not able to break even, not able to save, not able to reach certain goals) and craft my system to meet that goal. At a bare minimum, you have to know your fixed costs and understand where the rest of your money is going, and beyond that it's very personal and should be based on your own behaviours and motivations. Individual sinking funds seem complicated to me so I don't bother, I just keep a savings account with a few thousand that can cover whatever vacation/car/larger annual expense amount that I can't cash flow and I refill it when needed. If you can't help yourself from spending too much, maybe going to a cash envelope system will help. You have to find an approach that works for you and that you can stick with and adapt over time as needed.

charis

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Re: Budgeting per year or month?
« Reply #20 on: October 16, 2020, 10:04:01 AM »
We don't do several funds either. Our EF is also a savings account that we tap into if needed and refill. An auto payroll deduction goes in there and since our expenses are mostly consistent year to year, the amount is usually the same. Sometimes we pull a chunk for home improvement. (We max all pretax accounts, this is on top).

Villanelle

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Re: Budgeting per year or month?
« Reply #21 on: October 16, 2020, 10:51:40 AM »
I'm surprised at hoe many people don't budget.  I thought I was a rare bird among the MMM flock.

To me, a budget is permission to spend, just as much as it is limitations to spend.  If I have a $500 clothing budget and I've only spent $400, then those adorable $100 shoes would be a lot easier to let myself buy, compared to me just looking at $100 shoes and deciding whether I need them. 

If our balances are getting high (or the time decreases between when we hit the $ that causes me to scrape off extra savings and invests) or low (or that time increases), then I mentally note that.  That's about it as far as budgeting.  And I know *this* is anathema to MMM, but we don't even track.  I have no idea what we've spent on food this month or this year (or on clothing, or eating out, or electricity, or gifts, or...).  I could fairly easy figure out at least most of those numbers, but I don't see a need.

This method isn't for everyone.  If there's a lack of discipline, or if money is really, really tight, it wouldn't be a good fit.  But it has worked for my family (of 2) for 20 years, from when money was tight (but not super tight, and after automated investments of course), to now when we are extremely comfortable. 

Zikoris

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Re: Budgeting per year or month?
« Reply #22 on: October 16, 2020, 11:00:10 AM »
The funny thing is that I don't think detailed tracking is even useful for me anymore, and hasn't been for a good seven years - at that point I had a baseline for spending and could make accurate forecasts. But it is just so interesting to look at, and see how different life things over the years have changed the category breakdowns. Especially now with the pandemic and the life upheaval that caused.

Dogastrophe

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Re: Budgeting per year or month?
« Reply #23 on: October 16, 2020, 11:15:10 AM »
I don't budget.

Have you started with just tracking your spending?

Same here. We don't budget but we do track (and review) our spending each month to see if anything is going sideways.

NotJen

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Re: Budgeting per year or month?
« Reply #24 on: October 16, 2020, 11:18:41 AM »
It's interesting that many in this thread seem to clearly differentiate between "keeping track of spending" and "budgeting."

The difference, for me, is that "tracking spending" looks backwards, and "budgeting" looks forwards.

I've always had enough money coming in for all my needs and wants, so I only budgeted my savings (planned out monthly and annual amounts).

I am shocked at how few people on here budget.  I am hyper-anal about it and I look at our spend on a weekly if not daily basis all through Mint.

I don't budget my spending, but I do look at my spending very frequently!  I've always tracked spending tightly because I use a computer program to keep a "check register" of all my banking and credit card transactions.  It's easy to apply a category to each transaction, and then I can look at the data in as many different ways as I want.  I love data.

To me, a budget is permission to spend, just as much as it is limitations to spend. 

I agree!  This is partly why I made a budget for my first FIRE year.  The first reason is that I wasn't really sure what I would need to spend this year, so thinking ahead and making a budget to "solidify" my plans helped me decide how much cash to keep out of investments as I was wrapping up my paid job.  The second reason was to allocate some money to gifts and donations so that I wouldn't be completely cheap - giving myself permission to spend in these areas even when I'm trying to reduce overall costs so I can stay FIREd as long as possible.

