Winning the Daily Cash Flow Battle

The development of our household budget has been a wild ride. After we first married, some ten years ago, we rarely sat down to discuss finances, detail a monthly budget, or even discuss longer term plans such as retirement goals, etc. Over time I took on the role of handling the finances in our relationship and made a few half-hearted attempts at a budget on a most infrequent basis. It wasn’t until I finally had a financial wake-up call that I realized budgeting, and better communication about money, were the keys to our financial success. To this day, I have a difficult time setting a budget amount at the beginning of the month and sticking to it.

When Budgeting, Think in Shorter Terms

One of the ways I’ve found success in budgeting is to think in shorter terms. Instead of trying to plan for an entire month’s worth of income and expenses, I’ll just plan out the next two weeks (which works well since I’m paid biweekly). Personally, we find it easier to anticipate upcoming expenses over the next couple weeks than for the entire month. But even a two-week plan has pitfalls. Things always tend to sneak up on us that we forgot to account for when setting the budget. Kids’ yearbooks, medical expenses, or a trip to the vet can blow your budget out of the water. For this reason I’ve started thinking about my income and expenses on a daily basis.

The Daily Cash Flow Battle

I don’t literally mean I lay out a budget every single day in a formal manner. I mean that I break down my incidental, or miscellaneous, expenses budget for the entire month down into a daily amount. For instance, if I set aside $360 in June for incidental spending (eating out, clothes, gifts, entertainment, etc.) then my daily incidentals budget is $12. That means I can spend an average of $12 a day on these miscellaneous budget categories and not break my budget. I keep this figure tucked away in my memory bank and while out and about during the day keep sort of a running total in my head. There was the $3.00 breakfast sandwich on the way into work; $1.00 for the drink out of the machine; $5.00 for a coworker’s kid to go to band camp. I’ve already spent $9.00 of my $12.00 budget for daily incidentals. That means if I want to stop by Target and pickup that new CD that came out it will have to wait until another day.

One Bite at a Time

This plan reminds me a bit of that saying, “The best way to eat an elephant is one bite at a time.” By breaking down an entire month’s worth of budgeted expenditures into a daily limit we are forcing ourselves to keep an inventory of our expenses as we go about our lives. Not much room in this plan for a $40.00 pair of jeans you happened to see in the window on the walk to work. If you continue to win the daily battles when it comes to daily cashflow, ultimately you will win the war against debt and overspending.

photo by IntangibleArts

Comments

  1. I like the idea of breaking up the month into smaller time frames. I read somewhere that people pay their credit cards on a weekly basis, but that might be a little much. We are just wrapping up our first month with a joint account and a joint budget, so any kinds of tips are welcome. So far, so good!

  2. We tend to stick to categories, so lunches and CDs probably wouldn’t be the same pot of money. But I can imagine that with kids and a giving-oriented workplace, you’ve gotta be more careful with the incidentals. It’s kind of the time-tested envelope system, just on a micro scale–cool idea.

  3. “The best way to eat an elephant is one bite at a time.”

    That my father’s favorite line. He’s been using it on me since I was a kid… and it rubbed off. While I’ve never applied it to budgeting, I certainly see how it could potentially make things a whole lot easier.

  4. The one thing that seems to scare people away from budgeting is the “whole elephant.” Once you nail down daily/weekly incidentals and have those locked down, you can tackle the bigger things.

    Also remember, this is a living document. Things change. Certain items can be dropped, modified, or unfortunately, added to this document.

  5. I really need to sit down and create a monthly budget. Hubby is driving me bonkers with his daily eating out. :( Cutting him off completely doesn’t seem to be a realistic goal. *sigh*

  6. I am currently having the same issue. Planning an entire months expenses is difficult unless you are boring and do exactly the same thing everyday. A few months ago I signed up for mvelopes (mvelopes.com) which is an electronic envelope system. It can even connect to your bank and download transactions which is nice for me because I rarely use cash. I am also paid biweekly as well as my wife and mvelopes allows us to fund our envelopes based on a predertimed budget we have setup for each paycheck. Mvelopes is worth taking a look into and has a free 30 day trial if you are looking at a good way to create a budget and stick to it. I am still stuggling with the stick to it part though ;-)

  7. Seems I’ve always gotten paid just once a month, so I tend to be quite stingy with spending – knowing there’s ‘no more’ til the next month. And trying to allow for the unforeseen small things.

