Author Topic: Line-Based Budgeting: Help Me Understand Its Value  (Read 4784 times)

Lia-Aimee

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Line-Based Budgeting: Help Me Understand Its Value
« on: February 04, 2015, 09:34:17 AM »
As a single with no kids and simple living expenses, I've never done line-based budgeting.  I get paid biweekly, so each paycheque I log into my banking and immediately transfer 80% of it to my online brokerage.  I then transfer the amount that is half of my monthly rent and half of my monthly cellphone bill into savings.  What is left in my checking account then goes to everything else.  This includes practical stuff, like food and public transit, and also play money.  I have budgeted like this since college and have found it highly effective in helping me adjust my spending in each category to really reflect my needs and interests (ie. if I buy that skirt I like, I won't be able to afford the train...BUT if I replace meat with rice&lentils at the grocery store, I'll be able to afford that skirt and the train.)

So at her request, I'm helping my flatmate with budgeting.  She currently line-budgets. She can be very frugal when she absolutely needs to be, and is debt aversive other than her rather large car loan, but suffers from extreme lifestyle creep - if she earns 1k more, she's spending 1k more without a second thought.  Her line budgeting accounts for a tiny amount of long-term savings and a slightly larger amount of "save spending" as I've heard it termed elsewhere on the forum (ie. vacation or bigger-ticket item saving) and her line budgeting include many "play" categories (ie. alcohol and restaurants.)  Her weekly hours of work vary from 30 to 50 - she budgets for 30, then if she gets more hours it goes to play money or maybe "save spending."  In my opinion, "pay yourself first and live on the scraps" would help her save more and analyze her spending more (ie. if I want to go to Mexico next fall, maybe I shouldn't go out to eat tonight.)

Is line budgeting the best way for her to be doing it, or should she get in the mindset of "pay yourself first"? Any tips on line budgeting that I can pass onto her? Thanks!

Stash Engineer

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Re: Line-Based Budgeting: Help Me Understand Its Value
« Reply #1 on: February 04, 2015, 09:41:29 AM »
I line budget and have found it very helpful to analyze where all my hard-earned money is going.  I don't think the method of tracking the spending has anything to do with your flatmates spending issues.  She needs to change her mindset about what level of spending is acceptable for 'play' vs 'save'.  She needs to think long-term rather than paycheck to paycheck.

I'm a red panda

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Re: Line-Based Budgeting: Help Me Understand Its Value
« Reply #2 on: February 04, 2015, 10:24:17 AM »
I actually really don't like line based budgeting, because the people I see do it, who aren't incredibly disciplined, seem very obsessed with how hard they "stuck" to the budget, while trying to make exact miniscule categories work, but then spend frivolously on things outside the budget.

It becomes a penny-wise and pound foolish exercise.

rmendpara

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Re: Line-Based Budgeting: Help Me Understand Its Value
« Reply #3 on: February 04, 2015, 11:40:17 AM »
I actually really don't like line based budgeting, because the people I see do it, who aren't incredibly disciplined, seem very obsessed with how hard they "stuck" to the budget, while trying to make exact miniscule categories work, but then spend frivolously on things outside the budget.

It becomes a penny-wise and pound foolish exercise.

I'll mostly agree with this.

Like the poster, I also have a "save first" mentality. When people have tendencies to spend, it's best the money gets out of their cash account immediately... or never goes there in the first place. The best way to do this is set up 401k contributions and/or IRA drafts on a weekly/monthly/whatever basis.

Personally, I have a lot of liquidity to handle month to month fluctuations, and the majority of savings is automatic (401k and Roth).

From what you've said, and maybe my own guesses, it seems like the most important thing that should be done soon is having your friend do a better job of planning/budgeting on an annual basis. That way, it's not so easy to "forget" about going over the Jan'15 budget, when you're in March and figuring out how to come up with money for the upcoming vacation.

The drawback of monthly budgeting only (and not reviewing things on a quarterly and YTD basis) is that "mistakes" are forgotten.

ThatGuy701

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Re: Line-Based Budgeting: Help Me Understand Its Value
« Reply #4 on: February 04, 2015, 01:29:09 PM »
Rather than line budgeting I would suggest to have your friend start tracking her money. This will help her identify where she is spending money and help determine where she can cut costs. Budgets are scary to some people and they don't even want to discuss budgeting but if you can get them to spend like they normally would and then track where the money went it will help shed some light on the situation.

Most people are in shock the first time they physically see how much they are spending on eating out and clothes vs. what they are putting away into savings.

aj_yooper

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Re: Line-Based Budgeting: Help Me Understand Its Value
« Reply #5 on: February 04, 2015, 01:58:25 PM »
Lia-Aimee, your style rocks!  Paying yourself first.

By automating things, I believe you are doing a line budget, and your discretionary portion helps you measure the utility of each purchase, as it might lead to not having something else you need.   Well done.

Your flatmate is from another planet.  She is a spender and not a big saver.   Girls just wanna have fun.   

Could she automate as you have done?  When she gets a bigger paycheck could she simply do a bigger chunk to savings and debt payments, rather than lifestyle creep? 

