A few weeks ago, I read the book “All Your Worth” by Elizabeth Warren. It has a really simple budgeting idea that I read a blog post about and wanted to know more. Basically, they have you split your income up into three piles – must-haves (50%), wants (30%), and savings (20%), and categorize your spending into those big buckets. All the budgeting I’ve done previously uses lots of little categories – you know, $25 for electric bill, $100 for phone bill, $20 for books, etc etc. That model wasn’t working for me because if a utility bill was over by a buck or two, I’d be in the red, and then there would be months I didn’t buy any books or music and those categories would go unnoticed, then next month I’d buy more books… and anyways, it was just untenable for me because of all the micro-accounting. It seems like the three big buckets approach might work more easily: I have my big ticket, non-negotiable items like rent/mortgage and things I have to pay each month regardless, and since they’re right on the border of 50% I know I need to reduce them in case of emergency, so I would have more headroom on an unemployment or disability payment.
I recategorized all my spending for December into the three buckets, in Quicken, and I was way over for the month. :( I went over by like $300 on must-haves, because I suddenly adopted a kitten and he needs vet checkups and shots and stuff (and I decided that pet-care was a must-have), and unfortunately I also went over on my wants by… well, enough. Without even really noticing it. It definitely made me more conscious of what I was doing for the second half of the month, and I had to stop buying things. So I totally blew December, but I only started halfway through the month, so I guess it was kind of a dress rehearsal.
Looking forward to making it work in January. If it works as described, it will make me feel like I’m able to spend “fun money” without that guilty, “I should be doing something productive” feeling, while still making progress on my savings planning. Fingers crossed!