K_in_the_kitchen

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Re: Budgeting per year or month?
« Reply #25 on: October 16, 2020, 12:16:58 PM »
I'm another budgeter. I didn't realize we were in such a minority on the forum!

I use YNAB to budget and to track our spending. I budget monthly in the sense that I allocate a monthly amount for each category; for expenses like semi-annual insurance premiums or Christmas presents, the allocated but unspent money accumulates in the bank and is ready when the lump-sum payment comes around.

Unlike many others, we have come to want a budget more as our income has increased. When we were poor young grad students, we didn't budget because we basically bought almost nothing beyond rent, groceries, and gas for the car. (I'm exaggerating, but you get the idea.)  The answer to "should we buy X?" was almost always "No." Now that we have more money, the budget is a tool that allows us to figure out when the answer can be "Yes."

We also budget using YNAB.  I suppose it's mostly about tracking, but it also allows us to know how much we can move to savings each month.

One thing I wished we'd started out adult lives with is the concept of budgeting for one month with the income from the previous month, which is what we do now.  There's never any doubt how much we have available, which would have helped when we were younger, because it means the money is there to pay every bill that month, no matter what day they're due or how much they are, and because we aren't planning with projected income, which can vary.  It also makes knowing how much we can save much easier.  For example, if we make $5000 in October, that's what we use to budget November.  I fill in November and if there's $3000 left after planning the spending, I move it to the MM on November 1st.  Those are arbitrary numbers, but we do save 50 - 60% of net income (post taxes and 401k contributions).  We never saved this much before we started budgeting, and specifically started doing so with the previous month's income.

We divide some annual payments into monthly amounts and budget them that way, so the money builds up and is available when the bill comes due.  It's just allocation of funds.  We don't need to do it this way anymore, but it's a good strategy for people starting out.  We didn't learn this strategy until we'd been married nearly a decade, and with both of us coming from low income families (generation after generation) we didn't realize that bills like the car insurance or registration didn't have to be an emergency.  This was the first step we took to help get out of credit card debt.  Planning for annual expenses on a monthly basis forced us to see that we didn't really have as much to spend each month as we thought, and so we had to get creative and find ways to save on groceries, utilities, etc.  This was a long time ago, and has served us well.

We do fund certain categories based on our annual spending.  We "budget" $600 per year for clothing and shoes, so I put that into the YNAB clothing category once a year.  Other categories we fund with a rolling amount -- we keep a set amount in the household maintenance and repair category and if we spend from it we top it up the next month.  This is for the smaller things like tree trimming, small plumbing issues, replacing a broken appliance, etc.  Any major issues would come out of savings.  I just prefer this because the money market is limited in transactions, so doing it this way means I don't need to hit the MM every time something needs to be maintained or repaired.

I love YNAB for tracking, so we'll probably use it until we don't want to track any longer.  But tracking is nice in that we can look up any transaction we've made.  It makes it easy to know when we last had the trees trimmed or the main line cleaned out.  It also makes it easy to know who we used for those transactions.  It helps us see where spending has creeped up, and where we've budgeted more than we need and can cut.  I think of the budget (spending plan) as a map I've tucked into my back pocket.  I know where we want to go and have a good general idea of how to get there.  Most of the time our spending is completely within our parameters without needing the "map", but it's nice to have it when we do need it.

Sandi_k

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Re: Budgeting per year or month?
« Reply #26 on: October 16, 2020, 01:00:37 PM »
Thank you everyone!

I'm trying to track my spending first, and I'm not concerned about spending too much money or anything right now.  I'm just trying to get a good handle on my finances and this seemed like a good place to start.

We do both monthly and annually. We do so even though our spending is pretty predictable, because things CAN change.

I have a Google Sheet budget, one per year: 2020 Spending Plan. Within that file, each month has a tab, from which I populate each month's income and expenses. I have headings for Income, Savings, Escrow deposit (for taxes and insurance that we pay wx per year), Housing/Utilities, cash, groceries, entertainment, Pet & Vet, House maintenance and repair, and Automotive.

The final Sub Heading is Miscellaneous Expenses for the month - and this is where budgeting annually helps. We have expenses that occur in various months that then are reflected in this tab.

