Throughout the years I have read countless articles online concerning budgeting. Back in my first job as a programmer I kept a spreadsheet and loved to forecast how much savings I might have at my current rate. What can I say, I'm a numbers kind of guy. I've gone through full accounting software to personal budgeting, but it wasn't until I ran into YNAB (shameless referral plug) that I finally got something I could stick with.
In the beginning I made a meager salary but had dreams of stashing away tons of cash. I laid out my budget so thin that I could just cover the rent, food, and utilities and put everything else away. This didn't work out so good, there was always social pressure to eat out or go see a movie. It was tough and stressful at times when things didn't always go right. During this time I came up with the idea of the "Fun" category. This mostly ended up being an extra $100 I spent on food by eating out more, but it sure did help relieve some of the stress.
My first job dealt with ERP software solutions and we inevitably had to learn more about accounting than most people care to. This led my coworkers and I to test out some full blown double ledger accounting software. Being into Open Source Software as we were we tested out some of the offerings at the time. During this test phase I also put my own budget into these things and tried to understand how to make them work. This project was later pulled from us before completion and we set these experiments aside. What we found was that often times these things were way more complicated than practical. There were a good introduction for Quickbooks, but I also think that is more complicated than what most people need.
After this time I took two years for my then religious beliefs and lived off a monthly stipend which I had prepaid while proselytizing. There was no way to go over budget and most things were already paid for, the stipend was spent nearly exclusively on food, and with plenty of meals shared with locals it was more than enough. Those two years taught me to expand the kinds of food I was willing to eat, and to live on very little.
To say it was all fun 'n games, or love at first site, would be to over simplify our relationship. Although I did fall in love right away it wasn't without some struggles and fights, a couple times we've just had to say let's have a fresh start.
Looking at my budget now I see 6 main categories with about 4 sub-categories each; but it hasn't always been this way. When I first started I had so many categories it made it hard to figure out what went where and each category was stretched fairly thin. While I never had to decide if this went from the Food-Vegie category or the Food-Fruit category I did find it to be a little complicated at first, I had my Utilities-Water, and Utilities-Electricity, etc. one category for each Utility. I later wizened up and put all of these under Household-Utilities.
The next one to look at was my food budget, this actually hasn't changed much other than how much we put into it. After some experimenting we settled on having Groceries and Restaurants. I know some people who might divvy this up as groceries and Costco or something, but we find this works out the best, we have our little restaurant eating budget to help us out sometimes when neither feel like cooking. Mostly nowadays this is used to strengthen up the food budget by pushing some over to Groceries towards the end of the month, leading us to start each month now by taking half of it and putting onto the groceries category to begin with. We now spend maybe $75 a month on eating out, but that maybe overestimating it.
A big reason to go with YNAB is both the price and the service. For $60 you get a program with free minor, and some major updates. With YNAB 3 we saw it come from pretty awesome to having iPhone/Android support without having to pay anything extra. Version number updates usually take a couple years and includes wonderful features which are worth the update, rather than a yearly update cycle which includes no added features and costs just about the same.
Not only do you get this great piece of software but you'll also get the forums, live classes, blogs, and endless prepared lessons which you can read through and help with getting yourself out of debt. The staff is fantastic in helping people find ways to beginning saving up their buffer.
Savings is possibly the biggest thing talked about on all of these budget and early retirement sites. Most people find the desire to budget because they want to save up for something. As a mustachian this can be a good habit to get into, making sure that you only spend the money which you have and never borrow, notwithstanding a mortgage, but that will only get you so far in this consumer society, what we want is to retire early while still enjoying some life along the way. Enter in our Savings category.
This is divided now in four sub-categories, before buying a house we had Retirement, Emergency, House, and Dream; now the House has been retired and Travel is now there by itself instead of being included in our Dream fund.
Retirement: This one should be fairly obvious; this is for us to retire on. Sometimes when we really want something, and have decided that it is indeed needed, and we know we can pay ourselves back coming up, we will dip into this fund and borrow from the hopefully not too much older us. This has been used to try and help my wife start a new business, or for me mining bitcoins when they were going for $30 apiece. This will see some hefty transactions as money we transfer from here to Vanguard gets deducted from the running balance and can no longer be spent.