Lia-Aimee

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Re: Line-Based Budgeting: Help Me Understand Its Value
« Reply #6 on: February 05, 2015, 11:57:01 AM »
Thanks guys!

For those of you who do line-based budgeting, how do you like to keep track of it? Daily checking of MINT or other budgeting software or apps? Writing down what you spend whenever you spend it? Cash envelopes?  I like to have my money "organized" so my "spend what's left over" method lets me keep 2 weeks worth of money in my checking, bill money in Savings #1, emergency fund & the occasional savings for bigger items (vacation) in Savings #2, and the rest in my brokerage. Any organization hacks for line-based? 

Flatmate has her $150/month savings go directly into her tax free savings account so she doesn't see it...I agree, fab idea if you're spendypants for sure. I take an odd pleasure in logging into online banking, transfering from checking to brokerage, shopping for ETF's, entering purchases and their percentages onto excel spreadsheets...my equivalent of payday shopping or drinks.

netskyblue

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Re: Line-Based Budgeting: Help Me Understand Its Value
« Reply #7 on: February 05, 2015, 12:13:46 PM »
I keep a spreadsheet.  Maybe once a week (sometimes less) I go to my bank's website and enter each transaction from there into my spreadsheet. 

Though recently (starting in January) I've started saving my receipts for grocery/household/hygiene products and entering each item into a different spreadsheet.  This is just to help me track prices, and what I'm buying, really.  That will hopefully show me exactly how much I truly spend on something in a year - like, I needed to buy deodorant 5 times in a year (or whatever).  Hopefully then I can use that to my advantage in the future, and know exactly how much to buy at a really great sale (and help me to understand exactly what a "really great sale" is.  I don't intend to do this forever, but I really hope I can keep it up for 1 full year.

Stash Engineer

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Re: Line-Based Budgeting: Help Me Understand Its Value
« Reply #8 on: February 05, 2015, 12:39:07 PM »
I also use a spreadsheet and I keep all my receipts.  I go onto my spreadsheet and put in my numbers every few days.  I use cash for misc spending to make sure I don't over spend. 

Proud Foot

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Re: Line-Based Budgeting: Help Me Understand Its Value
« Reply #9 on: February 05, 2015, 01:06:19 PM »
OP, it sounds to me like line based budgeting is unnecessary for you because you are the only one spending and you have a good mental idea of what you spend each month and seem to have a low spend mentality. My wife and I make a line based budget monthly so we are both on the same page financially for the dollar amount of our bills are for the month and have an idea of the limit allowed for certain categories. For us this is typically the same each month with the only fluctuations being for utilities, doctor appointments, car registration. It might not be necessary at this point but it gives us both peace of mind to know what planned spending for the month looks like. I believe it is necessary and valuable to someone who is just starting out as if they look at their spending and build their budget off their previous spending with the goal to cut down in some areas. It gives them something to compare to so they can see if they are achieving their goals of cutting expenses.

NumberCruncher

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Re: Line-Based Budgeting: Help Me Understand Its Value
« Reply #10 on: February 05, 2015, 01:17:03 PM »
I line budget, but pretty loosely using Mint (not daily, either).

For me, it's really just so I can get an accurate spending number and make sure that spending number is something we're comfortable with. Using Mint, we cut out some unnecessary grocery spending, meals out, and clothing purchases, for example. We also use it to plan for expenses like eventual new car purchase/repairs, medical bills, vacation, things like that, so very few things are unexpected.

I guess I don't see a ton of difference between line-item budgeting and the "pay yourself first" method, since it's the same general principle - Figure out what you're comfortable spending, then put the rest in savings. IMHO, putting "extra" earned money automatically into "play money" is not budgeting...

Like exercise, the most important thing is finding a technique that you can stick to and work for you. Ideally your friend would put all extra earnings into savings, but if she can agree to transfer some percentage into savings, hey, at least it's something. If she really wants to break the habit, the cash envelope system might be the way to go. Get rid of credit cards/debit cards, and stick to the budget.  In order to spend more than budgeted, she would have to physically withdraw money. If nothing else, it might make her more mindful of her spending.

marty998

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Re: Line-Based Budgeting: Help Me Understand Its Value
« Reply #11 on: February 05, 2015, 01:51:44 PM »
I get paid biweekly, so each paycheque I log into my banking and immediately transfer 80% of it to my online brokerage. 

I love you so much.

galliver

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Re: Line-Based Budgeting: Help Me Understand Its Value
« Reply #12 on: February 05, 2015, 03:29:49 PM »
When I first got a desire to really analyze and possibly adjust my spending (about 2 years pre-MMM), I set up Mint and let it run for I think 2 or 3 months. Then I looked at total spending, and per category for ones that were meaningful to me, and considered how I could, or should, adjust. Then I set up what seemed like realistic budgets, based on my past spending. I've never considered those amounts particularly firm, though. I'm definitely not an every-expense-to-the-penny tracker. But I think breaking the total amount down into categories really helps see where you *can* cut. e.g. you can't cut groceries down to zero (without ballooning 'restaurants' at the same time!) It can also help show how small expenses add up, graphically.