    So – the $310 cash a month goes in my wallet for groceries, gas, and gifts… only now the gas part is not working as well anymore…so I upped my spending cash to $350… and once it’s gone, it’s gone… I guess I just need to See the cash itself – knowing there’s money in the checkbook just doesn’t have the same effect of keeping my stinginess intact for some reason.

    PS – Gas has been holding steading now for over 2 whole weeks here- a miracle!!! $4.38.

  8. In the world of travel (especially shoestring/budget travel), spending per day is always quoted as a gauge of how expensive a particular destination is. It is also VERY useful for planning.

    I just got back from a long trip around the planet, and I used spending per day as my budget (my budget was $100/day for EVERYTHING except flights). Every day on the trip I added up everything I spent that day, so I could get daily feedback on my spending.

    While on the trip I had the thought that this can be applied to non-travel spending as well. This wouldn’t work for me well, because I have so many monthly bills (e.g. rent, cable, phone), and also I almost never spend money during the week, so my spending is not spent evenly throughout the month or week.

    Incidentally, over the course of last year, I averaged about $62/day (everything – including rent, insurance, bills, vacations, etc.) – which is much less than my daily vacation budget (Why? It is cheaper to live in an apartment than at a hotel. Also I eat out every meal while on vacation, plus need to pay to entertain myself during the day, etc.). I think it is very fascinating to think about spending on a daily basis.

    When not traveling all of my spending/budgeting is done at paycheck (biweekly) interval. I find this to highly manageable.

  9. I agree that breaking the month into smaller chunks is psychologically easier…

    Thanks to a weird quirk between my husband’s bi-weekly check and my monthly check, we have 2 “half months” each year: 12 four-week periods and 2 two-week periods. The best part is starting with a fresh budget after two just weeks.

    I do like your $12 per day mindset. We’re thinking of alloting ourself a weekly “allowance” for misc. spending.

  10. Eureka! I think breaking it down into a limit PER DAY may be just the thing I need to do to get my incidental spending under control. I’ve been doing it as a monthly amount, but at the start of the month it seems like so much and gets spent, and at the end of the month it is gone so I cheat. I will try the daily cap.

  11. Another trick that I like is deciding my monthly spending allowance and writing that amount on a post-it. I stick the post-it to my credit card, which I use for most purchases, and each time I make a purchase, I subtract that amount from my monthly total. It’s a good trigger that reminds me to think twice about impulse buys, and it’s helped me get my spending back in check.

  12. I love the theory of 1 bite at a time; reminds me of reduce to the ridiculous that I learned a long time ago when I was starting out in sales.

    Another ridiculous notion is the something for nothing idea. Does something for nothing exist? Well, what if a senior could obtain an immediate annuity, put up nothing, zero, nada, and come away with an monthly income for life?

    Would one say, then, that something for nothing doesn’t exist?

  13. Sr life guy… so are you selling something? Cuz that sounds too good to be true! etc etc :) Sounds too much like a reverse mortgage.

  14. True blue, Marci, and really a dream come true for Seniors that need extra monthly income.

    The program is probably the antithesis of the reverse mortgage. Absolutely zero is invested or collateralized by the senior.

    It won’t always work because there is an arbitrage involved between life insurance mortality assumptions and institutional funder life expectancies, but this program is being done all the time, and if it doesn’t work out, there’s no obligation at all.

    Come visit the link to find out more if you would like.

  15. Thanks, Senior Life Guy…. but I knew there was a catch to it :) I’m not OLD enough! LOL!!! Will send it along to my folks tho. Who wudda believed! This is quite the thing! Thanks for the info.

  16. The one bite at a time concept is so applicable across personal finance and life.

    Years ago I read a book about writing called bird by bird… basically that the key to writing is breaking it down into sentences and paragraphs. (bird by bird comes from a reports the author did as child on bird — her dad told her to do it bird by bird). investment success is similar as well, continually investing on regular basis regardless of market conditions etc.(dollar cost averaging)…

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