Emergency: There always seems to be something that comes up, so in order to help us with some unexpected expenses we keep a modest emergency fund running and add $50 to it every month. Currently it sits at around $1,000 and has helped us immensely when my car suddenly needed new tires and our car maintenance budget didn't have enough.
Dream: This is the part where we save up for things which we believe would be nice to have, like a sofa for our living room, but isn't really a necessity. This can be used for vacations, or that computer upgrade I've been meaning to do, but it is something that my wife and I talk over and decide upon. Sometimes this is also used for presents, although we are now trying to stop this materialistic practice in our family.
Travel: My wife being from Taiwan we plan on visiting every few years. Currently all those credit card reward points go into here and we spend them on return plane tickets. This may be bolstered by our Dream fund when the time comes near to make sure we have enough covering our expenses.
There is also a fifth category of savings which actually comes before all of these and that is the buffer. Simply put this is your one month worth of income. See, I don't get a paycheck and have to turn around and spend it right away, I stash it away, which is pretty mustachian, and save it until the next month. Getting paid weekly it can be easy to get into that paycheck to paycheck mentality, but with YNAB you put that paycheck aside until the next month where you'll have an entire months budget worth of paychecks waiting for you. This has saved us so many times, even when we weren't quite using it as intended. Recently we decided to start paying off more of our mortgage and I had accidently set it up to take out our mortgage twice. Normally this would be quite devistating to most people, many bills would be bouncing everywhere and they wouldn't know what to do. Since first our retirement savings is sitting there that provides a natural buffer, secondly when the first paycheck of this month comes in I'll just set it for this month and have it cover our mistake while making the adjustment to skip paying next month. If we didn't have this one month buffer already set in place this may have caused us to postpone some retirement savings into Vanguard, or spend a week eating ramen noodles, instead it's just a little bump in the road.
There are things that my wife just won't let me buy with our dream money or travel budget. They may be new books I want to read, or kickstarters that I funded, or maybe a 5k which I want to run, or that afternoon snack from the vending machine, never fear, the Me Fund is here. This is where my wife tends to buy a lot of her gardening supplies, cacti, and purses. This is also how I upgraded my computer hard drive and bought a microphone to record myself singing. This is probably the biggest thing which has helped us both, by just allowing each other to spend this fund on whatever they wanted and agreeing not to argue over how it was spent.
Some people really do deserve a mustachian face punch, and those that misuse the credit card account are near the top of the list. Someone may open up a new credit card account and see that they have $3,000 as available and start dreaming of all the things they may buy, slowly whittling that $3,000 down until they hit $0 available as their limit. But in the Oh household we see that as a big fat $0 balance and our on-budget account starts off with $0. Every time we spend money it leaves a category, like Utilities, and produces a negative number in our account. This ensures that anything we buy on credit has full funds available and we can pay off the credit card every month. Doing this we have saved countless thousands of dollars in interest and possible late fees or overage charges.
This budgeting thing really can save marriages, I'm not sure what we would have been doing by now without our budget, but I firmly believe that we wouldn't have been able to buy the house I now sit in while typing this. We've never been in an argument over spending money, and we've never been short on a bill. It really is a terrific feeling on the first of the month when the budget opens up and you know that if every bill came in that day that you would be able to afford to pay them all.
Honestly there aren't many dangers to budgeting other than taking too optimistic of an approach, or tightening the belt so much you can't enjoy life, but the most dangerous thing to the dream of early retirement would be using the budget as justification. We sometimes find ourselves falling into this trap, seeing how much we have in our budget and thinking, "Well, it's within budget, we can afford it." If you start thinking that ever STOP! Take a breath, back off a little bit, then ask yourself, "Do I really need this item?" Just because you can afford something doesn't mean that you should buy it. I could afford to upgrade a different piece of my computer almost every month, but I don't do it just because there is room in the budget, my computer is now running on three or four years with the only upgrade being an SSD drive.
There is a lot of joy in budgeting, and I do find myself still doing forecasting sometimes to give myself motivation. I find pleasure in running my budget out to years end and seeing what I could save by that time and asking myself what changes I can make to increase that number.
Since becoming mustachian some changes have happened. Our 5th paycheck no longer goes straight to Dream fund, our dream is to retire early. Extra money I make on the side no longer goes 50/50 to dream/retirement, but goes nearly all into retirement with maybe a little special something for the effort. I have seen friends get into deep debt and the pressure it brings and each time I am grateful I have stuck to my budget.