Earlier this year, I decided to try my hand at budgeting. Some of the bloggers I follow online repeatedly state that having a budget is integral to managing your money. I’m always willing to learn and improve how I handle my own money. Since I work hard for it, I don’t want to waste a single nickel if I can avoid it. After hearing about OhhYouBudget, I watched a few of her videos on Instagram and TikTok before purchasing the budgeting dashboard. It’s been 3.5 months now, and I’ve learned a few things.
Budgeting is very definitely not the same as tracking your expenses. I’ve been tracking my expenses since 2016. That was the year I created 2 spreadsheets – one for my household/recurring expenses and another one for my day-to-day variable expenses. I would spend money, record my expenditures on the appropriate spreadsheet, and go on with my life. At the end of the year, I had a pretty good idea of how much I’d spent and what percentage of my annual spending was covered by my dividend income.
It’s a whole different ballgame with a budget. You see, the budget requires me to say in advance how much I’m going to spend in the categories of my choosing. Then I’m supposed to spend only that amount of money in each category. This where I face a serious challenge.
Never in my life have I limited myself to spending a certain amount in a given category. My #1 rule for spending my money was to never spend more than I earn. My #2 rule was to spend however I wanted after my automatic transfers sent funds to pre-determined destinations. You know – the emergency fund, the sinking funds, and the investment/retirement accounts. So long as I only spent whatever was leftover after the transfers went through, it didn’t matter to me under which category the money was spent. I honestly and truly believed that I was pretty good at managing my money.
Enter the budgeting dashboard to show me that I might need to change my perspective.
I suck at budgeting.
To say that it is not going well for me would be an understatement.
First off, I consistently overspend in the groceries category. I’m doing more meal prep, which means taking a list when I go grocery shopping. Not to brag too much, but I don’t waste food. I eat what I cook. I freeze various things for later use. Since I really hate cooking every day, I portion out my meals so that there’s always something tasty to take for lunch or eat for dinner. Yet somehow, I am always going over my budgeted amount for groceries.
Secondly, my MISC category is a wildcard. I allot a decent amount to this category. Some months, I spend nearly nothing. Yet the next month means that I’ve spent way more than planned. How does one predict MISC expenses? Am I not using that category properly? I have an emergency fund and multiple sinking funds for large, anticipated purchases so rest assured that my MISC fund is not being used for those kinds of expenditures.
Thirdly, I have to admit that I don’t say no to myself except when it comes to dining out. Planned meals with friends is one area where I don’t skimp. I have money allocated for that. Stopping at the drive-thru on the way home from work is verboten. I’ve stopped doing that because the reality is that I have food at home, and the stuff at home is healthier for me.
In order for this budget to work, I need to limit myself. I really, really dislike this aspect of budgeting.
Up until I started using this budget, I was very proud of myself. Automatic transfers funded my priorities from each and every paycheque. Whatever I had left over, I spent however I wished and my credit card bill was paid in full each month. I felt very good about how I handled money.
Then I decided to try and use a budget! Man, oh man! I’ve really been knocked down a peg or two. Every time I update that dashboard and see all the red, I feel badly about myself. This budget is telling me that I’m doing money wrong. I’ll admit that it’s a burr under my saddle. How is it possible that I’ve been doing money wrong all these years yet I’ve still managed to create a 5-figure dividend cashflow and to become a member of the Double Comma Club?
A Few Key Take-Aways
Even though I suck at budgeting, I’ve learned a few things about myself and how I handle money.
There is no perfect budget. Each month, I get to tweak my numbers as I see fit. The budgeting dashboard that I use comes with various graphs and charts, and I really do love them! They’re easy-to understand, visual representations of where I spend my money each month. I can tell you that a vast majority of my money goes to savings and investment accounts. And if I simply cut back on those contributions, I wouldn’t be going over-budget my other categories.
It only took two months of seeing lots and lots of red for me to ask myself the following: “Am I going to cut back on my monthly savings & investing?” And the answer I’ve arrived at is: “No, I’m not going to do that.”
While I might hate being in the red in multiple categories on my dashboard, the bottom line is that I am not going into debt every month. The credit card bill gets paid in full every single month, and that’s what matters most to me. Should there come a time when I have to choose between earning 5%-6% on my investments and paying 29.9% to my credit card company, then I’ll cut back on my monthly savings and investing to pay that debt. After all, it makes no sense to pay 30% to a credit card company if I’m only earning 6% on my investments!
Even though I spend too much in a few categories each month, there are some categories where I spend considerably less than I’d planned. Surely that signals that I’m getting pretty good at budgeting certain things.
Another thing to be noted is that my budge has nothing to do with my new worth. I’m only tracking my paycheque income on this budget, not my entire income. I also earn dividends and capital gains from my investments, but that money is separate from my salary income. My dividends accrue in another account, but I don’t use those to pay for my current expenses. They’re on a dividend re-investment plan (DRIP). If I absolutely had no other choice, I could use my dividends to supplement my paycheque. Even though I can’t get my budget to balance every month, I’m still earning passive income and my net worth is increasing over time.
I think that being good at budgeting is helpful to building wealth, but I don’t think it’s essential to doing so. Other factors are so much more important when it comes to increasing your net worth and benefitting from long-term investments. In my humble opinion, a budget is an excellent tool in forcing you to articulate where you want to spend your money. Reviewing your budget at the end of the month is equally important. Doing so forces you to admit to yourself where your weaknesses are and whether you have properly identified your priorities. Sometimes, people think they want one thing when they really want something else. That’s okay. There’s no harm in learning what you truly want and spending your money in a way that allows you to obtain it.