In January, it might be firewood delivery.
In February, it's property taxes.
In March, it's getting our trees trimmed.
In April, it's insurance on the boat.
In May, it's auto insurance premiums for 6 months.
In June, it's travel to see my brother.
In July, it's a week of camping and boating.
In August, it's family birthday gatherings.
In Sept., it's getting the trees trimmed again. Plus smogging and registration for our van and my car.
In October, it's property taxes and auto insurance again.
In November, it's our anniversary trip, and Christmas gifts.
In December, it's our annual Christmas party, and holiday food for a family gathering.

Each of these are VARIABLE. But they are also PREDICTABLE. And when I lay them out annually, it helps me assign the savings and payments to specific months, so we're never caught "short of cash" for something we KNOW that we pay for.

Queen Frugal

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Re: Budgeting per year or month?
« Reply #27 on: October 16, 2020, 07:10:25 PM »
I use YNAB and budgeting has been key to my ability to invest.

I own a business and my income varies a lot. I avoided investing for years because I was afraid I wouldn't have the cash flow I needed to survive the lean times. I remember a streak when I was cash poor and I went 4 months without a penny of revenue and my business was doing great and incurring lots of expenses along the way. It was completely nerve racking and I vowed never to go through that again.

For the last 3 years, I have used YNAB both for my business and my personal expense tracking. Since I have been tracking my expenses so carefully, I have all those miscellaneous periodic expenses thoroughly accounted for. And the purpose of all the tracking - for me - is to know how much money I need in the bank to feel safe. After that, it all must go into predesignated buckets. I keep 6 months of business expenses in the business account and 6 months of personal expenses in the personal account. Once I have that covered, everything else gets dumped into various predesignated 'buckets', such as my retirement accounts etc.

Before 4 years ago, I did a lot of budgeting that served absolutely no purpose. Mostly I would budget for beans and rice and then I'd eat steak kick myself at the end of the month for failing to stick to the budget. That never did me any good. I never improved my habits that way. Now that I have a more realistic budget based on my actual past spending, it gives me peace of mind. And if I happen to come in under budget I am proud of myself.

I know my situation is probably unique but that's kind of my point. What works for one person may not work for another. Whether or how to budget is such an individual thing.

If you want to track spending, I find Mint (free) and YNAB (paid) to both be very good at that.


MrThatsDifferent

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Re: Budgeting per year or month?
« Reply #28 on: October 16, 2020, 08:19:34 PM »
I budget by pay period, so every two weeks. It lets me focus on the money coming in and what I need to do with it.

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Re: Budgeting per year or month?
« Reply #29 on: October 16, 2020, 08:51:56 PM »
I do both, for somewhat different reasons.

I do cash flow projections for the future (i.e., 2 years or more in the future) annually.   The questions I'm trying to answer are:
I include growth in my investments that will either be drawn from or re-invested because that will affect the following years.

  • What are (roughly) my future expenses and income going to be?
  • Will I have enough to meet my goals?
  • What can I start to do now that will change that future cash flow projection for the better?
  • How much will I have to invest?

For the current year (and since it's October, for next year), I do cash flow projections semi-monthly.

I note expenses and note which half of each month they will be due.   I note income and note the half of the month AFTER they will be received.   (That's because money I receive on the 10th doesn't pay the bills for the 1st of the month 9 days ago, but it will be around to pay for the bills starting on the 16th.)   

The questions I'm wanting answered are the same as above plus:

  • Will I receive the income I need in time to pay the expenses when they are due?

This is because I have both irregular income and irregular expenses.    I pay property taxes and property and auto insurance on an annual basis.   They are two of my biggest expenses.   It's perfectly predictable so I should never be surprised by them.
I have 4 sources of passive income, only 1 of which pays like clockwork (like a regular salaried individual would get) so it's wise to allow for a certain amount of leeway.   

This also lets me know, "THIS is not the time to splurge."

Hope that helps.

alcon835

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Re: Budgeting per year or month?
« Reply #30 on: November 01, 2020, 04:24:11 PM »
We budget monthly, but include yearly goals into the budget.

Budgeting yearly is useless because things are so volatile month-over-month. You need to be able to roll with the punches or its not a budget. Also, budgeting should be with money you have, not money you will have, so budgeting yearly only works if you have a year's worth of expenses in the bank and then just slowly draw from it.

