Budgeting: a Tri-alogue

MamaM: Now that your credit card bills are coming due, some of you may be realizing that Santa was a little too generous last Christmas. It's hard not to spend money on gifts for others, as that is how many of us have been accustomed to expressing our love and care for others.

MamaD: But even without holiday spending, it's hard to stick to a budget.

MamaQ: Which is why we're going to share some ideas on what works--and doesn't work--for us.

MamaM: Me first. Hubby and I go with the philosophy of putting aside a certain amount of savings every pay check and then pretty much just blowing the rest. It's not ideal. I wish I could stick to spending only a certain amount in certain categories, but something ALWAYS comes up that throws that off track: gifts for weddings or showers, extra grocery spending for a dinner or special event, vacations, car care, medical emergency or, hey, that really, really good sale at the mall you just can't pass up. So we have figured out what we typically spend for normal monthly expenses, left some extra for those unexpected expenses, then put the rest in savings. Only we do the savings first so we're sure that gets put away. Everything else goes on the credit card because we like to get the rewards points.

What has thrown a wrench into this plan is that I'm now on maternity leave and will be going back to my job as a bank PR manager only part-time. Time to re-do the budget. We're currently renegotiating some of our insurance expenses, changing savings allocations and trying to figure out how to not spend so much on groceries!

MamaD: The problem with those unexpected expenses is that they can take you over your budget and with a credit card balance remaining at the end of the month. My husband and I have found having little escrow accounts has been very useful. What was killing us with our budget were the variable expenses that MamaM mentioned that only came up occasionally like car and home repairs or the gifts for weddings or baby showers that come up suddenly. So we set up separate savings accounts for all those things ,which in our case was a car fund, house fund, gifts fund, and travel fund. Eventually, I would like another little account for my shopping excursions for clothing and shoes (but only if the items are on a really good sale, of course).

Before I quit my job to stay home with Lucy, we padded each account with an initial investment to get it started and now direct deposit a set amount into each account every month. When an unexpected expense comes up, we just charge it to our credit card and then reimburse the cost each month from our escrow accounts. It's not a perfect system but it has worked a lot better than what we were doing before (read: trying not to spend any money). I hate cash and debit and only use credit but it's essential we pay it off each month. If there is a remaining balance and we get a finance charge one month, we do a spending moratorium on non-essential items like going out to eat or entertainment until things are paid off and padded a bit. And then we like to use our credit card rewards for paying for Christmas gifts at the end of the year. And of course, we direct deposit money into hubby's 401K, his IRA, my IRA, and our short-term savings account as well.

MamaQ: My philosophy is to marry rich so you just don't have to worry about money at all...

MamaM: I have friends who use the cash envelope method. They carry around one of those small multi-pocketed plastic files and label them by category, such as "groceries," "eating out," "gas" and "clothing." They then allocate a certain amount of cash to each pocket and once it's gone, it's gone. It really works for them --- but for me, cash is a pain. Debit cards are tricky, too, because sometimes money is tight and with two cardholders (husband and me) debiting from the same checking account, overdrafts may occur and reconciling becomes a bit more difficult. I suppose a good solution would be to learn how to communicate with each other better...

MamaD: I feel the exact same way about debit purchases. Spending feels a bit like a juggling act for me because it comes in spurts and doesn't always match when the paychecks come in. But as long as we are not carrying a balance on our credit card, I feel fine. The only problem is the few times we have had a balance on our credit card, we have dipped into savings to prevent the finance charge. But we continue our "spending" moratorium until we reimburse whatever we took out of savings. Or in theory, that is what we try to do...it doesn't always happen that way.

MamaQ: I was just kidding about the "marry a rich guy" scheme (obviously). I pretty much charge everything to my credit card and then meticulously go through all my expenditures at the end of the month.

I know exactly how much I spent on gas, on groceries, on utilities, on entertainment, etc. If I see that we've exceeded our income or spent more than an imaginary allotment I have for each category, I make a mental note to curtail spending the next month. Not very scientific I suppose, and it requires that you have a bit of a nest-egg savings to dip into occasionally, but the truth is, this system has worked really well for us and we've been able to spend responsibly, contribute towards retirement and college savings plan, save some dough on the side, and occasionally indulge. My real philosophy is "work hard, spend responsibly, and don't be greedy." Inspiring, right?

MamaD: I think that the "don't be greedy" part is key. I am constantly trying to re-evaluate my needs versus my wants versus plain wasting of money. And of course, this varies from person to person and it's hard not to judge the person who spends their money differently than you do. So a take-home message along with all of this is don't judge your brother-in-law who spends a large portion of his money on videogames when he might think that you are equally ridiculous for spending what you do on clothes and shoes...

We'd love to hear your thoughts on what budgeting methods work for you.