In this post I will discuss how I deal with my disposable income. I try to limit myself so that I can control my spending, with the extra money left over goes towards extra debt repayment.
The idea is simply that you live on cash for your paycheques. This method is used in the show Till Debt Do Us Part, where the host of the show Gail Vaz-Oxlade comes into a person's life and rearranges their monthly spending forcing them to live on cash. It seems outrageous at first, but to live on cash, and then when you run out of money you stop spending makes a lot of sense.
I decided to do this beginning in 2009 and it has worked wonders. My goals involve me dropping my liabilities, and since I have limits on my spending, there is never a paycheque when I fall short and have to dip into savings. Here are the splits:
Groceries $100:My girlfriend and I share groceries and I budget $100 every two weeks. This is my share, so we will alternate grocery weeks and try to stay under $100 for the two of us. Our health related goals are to lose weight, so we have vowed (and stuck to it) to not eat anything out of a box (basically pre-made). We try to eat lots of vegetables, but although they can be expensive if you change your meals until the vegetables are in season you can eat reasonably.
Spending Money $80:That's right, I give myself $80 to spend on whatever I want every two weeks. I realize that most people who read financial blogs consider themselves to be frugal, so me spending $80 every two weeks in whatever way I want may seem extravagant to some, but to me it is a fair amount. I don't stop for coffee, and bring my own lunches. Another goal of my girlfriend and I is to not go out for supper anymore (before she moved in we probably went out for at least one breakfast and one supper per week). I now do the cooking (which she loves) and I am financially healthier for it. I have also given up pop and junk food, which used to help rid myself of my spare change.
The rest of my buckets are collecting money for long term expenditures. In this way, I will never have to make purchases for large amounts and then hurt myself financially. Some people will say that I should put this money in a savings account rather than under my bed (the buckets are actually on my night table), but if the money is in my account I can easily access it, but when it is in a bucket, I have to reach into it, thus "stealing" from myself.
Home Repairs $20:Every paycheque I deposit $20 into a bucket for home repairs. Then when I need paint, or a new faucet, or what have you, rather than taking it out of an emergency fund, I can just grab cash and pay for it. I live in a condo, so very expensive repairs are done by the condo board.
Gifts $20:Every Christmas I tend to go into the hole spending on Christmas. By depositing $20 every other week, that will give me $520 at Christmas to spend. Doubtless I will spend more than that, but not that much.
Clothes $20:Everytime someone says, "buy a new jacket", or "buy some new jeans", or "buy some new winter boots", I used to cringe and say "I don't have enough money". Now, by putting a little aside, its actually possible to go shopping for clothes and actually being able to look to buy.
School $20:This is to pay for extra courses that I will take. Each year, I take a course in the summer that costs $899, and then teach summer school so that I can afford it. In this way, I can get most of my course saved up for.
Video Games $20:Yes, I am 31 years old and play video games. But like everything else on this list, if you save up $80 over two months to purchase the new Guitar Hero, you feel less bad about it (at least I do).
So the questions for you are: does this make sense? Can you see yourself doing something similar? Finally, when I get a raise in September, should I adjust by buckets? I was thinking of making another bucket for "miscellaneous debt repayment", so that it is not a forced repayment, but when I get $100 I put it against one of my loans. Otherwise it could be a "vacation" bucket, or I could just ignore the extra bucket idea and put it in the "pay off your debt"!