Zikoris

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Re: Budgeting per year or month?
« Reply #31 on: November 01, 2020, 05:15:17 PM »
We budget monthly, but include yearly goals into the budget.

Budgeting yearly is useless because things are so volatile month-over-month. You need to be able to roll with the punches or its not a budget. Also, budgeting should be with money you have, not money you will have, so budgeting yearly only works if you have a year's worth of expenses in the bank and then just slowly draw from it.

Well... Most of us here have a lot more than a year's worth of money in the bank. I have about 17 years myself. But why wouldn't you budget with expected money? Isn't that how most people do it? It seems kind of silly to have a bunch of money just sitting there waiting to be spent rather than invested.

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Re: Budgeting per year or month?
« Reply #32 on: November 02, 2020, 01:35:05 AM »
Thank you everyone!

I'm trying to track my spending first, and I'm not concerned about spending too much money or anything right now.  I'm just trying to get a good handle on my finances and this seemed like a good place to start.
Hi @kay02 - I have a monthly budget spreadsheet which also functions as my spending tracker (it's just in Excel and as amounts are spent or pending, I add a colour to that cell - originally this was to stop me getting caught out by amounts I had spent on my debit card that took a long time to show up in my account. Happened fairly often back then, ca. 2002). I have six columns in my spreadsheet, one for stuff that is paid monthly at the start of the month and then one for each of the four or five weeks in that month. Those four or five columns are where the tracking mostly takes place.

To one side of those columns I have a list of my annual expenses and what I want/need for travel in a year. Those amounts are just added up and divided by 12 and that "monthly" amount gets transferred to a savings account every month, so it's listed in the first column with all the other monthly expenses.

It's a pretty basic spreadsheet but it is still useful to me to budget and track this way. I no longer live paycheck to paycheck except that, I kind of do, because every spare euro is allocated to something at the start of the month. The difference now is that a lot gets allocated to savings and investments rather than paying off debt.

Malcat

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Re: Budgeting per year or month?
« Reply #33 on: November 02, 2020, 05:12:21 AM »
We budget monthly, but include yearly goals into the budget.

Budgeting yearly is useless because things are so volatile month-over-month. You need to be able to roll with the punches or its not a budget. Also, budgeting should be with money you have, not money you will have, so budgeting yearly only works if you have a year's worth of expenses in the bank and then just slowly draw from it.

???

This makes absolutely no sense.

Are you mistaking budgeting annually with having no budget???

cupcakery

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Re: Budgeting per year or month?
« Reply #34 on: November 02, 2020, 05:31:32 AM »
I put together a yearly budget and monthly budgets.  I update the yearly budget as needed and the monthly budget each time we get paid.  We have irregular income and some of our expenses can vary by a lot. 

alcon835

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Re: Budgeting per year or month?
« Reply #35 on: November 02, 2020, 08:19:22 AM »
We budget monthly, but include yearly goals into the budget.

Budgeting yearly is useless because things are so volatile month-over-month. You need to be able to roll with the punches or its not a budget. Also, budgeting should be with money you have, not money you will have, so budgeting yearly only works if you have a year's worth of expenses in the bank and then just slowly draw from it.

Well... Most of us here have a lot more than a year's worth of money in the bank. I have about 17 years myself. But why wouldn't you budget with expected money? Isn't that how most people do it? It seems kind of silly to have a bunch of money just sitting there waiting to be spent rather than invested.

Having a 30-60 day buffer for regular spending is not a long enough time frame to meaningfully make a difference for investing. If you are investing the money you need next month, you're taking a massive risk. I don't think anyone would recommend that.

alcon835

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Re: Budgeting per year or month?
« Reply #36 on: November 02, 2020, 08:22:33 AM »
We budget monthly, but include yearly goals into the budget.

Budgeting yearly is useless because things are so volatile month-over-month. You need to be able to roll with the punches or its not a budget. Also, budgeting should be with money you have, not money you will have, so budgeting yearly only works if you have a year's worth of expenses in the bank and then just slowly draw from it.

???

This makes absolutely no sense.

