This is the eighth part of The Simple Dollar Book Club reading of Your Money or Your Life. Want to know more?
Right off the bat in this chapter, Your Money or Your Life makes a bold statement that I strongly agree with: traditional budgeting doesn’t work in the real world. Identifying specific categories and then keeping firm track of your spending within each of those categories is a novel task for a month or two, but it doesn’t take long for most people to realize that the task is incredibly tedious. Even worse, to many it feels like shackles – a bad punishment following the good behavior of rampant overspending.
Rather than traditional budgeting, I actually subscribe to the “automatic budgeting” philosophy: I make savings automatic and put as many bills on automatic payment systems as I can. Then, I just use the pool of money remaining to cover food, gas, and other incidentals. It works well for me and, although the idea of such automation predates the writing of Your Money or Your Life, I would speculate based on this section that Joe and Vicki would give it a big thumbs up.
This leads into Step 3 of the plan:
After a month of keeping track of your money (Step 2), you will have a wealth of specific information on the flow of money in your life – down to the penny. In this step you will establish spending categories that reflect the uniqueness of your life (as opposed to the oversimplified budget-book categories like Food, Shelter, Clothing, Transportation, and Health).
In other words, you will take all of the expenditures that you recorded over a month from step two, then categorize them all into categories of your own definition.
This isn’t a budget per se, though it could be used like one. Instead, it’s merely a tool to identify what areas are the ones where you’re leaking money from your life. One part that I found to be quite interesting was this one:
For us, after a year of hearing ourselves make the same excuse every month about all of the extraordinary expenses (“This was an unusual month because the ____ needed to be paid”), we realized that every month is an unusual month and these extraordinary expenses are a continuing part of life.
This brings back lots of memories of my parents (and myself in my earlier years) panicking over irregular bills. “How can we possibly pay the annual property taxes?” “The car and truck licenses are due again already?” To me, if you’re saying this regularly, then you need to have some sort of emergency fund to cover it.
Tomorrow, we’ll finish up the third chapter, starting with the section entitled “Totaling It All Up.” Most of this section is diagrams and a checklist, so we’ll just finish the entire chapter. That portion is on pages 87 through 108 in my paperback version of the book.