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SPENDING
Budgets That Work (Honest)
(Page 3 of 4)
by Jane Bennett Clark
Build a buffer
As a financial planner in Atlanta, Bryan Clontz adheres to the golden rule of budgeting: Pay yourself first. But that's not feasible unless you know where your money is going and how much you can set aside. So Bryan and his wife, Kim, set up a system with enough leeway to ensure that they can save on the first of the month without having to borrow back the money on the 15th.
Once a year, the Clontzes review their bills and select the highest monthly tab in each category during the previous 12 months -- say, $200 for electricity -- and plug that into their budget for the coming year. "That way, we have a built-in buffer," says Bryan. As an extra precaution, the couple set aside money for emergencies.
They also give themselves an allotment that each can spend with no questions asked. "Kim can buy shoes or whatever -- I don't care," says Bryan. "We hate discussing how we spend cash."
Separate slush funds can help a budget succeed by maintaining morale, says Judy Lawrence in The Budget Kit (Dearborn). Failing to factor in "mad money" only leads to frustration, she points out.
Having accounted for contingencies, the Clontzes feel comfortable about investing a set sum at the beginning of every month. "There's no way we're going to go through the highest amount in each category plus our discretionary funds," says Bryan. So well-planned is their system that the Clontzes don't bother to balance their checkbook or use budget software. In fact, they usually have a surplus come New Year's Day, in addition to their savings. "We love to travel," says Bryan, "so we take whatever is left over at the end of the year and go on a trip."
Stick with cash
When Terry Hopkins quit his job as a construction project manager to become a full-time student, he and his wife, Melissa Hammel, needed a foolproof way to keep spending under control. The couple, who live in Dellrose, Tenn., resorted to a strategy today's plastic addicts might not recognize: They use cash.
Budgetmeisters insist that stashing money in envelopes according to spending categories is a powerful budgeting tool because you can actually see what you're spending. Hopkins and Hammel would agree. For convenience they use checks or automatic bank transfers to make the mortgage and car payments. But they rely on the green stuff for face-to-face purchases, such as groceries, lunch and pet supplies. "When I pull up to the pump for gas, I reach into the glove compartment for the 'gas' envelope," says Hopkins. "It sounds corny, but it's a terrific way to keep from overspending."
The key is being realistic about your expenses and putting enough in each envelope to get you through the month. You can decide later where to cut back, if necessary, says Hopkins.
If you don't like keeping lots of cash around the house, you could set up an online system with Mvelopes, a service that links up with your bank and uses envelope icons to apportion your paycheck and keep track of spending (www.mvelopes.com; $10 per month). Mvelopes avoids much of the data entry of other personal-finance programs and gives you a visual cue of how much money you have left in each category. When you're overbudget, the line item turns red.
Predict costs
Cathleen Bechan earns a living dealing with the unexpected: She's an urgent-care doctor in Stamford, Conn. But when it comes to her own finances, she minimizes surprises. Bechan predicts her expenses upfront, and then makes adjustments, if necessary, to reflect what she really spends.
Bechan's finances are straightforward: She sets aside money to pay the rent, electric and telephone bills, and for groceries, emergencies and savings. A surfing fund lets her catch the waves in warm-weather climes such as Costa Rica. She records her actual outlays in a composition book organized by week and periodically compares them with her estimates. "At first, my predictions were wildly different from my actual expenses, but now I'm more accurate," says Bechan.
If a prediction misses the mark, she shifts money from one category to another--an obvious, and appropriate, solution as long as your bottom line stays black. "I see people who look at their budget at the end of the month and say, 'Gee, that was rough,'" says Bryan Clintsman, a financial planner in Southlake, Tex. "The point is to look at it during the month and make real-time adjustments."
Because Bechan lives well below her means, she has plenty of wiggle room. "I'm a conservative person," says Bechan, who paid cash for her new Infiniti, and paid off $30,000 in medical-school loans 14 months after finishing her residency. "I try to save a lot."
--Research: Joan Goldwasser
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