Are you mistaking budgeting annually with having no budget???

No, I am saying if you planning out your spending for 12 months, there are too many variables to be right. You might be laid off, there might be a global pandemic, your car might completely break down, your goals for the year might change half way though when you meet someone and want to get married, etc.

Malcat

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Re: Budgeting per year or month?
« Reply #37 on: November 02, 2020, 08:50:45 AM »
We budget monthly, but include yearly goals into the budget.

Budgeting yearly is useless because things are so volatile month-over-month. You need to be able to roll with the punches or its not a budget. Also, budgeting should be with money you have, not money you will have, so budgeting yearly only works if you have a year's worth of expenses in the bank and then just slowly draw from it.

???

This makes absolutely no sense.

Are you mistaking budgeting annually with having no budget???

No, I am saying if you planning out your spending for 12 months, there are too many variables to be right. You might be laid off, there might be a global pandemic, your car might completely break down, your goals for the year might change half way though when you meet someone and want to get married, etc.

Well yeah, and then you pivot and change your plans.
If I budget month to month, those same things might happen and I'll still have to pivot and change plans.

A budget is just a plan, and a plan is not a projection of the future, it's a guide in order to make decisions today. Whether I plan for a month or a year, the point is still to make decisions with what I do with my money that I have today.

I mean, when you set a monthly budget, you're still basing it on long term projections, aren't you? Of course those projections can and will change over time, but that happens regardless.

Zikoris

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Re: Budgeting per year or month?
« Reply #38 on: November 02, 2020, 08:57:55 AM »
We budget monthly, but include yearly goals into the budget.

Budgeting yearly is useless because things are so volatile month-over-month. You need to be able to roll with the punches or its not a budget. Also, budgeting should be with money you have, not money you will have, so budgeting yearly only works if you have a year's worth of expenses in the bank and then just slowly draw from it.

Well... Most of us here have a lot more than a year's worth of money in the bank. I have about 17 years myself. But why wouldn't you budget with expected money? Isn't that how most people do it? It seems kind of silly to have a bunch of money just sitting there waiting to be spent rather than invested.

Having a 30-60 day buffer for regular spending is not a long enough time frame to meaningfully make a difference for investing. If you are investing the money you need next month, you're taking a massive risk. I don't think anyone would recommend that.

I would guess the vast majority of us in these parts invest most of our paychecks as soon as we receive them. I've been doing that for... almost nine years now? Can you elaborate a bit on the "massive risk" involved in that, because I haven't experienced anything like that.

alcon835

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Re: Budgeting per year or month?
« Reply #39 on: November 02, 2020, 09:07:04 AM »
We budget monthly, but include yearly goals into the budget.

Budgeting yearly is useless because things are so volatile month-over-month. You need to be able to roll with the punches or its not a budget. Also, budgeting should be with money you have, not money you will have, so budgeting yearly only works if you have a year's worth of expenses in the bank and then just slowly draw from it.

Well... Most of us here have a lot more than a year's worth of money in the bank. I have about 17 years myself. But why wouldn't you budget with expected money? Isn't that how most people do it? It seems kind of silly to have a bunch of money just sitting there waiting to be spent rather than invested.

Having a 30-60 day buffer for regular spending is not a long enough time frame to meaningfully make a difference for investing. If you are investing the money you need next month, you're taking a massive risk. I don't think anyone would recommend that.

I would guess the vast majority of us in these parts invest most of our paychecks as soon as we receive them. I've been doing that for... almost nine years now? Can you elaborate a bit on the "massive risk" involved in that, because I haven't experienced anything like that.

You are adding a lot of weird assumptions to my response to the OP - who is clearly just starting to budget. But that aside, you're not really playing fair here. You said you have 17 years worth of funds in the bank, which I have to assume is some sort of HYSA. If that money is in the bank, how can it be invested?

alcon835

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Re: Budgeting per year or month?
« Reply #40 on: November 02, 2020, 09:09:16 AM »
We budget monthly, but include yearly goals into the budget.

Budgeting yearly is useless because things are so volatile month-over-month. You need to be able to roll with the punches or its not a budget. Also, budgeting should be with money you have, not money you will have, so budgeting yearly only works if you have a year's worth of expenses in the bank and then just slowly draw from it.

