Last month was a little challenging for me, money-wise. While every month I separate my allotted spending money into categories ($300 for Groceries, $60 for Transportation, etc.), it’s really just a best guess.
The month had a number of expenses (in my Fun/Misc category especially) such that, by mid-month, I was effectively done with that category. And having other expenses squeezed out my Food Out and Groceries categories too.
Because of this, I decided to cut my spending down to the bone for the rest of the month. And by the end of the month, I calculated that I was around $200 over budget. Ugh.
But it occurred to me, as the last day of the month rolled over into the first of the next, that it felt pretty arbitrary how on one evening, I could feel poor, and then the morning after, I could feel pretty flush.
And if it’s arbitrary, is that a bad thing?
Back in the day…
I’m not sure how old you are, but my parents tell the story about how getting paid used to work.
You would get paid on a Friday. Banks, which closed fairly early usually, would stay open a little later, perhaps until 6 PM. You would need to head to the bank after getting paid in order to cash your paycheck. If, for some reason, you didn’t get to the bank in time, then you would have no access to money for the entire weekend, until the banks opened again on Monday.
Now, in this day of ATMs, direct deposit, mobile purchases, and Bitcoin, it’s pretty hard to imagine this being a reality, but there you go.
Budgets are like paychecks
But even today, with all that, the paycheck still counts as a before/after event. Before the paycheck, you didn’t have the money. After the paycheck, you had the money.
The monthly budget is just an echo of this paycheck system.
Once you’ve started working on your budget for a while, having sufficient float, making “buckets“, not living paycheck to paycheck, it can be all too easy to forget that you either have money or you don’t. When you would get paid, you could spend money. When it would run out, you couldn’t spend money until you got more. There’s nothing arbitrary about that.
But is the monthly budget arbitrary? Sure. The money I have the night I go bed on the 31st is exactly the same as when I wake up on the 1st. There’s no reason why I would have to feel poor on the night before and flush the morning after. It’s purely a system that we put in place.
Arbitrary can still be worthwhile
Arbitrary as it might be, the monthly budget is still a powerful system.
Even though I spent more than I planned for, the awareness of where I was in my budget caused me to reduce the speed of my spending. I in effect “pushed the brake pedal” on my usual spending habits. I spent less because I knew where I was. It allowed me to self-regulate.
How fast would you drive if you didn’t have a speedometer? Right, exactly, you would have no idea. The speedometer helps you self-regulate.
Some deviation is okay
Let’s be honest, you could just say “the heck with it, the new month starts on the 31st.” There’s nothing preventing you from doing this. You’re the owner of your financial plan. A little deviation and flexibility is not going to torpedo your plan.
In fact, deviation is built into the calendar! For example, February is 10% shorter than July, yet they are still counted equally.
Though if you find yourself “starting the month” on the 31st, the 30th, or even earlier every month, then you may want to raise a warning flag. If not left unchecked, you can be so flexible that the plan ceases to have any meaning.
If you’re not sure whether you’re being flexible or just trying to get away with spending more than you ought to, tell your plan to a friend or other accountability buddy. If you don’t have an accountability buddy (get one!) then imagine what someone would say if you told your plan to them:
“I’m counting this purchase as part of next month. This is kind of an outlier expense and I can factor it to next month’s budget without too much trouble.”
Sounds good, right? As opposed to:
“Next month starts right now. Sure the real start is a week away, but I really want to go out tonight.”
Maybe not. Or what about:
“I tend to start the next month’s plan early each month.”
Or, even worse:
“I think I’m working on the plan for two months from now.”
(I hope no one is saying that last one.)
Make a plan. Stick to it. But if you have the ability, give yourself enough grace to have a reasonable level of flexibility. You’re doing this for the long term, so make a system that’s sustainable.
And if you’re not sure what’s the optimal course of action, feel free to ask me.
Latest posts by Mike Pumphrey (see all)
- Can you use an HSA to save for retirement? - October 19, 2017
- The investment hat trick: The health savings account (HSA) - October 16, 2017
- This is why I don’t pick stocks - October 12, 2017