One reason budgeting gets a bad rap is that traditional budgeting often makes people feel like failures. When the month’s spending doesn’t match the amount you projected at the beginning of the month, it’s easy to decide that budgeting just doesn’t work.
Traditional budgets set spending levels in each category at the beginning of the month. This can be frustrating because those decisions feel rigid and unchangeable, at least for the month.It feels like cheating to increase a category limit midway through the month.
When you set your grocery budget at $300 and end up spending $360, you feel like a budget failure.
When in one month you go to both a wedding and a birthday party, and spend more than allocated on gifts, you wonder why you even try.
Continually going over-budget causes discouragement, and discouragement makespeople give up on budgeting altogether.
A flexible budget, on the other hand, allows for variations without ruining your bottom line or making you feel like a failure. When unexpected expenses come up or your priorities change, your budget should change accordingly.
It’s perfectly fine to change your category limits — it would be foolish not to. With our flexible budget, we are confident that there will never be a single month that our expenses exactly match our beginning-of-the-month projections, and that’s just fine.
Flexible budgeting is not failed budgeting — it’s realistic, guilt-free, liberating budgeting.
Keep Your Budget Reliable
On Day 7 of the Frugal Fresh Start Challenge, we covered the YNAB budgeting method in which you allocate your actual, on-hand cash to your highest priority budget categories, consistently enter spending for those categories as you spend during the month, and check potential spending against the available category balance before making a purchase.
Remember, while we love YNAB, you could also use your own spreadsheet, written ledger, or cash envelopes with YNAB rules and enjoy the benefits of the philosophy.
Since we rely on the category balances to tell us exactly how much of our real money is available to spend in that category, it’s imperative to keep up on recording your spending as it happens.
Because you are budgeting with actual money rather than expected income, and recording expenses against the categories as you spend money during the month, you can implicitly trust your budget to show exactly how much is available in every category, every time you look at the budget. Your budget is a reliable indicator of your spending ability.
Changing Budget Category Allotments
Before spending money, we check our category balances in the YNAB app to see if we have sufficient funds allocated for the proposed expense. If you’re a cash envelope user this is as simple as checking the cash in the envelope for that category.
If we have the funds remaining in that category, we know we can make the purchase. If we don’t have enough money in the category, we need to decide if this purchase is really a priority for us right now. If it is a priority, we have to find something in the budget that is a lower priority and take money from that category to fund the purchase.
In today’s new video, Mike and I are talking through a few practical examples of how the reallocation works. (Two are real examples and one is fictional. Can you guess which is which?)
Feeling Empowered by Your Budget
Remember that changing your category allotments and moving money around throughout the month is part of the plan. It’s all about your priorities and being empowered to make decisions as they come up. Makingchanges multiple times every month is normal. It’s not a big deal. There’s no need to fret.
This is a healthy way to use your resources. An unhealthy way is to arbitrarily set a number at the beginning of the month, let those arbitrary number choices govern your priorities during the month, and feel like a failure when real life doesn’t match your beginning-of-the-month guesses.
With flexible budgeting, you get all the benefits of living within your means (what budgeting is really about) and all the freedom to decide, guilt-free, what you want to do with those means as real life unfolds around you during the month. You get to make the choices, rather than being constrained by strict rules and untouchable category limits.
Pay Attention to What Matters
Traditional budgeting would compare the amount set for each category at the beginning and compare it to the actual spending to decide if we were “on budget” or not. But by that point it doesn’t matter anymore. It’s history!
In a flexible budget, the amount we set on the first of the month isn’t important by the end of the month. What IS important is that as we make choices during the month, we keep our total spending lower than the total amount of real money we have allocated to all the budget categories together. It doesn’t matter how the allocation of that money has changed as long as it’s going to our priorities.
Every month, we set priorities, make initial projections, and then modify our budget to match our choices as real life meets our best guesses.
Challenge—Day 11
Look at your budget that you set up on Day 7. Are there any changes that you need to make? Don’t hesitate to move money around if you need to. In the future, you can make changes (moving money from one category to another) as the need arises. Remember that your budget categories contain real money, so you should not spend more than is allocated to the category.
- Have budget “failures” discouraged you in the past?
- Have you tried a flexible budget before?