???

This makes absolutely no sense.

Are you mistaking budgeting annually with having no budget???

No, I am saying if you planning out your spending for 12 months, there are too many variables to be right. You might be laid off, there might be a global pandemic, your car might completely break down, your goals for the year might change half way though when you meet someone and want to get married, etc.

Well yeah, and then you pivot and change your plans.
If I budget month to month, those same things might happen and I'll still have to pivot and change plans.

A budget is just a plan, and a plan is not a projection of the future, it's a guide in order to make decisions today. Whether I plan for a month or a year, the point is still to make decisions with what I do with my money that I have today.

I mean, when you set a monthly budget, you're still basing it on long term projections, aren't you? Of course those projections can and will change over time, but that happens regardless.

I get what you're saying, but I go back to my foundation: you should only budget with money you have. A lot of folks disagree with me on this, and that's fine. But with that assumption, the only meaningful way to budget 12-months out is to have 12-months worth of funds in the bank and ready-to-go. That works if you're FIRE'd, I suppose. But generally probably doesn't work for most other situations.

Again, you are free to disagree with my foundational premise, but with it established, a lot of other pieces need to be in place before budgeting year-over-year is a good idea.

Malcat

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Re: Budgeting per year or month?
« Reply #41 on: November 02, 2020, 09:43:21 AM »
We budget monthly, but include yearly goals into the budget.

Budgeting yearly is useless because things are so volatile month-over-month. You need to be able to roll with the punches or its not a budget. Also, budgeting should be with money you have, not money you will have, so budgeting yearly only works if you have a year's worth of expenses in the bank and then just slowly draw from it.

???

This makes absolutely no sense.

Are you mistaking budgeting annually with having no budget???

No, I am saying if you planning out your spending for 12 months, there are too many variables to be right. You might be laid off, there might be a global pandemic, your car might completely break down, your goals for the year might change half way though when you meet someone and want to get married, etc.

Well yeah, and then you pivot and change your plans.
If I budget month to month, those same things might happen and I'll still have to pivot and change plans.

A budget is just a plan, and a plan is not a projection of the future, it's a guide in order to make decisions today. Whether I plan for a month or a year, the point is still to make decisions with what I do with my money that I have today.

I mean, when you set a monthly budget, you're still basing it on long term projections, aren't you? Of course those projections can and will change over time, but that happens regardless.

I get what you're saying, but I go back to my foundation: you should only budget with money you have. A lot of folks disagree with me on this, and that's fine. But with that assumption, the only meaningful way to budget 12-months out is to have 12-months worth of funds in the bank and ready-to-go. That works if you're FIRE'd, I suppose. But generally probably doesn't work for most other situations.

Again, you are free to disagree with my foundational premise, but with it established, a lot of other pieces need to be in place before budgeting year-over-year is a good idea.

Yeah, we're basically speaking a different language.

What you're saying is that you can't have a granular budget where you specifically assign each dollar unless you already have that dollar. Well yes, that's one method that some people use, but you are still basing that granular budget on some kind of larger anticipatory budget.

Like, how do you know how much you want to spend if you don't know how much you want to save, and how do you know how much you want to save if you aren't basing it on some kind of longer term plan?? How do you decide what expenses you can afford in your monthly budget if you can't anticipate generally what your income is? How do you ever buy a house or a car?


alcon835

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Re: Budgeting per year or month?
« Reply #42 on: November 02, 2020, 09:49:14 AM »
We budget monthly, but include yearly goals into the budget.

Budgeting yearly is useless because things are so volatile month-over-month. You need to be able to roll with the punches or its not a budget. Also, budgeting should be with money you have, not money you will have, so budgeting yearly only works if you have a year's worth of expenses in the bank and then just slowly draw from it.

???

This makes absolutely no sense.

Are you mistaking budgeting annually with having no budget???

No, I am saying if you planning out your spending for 12 months, there are too many variables to be right. You might be laid off, there might be a global pandemic, your car might completely break down, your goals for the year might change half way though when you meet someone and want to get married, etc.

Well yeah, and then you pivot and change your plans.
If I budget month to month, those same things might happen and I'll still have to pivot and change plans.

