Our system of budgeting is pretty arbitrary. I recommend that everyone make a spending plan based on the calendar month. Twelve months a year: twelve plans a year.
Could we do things another way? And are any of them better?
A brief history of
It occurred to me in writing this that I had no idea why we even have months in our calendar, much less why they are the length they are.
Like all things that are very old in our culture, it has a long, convoluted history. A month has always been defined (roughly) as the number of solar days it took for the moon to complete its cycle around the earth.
The problem was (and still is) that the solar day and the lunar cycle are quite independent of each other. In fact, the lunar month is approximately 29.53 solar days, although there is some variation there. And let’s not even get into the fact that a solar day doesn’t divide evenly into the solar year.
But, with the crude instruments of the ancient civilizations, they tried to shoehorn these numbers to work out:
- The Egyptians divided the year in 12 periods of 30 days each, plus 5 bonus days that didn’t technically count as part of the calendar.
- The Romans had a ten month calendar starting with March, with each being 30 days, though they eventually doled out the extra days among the months. (What was January and February at first? Nothing. Clearly the Romans suffered from seasonal affective disorder too.)
In short, we make our budget approximately the length of time it takes the moon to circle around the earth.
But what about other units other than the month?
There are almost exactly 52 weeks in a year. (You didn’t expect that to be an even number either, did you?)
What would it look like if we were to make a budget for every week?
The advantage of a shorter budgeting period is that you can see to the end of the period very clearly. Seven days isn’t hard to predict.
But there are numerous disadvantages. The biggest one is: most people don’t get paid weekly, so some budget periods will have no income in them. And since the whole point of a budget is to have everything coming in equal to everything going out (just like what Wilkins Micawber said). If there’s nothing coming in, it’s kind of game over. And that’s silly.
Plus, you’d be doing a lot of budget creation. 40 more of them each year, in fact, when compared to monthly. I’ve written over a hundred thousand words about budgeting, and even I don’t want to do that.
Bi-monthly / Every two weeks
So you have to include one paycheck in your budget. (If you have more irregular income than that, then that’s a different topic.)
If you get paid every two weeks or twice a month, you could make a budget for each of those pay periods.
As with the week, a shorter time frame makes things easier to predict.
If you’re in a really challenging financial situation (no savings, paycheck-to-paycheck) this could be a good place to be. Think of it like an emergency budgeting situation.
For the rest of us, though, many of our bills are paid monthly, which means that some will show up in some budgets and not in others. That’s not necessarily a bad thing, but it could create a little more work for you. You may even decide to have a “first-half of the month” and a “second-half of the month” budget.
And if you’re doing that, why not just go for a single month budget?
Maybe a month is too short a time scale. Maybe you hate putting together a budget so much that you want to do it as few times as possible. In which case, a quarterly budgeting time frame could be an option for you. There’s only four of them in a year.
Having a longer time means that you have plenty of time to course correct throughout the month. The flip side, of course, is that if you let yourself spend too much too quickly, you could find yourself with a very long lean period at the end.
If you think you can predict what the year is going to be like for you, then you are either deluding yourself, or way too oracular for me.
The month wins
Yes, the month is an arbitrary measurement of time, but it fits with how often our bills need to be paid, and often our paychecks too, and plus it provides a reasonable compromise between frequency of budget creation and need for foresight. I strongly suggest you go with it.
But enough about me. Would you prefer to create budgets based on a different time frame?
Latest posts by Mike Pumphrey (see all)
- Here are some other style boxes I missed - December 14, 2017
- What does that 3×3 investing square mean? - December 11, 2017
- The HSA “testing period”: The Sophie’s Choice of health care costs - December 7, 2017