Budgets And Spending Plans – Two Sides Of The Same Coin?
I’ve read a lot recently about budgets and spending plans, and why some people prefer spending plans over budgets for their flexibility and ability to plan and chart goals into the future. The idea is that charting where your money goes as it comes in and goes out (a spending plan) is less likely for failure than deciding where your money will go before it shows up and then making sure it goes there when it does (a budget). A spending plan allows for change, for life, for happenstance. A budget is rigid, proscriptive, and doesn’t allow you to live life as it happens. If something unexpected happens, you’re breaking the budget. The budget drives you – whereas you drive the spending plan.
But I contend that a budget done well is basically similar to a spending plan – in fact, it’s really two sides of the same coin. A well-crafted budget is a spending plan that has a name with a bad rap. In fact, I contend that many would call my own budget a spending plan, because I allow flexibility when I need it, and look at it as a fluid, ever-evolving process. My budget gives me the ability to really look at my financial priorities and decide what is important to me before I start spending. I vote with my dollars, so to speak, by deciding where I would like them to go. But a spending plan does this as well – just after the fact. You vote with your dollars, and then just see how the dollars voted at the end.
I prefer to pretend I have some voluntary control over it all. But that doesn’t mean I never adjust my budget or change things midstream. I just make an ideal plan of how I would like things to go first. And then edit as needed along the way.
October 21st, 2008 at 9:05 am
The term “budget” has a very negative psychological effect! I agree that I like to pretend I have some control over our money, but at the same time realize that $x will go towards the mortgage, food and gas each month. A large chunk of each paycheck is already claimed.
Our flexible spending plan comes in for clothing, eating out and other wants and semi-needs. Once that chunk of “spending” money is gone, it’s gone.
I’ve found that working out of one large, flexible lump of money works better than allocating small amounts for eating out, clothing and other variable expenses. It gives us a sense of control over the funds – if we want to eat out this week, no new shoes. It also means less work for me! I’m tracking one “expense” instead of five or more.
October 21st, 2008 at 10:00 am
I operate similarly. I sit down with pen and paper in hand, and I start with a list of all of the bills, and what day they are due. Then I start at the top of the list, and work my way down. For example, this coming pay day, the 24th, I know that I will have $X amount of money coming into my bank account via direct deposit.
So then I start at the top and work my way down. Basically, this one paycheck pays for Rent and Water. That’s it. So I can mark that off of the list. I move on to the next payday, and do the same thing, marking off from top to bottom what I can pay, until I have little to no money left for that pay day. The upside to this is that I know I can pay my bills at least 2 weeks ahead of when they are even due.
Sometimes I will get paid before they are even due. But each bill is basically the same every month. So if something isn’t even showing up as needing to be paid, I set that money aside in my savings account, or wherever, and act as if it’s not even there until the bill is able to be paid.
I will do this for about 2 months ahead so I can get an idea of where things are heading. We are looking at saving for a car, and this helps us to see long-term, when we will have the money to do so.
Also, when it comes to actually paying the bills, every Friday, I sit down and pay all the bills that I can. And then I write them down in the check register immediately.
Shopping days come, and I need to groceries & other items. If I do shop, that evening, I sit down and write in my check register every receipt that I have from the day, in order that I did them, so I can make sure that I have every store.
I also use Geezeo to help track expenses that I do not want to splurge too much on when there is extra money and we need clothing or shoes. I can set the spending target to be at $X and keep tabs on making sure that I don’t spend over that in any given month.
I can also set goals, such as the ones that I mentioned earlier of getting a new car. Then I can know what my progress has been.
It works for us.
October 21st, 2008 at 1:14 pm
Nice post! I agree. My “budget” might really just be a spending plan. I have categories, but for all non-fixed expenses, I borrow from one category or another. It allows some flexibility, but I still know on any given day how much money I have for the rest of the month.
October 21st, 2008 at 2:34 pm
Mine is two groups and savings…
I cash a check for $310 each month. That pays for gas, groceries, gifts, grandkids, and goofing around. I don’t worry about what I spend it on within that grouping – that’s all the cash there is for the month for those items – period.
Every third paycheck goes directly into savings. The others sit in the account until needed for the utilities, car insurance, house insurance, property taxes, and medical.
It’s very basic – and very easy
Being debt free helps as there aren’t many monthly bills to pay except the utilities.
October 21st, 2008 at 11:39 pm
I totally agree with your post. It sounds like a “spending plan” is for folks who just don’t want to discipline themselves enough to stick to a budget. It’s easy to make excuses. LIke you say, a “well-crafted” budget should be designed to account for emergencies and happenstance.
The thing I do like about the concept of a “spending plan” is that it focuses on what you can spend as opposed to what you can’t. For example, when you’re on a diet, it’s best to concentrate on what you can eat, rather than what you can’t. I think the same goes for spending.
Looking through the right lens, budgets and spending plans both give you freedom as you feel an increased amount of control over your life.
October 22nd, 2008 at 11:07 am
Great post. I’ve been having “issues” with a Budget, but a spending plan fits into my lifestyle so much easier and I’m less stressed about it as well.