A budget is just a plan, and a plan is not a projection of the future, it's a guide in order to make decisions today. Whether I plan for a month or a year, the point is still to make decisions with what I do with my money that I have today.

I mean, when you set a monthly budget, you're still basing it on long term projections, aren't you? Of course those projections can and will change over time, but that happens regardless.

I get what you're saying, but I go back to my foundation: you should only budget with money you have. A lot of folks disagree with me on this, and that's fine. But with that assumption, the only meaningful way to budget 12-months out is to have 12-months worth of funds in the bank and ready-to-go. That works if you're FIRE'd, I suppose. But generally probably doesn't work for most other situations.

Again, you are free to disagree with my foundational premise, but with it established, a lot of other pieces need to be in place before budgeting year-over-year is a good idea.

Yeah, we're basically speaking a different language.

What you're saying is that you can't have a granular budget where you specifically assign each dollar unless you already have that dollar. Well yes, that's one method that some people use, but you are still basing that granular budget on some kind of larger anticipatory budget.

Like, how do you know how much you want to spend if you don't know how much you want to save, and how do you know how much you want to save if you aren't basing it on some kind of longer term plan?? How do you decide what expenses you can afford in your monthly budget if you can't anticipate generally what your income is? How do you ever buy a house or a car?

Goal Setting vs. Budgeting.

Long-term savings is about setting goals for future events and saving toward those events as you have the funds to do so. Saving for emergencies via the emergency fund, saving for a new car in a new car fund, saving for a house down payment in a house fund, etc. When you have money to add to those categories, you do so with the money you currently have. Based on your income you can expect to have $XXX/month to save for each fund. If something big changes and you need to stop saving that money or need to use those funds for something else, you can. If you get a big bonus you can beef up those funds ahead of your plan.

It's actually easier to plan for long-term things with a monthly, cash-based budget because you know exactly how much money you have and what you need it for rather than assuming uncertain future outcomes.

Shane

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Re: Budgeting per year or month?
« Reply #43 on: November 02, 2020, 10:30:40 AM »
To me, the only thing that really matters is our annual budget. Some months, we spend $7K+. Other months, we only spend $2K. Most of the year, our gas bill is around $30. In December, January and February, when the furnace is on, the bill is closer to $150. Our daily budget is just the yearly budget/365. Many days, we spend $0. So, yeaaaaaahh, we're under budget! Others, we spend 2X or 3X our daily budget. Oh, no! At the end of the year, I just check to make sure that we, hopefully, stayed within our annual budget. If not, we can look at where we spent money in the previous year and try to make adjustments in the coming year.

Malcat

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Re: Budgeting per year or month?
« Reply #44 on: November 02, 2020, 10:37:55 AM »
We budget monthly, but include yearly goals into the budget.

Budgeting yearly is useless because things are so volatile month-over-month. You need to be able to roll with the punches or its not a budget. Also, budgeting should be with money you have, not money you will have, so budgeting yearly only works if you have a year's worth of expenses in the bank and then just slowly draw from it.

???

This makes absolutely no sense.

Are you mistaking budgeting annually with having no budget???

No, I am saying if you planning out your spending for 12 months, there are too many variables to be right. You might be laid off, there might be a global pandemic, your car might completely break down, your goals for the year might change half way though when you meet someone and want to get married, etc.

Well yeah, and then you pivot and change your plans.
If I budget month to month, those same things might happen and I'll still have to pivot and change plans.

A budget is just a plan, and a plan is not a projection of the future, it's a guide in order to make decisions today. Whether I plan for a month or a year, the point is still to make decisions with what I do with my money that I have today.

I mean, when you set a monthly budget, you're still basing it on long term projections, aren't you? Of course those projections can and will change over time, but that happens regardless.

I get what you're saying, but I go back to my foundation: you should only budget with money you have. A lot of folks disagree with me on this, and that's fine. But with that assumption, the only meaningful way to budget 12-months out is to have 12-months worth of funds in the bank and ready-to-go. That works if you're FIRE'd, I suppose. But generally probably doesn't work for most other situations.

