My wife and I have been struggling to adhere to our budget over the last few months. A number of personal crises have conspired to make sticking to each budget line item a tall order. I’ve been on the lookout for a less cumbersome budget process, while improving automation and reducing the opportunity to overrun our spending limits.
Fortunately, the June 2009 edition of Money magazine generated some ideas in the article, “Discover Your Budget Style,” written by Ismat Sarah Mangla. The article describes one method of budgeting that appeals to me. It is referred to as the “bucket budget.” The bucket budget is for those who prefer to track spending with less granularity. So rather than tracking every morning latte, the dry cleaning bill, the occasional meal out with friends, and baseball cap you bought for your son, you would simply track these categories as part of a larger “variable expenses” budget.
The Money article goes on to explain how to implement the bucket budget. I’ll consolidate their detailed steps into a few quick bullets below.
- Two checking accounts and one savings account are required
- Calculate saving contribution desired from each paycheck and have employer’s payroll office direct deposit that amount into an online savings account
- The remaining amount of paycheck should be deposited in Checking Account #1 for payment of major, fixed expenses such as the mortgage payment, power bill, etc.
- With what’s left in Checking Account #1, divide the amount by four and schedule equal, weekly deposits into Checking Account #2. This second checking account will be used to purchase all variable budget items, such as food, clothing, and entertainment expenses.
From the Money article:
The system creates “artificial scarcity,” forcing you to live on less and within hard boundaries.
I like the idea of creating this “artificial scarcity.” If you are like me, I tend to let cash burn a hole in my pocket, so if I withdrawal all of my spending money at the beginning of the month, or the beginning of the pay period, it tends to run out well before my next paycheck. In the past, when this happened I turned to credit cards to float expenditures to my next paycheck, or I dipped into savings. Using the bucket budget system, we would never be more than a week from refreshing of our supply of cash.
One word of caution: to avoid costly overdraft fees it is probably a good idea to save up a little cushion for both checking accounts, since the timing of automatic deductions, subscription payments and your weekly allotments could draw down your balance at the worst possible time. To keep things comfortable, I’ll try to keep $500 in each account and treat that number as the floor amount, rather than $0.
To further enhance this system we plan to incorporate our envelope budget system. When the weekly transfers are made to Checking Account #2, we will withdraw a portion of the money in cash and use it to fill our envelopes. This allows for some specific budget category tracking for things like food and entertainment, and keeps us from overspending in those particular categories. For remaining categories like gas purchases or subscriptions (Netflix, the gym, etc.) we’ll stick to a debit card for convenience.
I recognize this budget system won’t work for everyone. After all, some people enjoy tracking spending across dozens of categories. I used to. However, I found myself spending too much time in front of an Excel worksheet, and too much time beating myself up for overrunning the “Magazine” category because I renewed my Money subscription last month. Just imagine–if I had continued to be that strict on my budget categories I would have missed out on reading about this very idea.