Should you have a budget, or just an aggressive savings plan?
No matter how much money you have or how secure you believe your job is, having savings put away is essential for your financial security. I just realized my own approach to savings isn’t to budget my money. My method is to put away everything except what I need to cover my expenses and a modest “entertainment budget” I allocate myself each month for non-necessities like eating out, buying DVDs, etc. Because I’m an aggressive saver who emotionally prefers saving to splurging (for the most part), this works for me.
But I’m realizing lately I’d have more peace of mind if I didn’t have to do so much calculating every month to guess how much I can put away. A budget would make me happier. But the problem is that my income varies each month. This is true for a lot of people: not just freelancers and contractors, but anyone who gets paid bi-weekly instead of semi-monthly, who ends up with “extra” paychecks 4 out of 12 months. A monthly budget doesn’t work so well under those conditions. And yet bills come monthly, so it’s hard to think of a budget in any other way. (By the way, I’m about halfway to believing bi-weekly paychecks are a conspiracy to encourage people to live paycheck and paycheck, never getting ahead, so there will always be a huge pool of laborers dependent on big business for their livelihoods. 
) As much as I’d like to set up an automatic monthly withdrawal from my checking account to my online savings account so I don’t have to think about it, I do have to think about it every month because the amount I can afford to put away is never the same.
What do you do? Budget everything, or just put a cap on your non-necessities and squirrel everything you can away into savings?
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I like to wait until the end of the month and then put the extra money into savings. This works for me because I am also a compulsive saver so I am ALWAYS wanting to save even a penny. We do budget too, but that is because my hubby can’t live without one. (well. he could, but he would over spend!)
That’s a good suggestion. I have trouble with it, though, because I have to try to guess how much money is going to come in on what dates during the next month, to make sure I leave enough to pay next month’s bills. And it’s not terribly consistent. So I end up just putting a bunch into savings every now and then, but not as much as I’d like because I’m afraid I’ll take too much out of savings, and then because my savings account isn’t with the same bank as checking, it takes a few days to transfer money back and forth. *sigh*
Can you tell math just isn’t my thing?
I find it helpful to have two checking accounts — one where my paycheck deposits and where the extra money to cover infrequent expenses, like vet and car-repair, piles up; and a second account to which I move my operating expenses (derived with the help of a budget) at the beginning of every month.
That gives me the necessary perspective to stay within my operating budget, and lets the surplus pile up in an easily-accessible spot. If savings accounts ever go back to earning serious interest, I’ll need to add a savings account to the mix. As it is now, I can afford to wait until there’s a substantial buildup in the reserve account, then move it to a CD.
If you can afford it, the very best thing to do with those four “extra” checks a year is just to pretend they don’t exist — build your budget around a two-paycheck month, and stash the “extras” into savings right away. If you have a freelancer’s cash flow, working out what is an “average” month (one-twelfth of your previous year’s income or expenses) and moving that amount from your reserve account to your operating account every month should work, I’d think — you’d probably want to let your reserve’s balance get higher, to cover the uneven flow of income.