Again, you are free to disagree with my foundational premise, but with it established, a lot of other pieces need to be in place before budgeting year-over-year is a good idea.

Yeah, we're basically speaking a different language.

What you're saying is that you can't have a granular budget where you specifically assign each dollar unless you already have that dollar. Well yes, that's one method that some people use, but you are still basing that granular budget on some kind of larger anticipatory budget.

Like, how do you know how much you want to spend if you don't know how much you want to save, and how do you know how much you want to save if you aren't basing it on some kind of longer term plan?? How do you decide what expenses you can afford in your monthly budget if you can't anticipate generally what your income is? How do you ever buy a house or a car?

Goal Setting vs. Budgeting.

Long-term savings is about setting goals for future events and saving toward those events as you have the funds to do so. Saving for emergencies via the emergency fund, saving for a new car in a new car fund, saving for a house down payment in a house fund, etc. When you have money to add to those categories, you do so with the money you currently have. Based on your income you can expect to have $XXX/month to save for each fund. If something big changes and you need to stop saving that money or need to use those funds for something else, you can. If you get a big bonus you can beef up those funds ahead of your plan.

It's actually easier to plan for long-term things with a monthly, cash-based budget because you know exactly how much money you have and what you need it for rather than assuming uncertain future outcomes.

Nope, still not making any sense to me. And that's fine, go ahead and do what works for you, I just disagree with your previous, very bold statement that annual budgeting doesn't work and doesn't make sense. Your way works for you, other ways work for others.

Zikoris

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Re: Budgeting per year or month?
« Reply #45 on: November 02, 2020, 10:53:13 AM »
You are adding a lot of weird assumptions to my response to the OP - who is clearly just starting to budget. But that aside, you're not really playing fair here. You said you have 17 years worth of funds in the bank, which I have to assume is some sort of HYSA. If that money is in the bank, how can it be invested?

The 17 year's worth of funds is in completely liquid investments that I can access easily at any time. I have about four months of funds in a normal savings account as well, which is my all-purpose slush fund for when spending doesn't line up with paycheques properly, like if there's a big seat sale to a destination I want to go for my next trip and I don't get paid until the next week when the sale is over.

My travel is a good example of annual budgeting, because I have an upper annual limit I want to stick to, but I don't know ahead of time exactly where or when I want to go places, and it makes it a lot easier to take advantage of good deals versus in a more rigid system.

Malcat

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Re: Budgeting per year or month?
« Reply #46 on: November 02, 2020, 02:34:58 PM »
You are adding a lot of weird assumptions to my response to the OP - who is clearly just starting to budget. But that aside, you're not really playing fair here. You said you have 17 years worth of funds in the bank, which I have to assume is some sort of HYSA. If that money is in the bank, how can it be invested?

The 17 year's worth of funds is in completely liquid investments that I can access easily at any time. I have about four months of funds in a normal savings account as well, which is my all-purpose slush fund for when spending doesn't line up with paycheques properly, like if there's a big seat sale to a destination I want to go for my next trip and I don't get paid until the next week when the sale is over.

My travel is a good example of annual budgeting, because I have an upper annual limit I want to stick to, but I don't know ahead of time exactly where or when I want to go places, and it makes it a lot easier to take advantage of good deals versus in a more rigid system.

Good point. One of the major reasons I work yearly is because so many of my expenses are annual or semi annual: travel, continuing education courses, licensing fees, etc. Plus with very lumpy income, monthly numbers just don't make any sense to me.

Unlike most people, I can't even wrap my mind around the affordability of something if it's broken down into monthly payments, even my cell phone bill, I have to multiply it by 12 to have any concept of what I'm willing to spend.

I also have more than a year's worth of liquid funds available, so I really don't have to think in smaller increments than that.

ender

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Re: Budgeting per year or month?
« Reply #47 on: November 02, 2020, 04:10:34 PM »
This is an older thread, but both.

There are certain types of spending that make sense only on an annual basis and some that make sense on an averaged monthly basis. For example, food costs make a lot more sense per month. But we do things like buy a quarter beef and half hog. So even looking at that per month isn't ideal.

And realistically, spending per month is useful but in a vacuum it becomes really easy to spend minimal in a month. Just stock up the month before... etc.