Budgets...who needs them?

I was sitting having a coffee the other day celebrating the end of summer school for another year when I overheard two people in the booth next to me talking about budgets. As I have a keen interest in personal finance, my ears perked up and I listened in.

One person was complaining that her husband was making her have a budget to track her spending for the month. She complained and said that "she felt like she was a kid having to do this". The other person, who was trying to sell her something, was sympathetic, but I thought to myself, "Everyone hates to budget for themselves, so what can be done".

Here is my philosophy on budgets: if you are able to save 10-15% for your retirement and on top of that spend less than you make every month and have no credit card at the end of the month, you don't need a budget. So the question is then, how do we accomplish this?

For most people, some planning is required, and that's why the budget is a good thing. But just by trimming your expenditures each month, or making some extra money on the side, you can do this. For myself, I need to track things electronically, so that is how I track my spending. As well, I now formally have a budget by only spending cash for items. As soon as I run out of cash, I can no longer spend.

The system works for me, but the point is that you have to determine what system will be successful for you. No one likes to be told what to do with your money, because it feels like some of your power is going away. If you can find a way to spend less than you make in a month without a budget, then great! Keep it up! But the reality is that for most of us, we need something to limit our spending.

How to keep your spending down...

There are two ways to increase your cash flow in a month: either get more money in, or spend less money. I try to tend to do both. To get more money in, I teach summer school, rent out rooms in my condo, and tutor on the side. This post will be about things that I try to do to limit my spending in a month:

Pay for things in cash: This was discussed in a previous post, but by spending cash rather than on credit you tend to spend less. Additionally, by only hanging onto large bills you will be less willing to break them. As well, I save my change and put it in a big container on my front table.

Leave your wallet at home: For me, I tend to be a spender, unless I don't have my wallet with me. I know that if I am going for a walk and will be going by WalMart I will go in there and pick something up (or the video game store or the beer store or wherever). This goes doubly so at work: I never bring my wallet, and then there is no temptation to spend.

Pack your own lunch/coffee: This relates to above, but you can spend a horrendous amount in a day/week/month on this stuff. In math class, I always give my class a question that says instead of spending $3 per day at Tim Horton's, Billy saves this money in an account that earns 5% compounded daily over the next 30 years. How much will he have? I will spare you the math here, but the answer is $76,238. If you change the number to 8%, it is $137,153. If you change the number to 10%, it is $208,896.

Cut back your cable/internet:I did this when my girlfriend moved in and saved almost $50 per month!

Go to one car (or less!): I do not have a car, and walk everywhere I go. I bought my house so that it is a 20-30 minute walk from my school. Because of this, I am able to not spend a huge amount of my monthly money on gas, insurance, and the payments for the car initially

Cell Phones: As well, I do not own a cell phone. If you have to have a cell phone, please get the pre-paid option, so that you will not end up with large bills at the end of the month.

Shop Around: Finally, I try to shop around. That is, I buy things when they are on sale. Not that I will walk into a store when it says "Sale", but when I decide to buy something I shop around for a few weeks until I buy it. If you are looking for a hardwood floor, there is nothing wrong with putting a few weeks planning into the purchase, and then finally picking the best price for the best product.

Eat At Home:Although my girlfriend wants me to point out that I took her out for lunch today (it's true), we generally eat at home. The savings here are enormous (as compared to before where we would probably eat out once or twice a week). Two meals and a drink each and you are looking probably at $40-50 for the evening.

I hope this helps some people out (or at least gives them some ideas). If you have any agreements (or suggestions or contentions), please feel free to leave me know by leaving a comment!