| We tend to keep it pretty simple. 1) We don't do debt. Certainly not for consumption purposes; we avoid it for capital purposes. We have a mortgage, but we saved and paid cash for the last car we bought; we might take a loan for a car... but even then we know the return we expect to get on the car would far out-weight the cost of the loan for the kind of car we'd entertain buying. A loan for education? Not unless a conservative expected rate of return justifies the debt: and I don't mean over a lifetime... but more like a decade. 2) A follow on to 1... We will avoid savings/investing (except for a very liquid, minimal emergency fund) if there is debt we can pay off early. Retirement savings are an exception because of tax law considerations. Our mortgage is low interest, and we might do better investing that money... but we might not and I know how much we save if we kill the mortgage early. 3) Don't spend what you don't have. Do your damnedest to not spend what you do have. Much of this goes back to 1. Many people create a budget as a means to give themself permission for otherwise unregulated spending on consumption goods... they'll budget a bit for savings and a bit for necessities... you know what's fair and "rational". But everything else is fair game and their budget, if they keep it, removes the guilt of what to me would look like over-spending. The default should be don't spend and justify each purchase. Yes, sometimes leisure is a worthwhile investment into yourself/family: but think through those decisions and alternatives that achieve the goal of leisure, but not at the cost. Aside from that we use off the shelf software for tracking; but tools really are a minor consideration compared to having a healthy attitude to money and spending. We don't produce budgets because our default thinking is healthy. We do plan, but chiefly we just don't spend so that when crap does crop up we have the resources... or don't have the threats (debt)... as a default position rather than let-lose-spending with a minimum planned savings. Note that none of this is investment advice. We're terrible at that side of the equation so I wouldn't offer it: but the first step is don't spend first what you might invest.... then you can worry what to do with your capital. Finally... none of this comes from an philosophical anti-materialism or anything of the sort. It's all just being responsible for ourselves and our financial health. |
The question should not be: do I have enough budget to make this pruchase. the question is: do I really need this thing I'm going to buy.
Budgets should be for estimating future spending or learning about your past spending behaviors. It's a tool for assessment, not a license to spend more.