The Budget Is Not In Your Head
He budgets in his head
Something that comes up a lot is this idea that you can budget in your head.
The “budgeter” says they know about how much they have in the bank and they are pretty sure they know how much all their bills are. They use this to “budget” their money – which really means they assume they have enough in the bank to cover whatever they’re doing.
There is no plan, no goal, only assumptions.
If this offends you, I’m sorry, but if your budget is in your head then you aren’t budgeting. Instead, you are fooling yourself into thinking you know how to handle money when you really don’t or don’t care to.
I’ve been there. I’ve lived that life and been that fool. Those “budgets” aren’t helping you do anything except lie to yourself.
Why It Doesn’t Work
Budgeting in your head is doomed from the start. There are several reasons for this; I’ll highlight a few:
- The total is unknown. When budgeting in your head, you don’t know how much you have when the month begins or how much you’ve made. Even if you’re paid on salary you aren’t going to remember the exact dollar amount added to your account. This starts you out at a disadvantage when trying to figure out how much you should have.
- The categories are jumbled. This kind of budgeting jumbles all the categories. Instead of answering the question, “how much did I spend eating out” your budget asks the question, “did I eat out too often”. Do you see the difference? One has a number behind it, the other a feeling. There are areas in this budget you can’t account for without keeping a record of what you spend.
- Bills are unknown. If you don’t have them written out, you will forget how much your bills are. Sure, you have a pretty good idea of how much each bill is, but what about gas, food, and utilities? These bills change every month and if you don’t plan your spending you won’t know how much you really have in the bank once they’ve been paid.
- Money happens to you. The worst thing about budgeting in your head is that money happens to you every month, instead of a real budget where you happen to your money. What’s most insidious about this is it makes you feel like you’re in control when you’ve really lost all control of your money and spending habits.
What To Do
What should you do if you’re budget is stuck in your head? How to get over ignoring your responsibilities with money? I’ll tell you on Thursday.
Until then, I have a question for you:
How do you budget?
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One of the biggest struggles we’ve had is using a budget to tell our money where to go instead of using one to track where our money went. The way we do it is by having my wife do 90% of the shopping and keeping up with the categories as the month goes along.
Interesting. Do you plan out the categories in advance or do you look over what was spent in each category?
Well, I did budget in my head until I read this! Now I will actually have to work at it!
haha, good!
Well, I’ve got this “Harvest Budget” that my wife & I have seen some real success with…
Lol, more on that soon
Jumbled in my head? My categories get jumbled on paper, lol.
I will be the first to admit I am not a complete stickler to the written budget. (This month for example, partially due to buying and selling a car, setting aside cash for repairs and other expenses, it was a mess.) However on calmer months when major transactions, lost receipts, etc AREN’T involved, this is how I budget (in the form of an Excel spreadsheet template):
1. Categorize everything for the next month. All income on one side, all expenses, savings goals and whatnot prioritized by importance on another side.
2. Based on past information, estimate the amount of expected income and enter the numbers; expected expenses and enter the numbers. If doing it the first time and you don’t know for sure, just guesstimate.
3. Balance everything out. Have the income minus the expenses equal zero. (In my case, I have it equal ten, since I never trust my bank accounts to have less than ten dollars in them.)
4. As the month goes, account for each and every expense in the category noted. Record these totals in a column next to the “expected” and try to stay below the expected number. For me, saving receipts until the end of the day helps for this. I’ve not yet committed to a cash envelope system though.
5. If you go over in one area, be sure to account for it in the next month’s budget. Why did you go over? Was there insufficient money for the necessary expenses or was there just a momentary lack of discipline? Remember to maintain that zero balance and when the money’s gone, it’s gone!
After a few months of doing this, I had a very good idea of how much I spent on what each month.
A very good system! One I will be writing about soon