Trying to budget from one lump sum is difficult. If you want more control over how you budget your set expenses and flexible spending, consider separating the two so you know exactly how much you have to use this week.
Photo by meddygarnet.
Personal finance blog Get Rich Slowly points out that while the balanced money formula can be useful (spending 30 per cent of your money on things you want, 50 per cent on things you need and putting 20 per cent in your savings), it leaves some things up to interpretation and doesn't help you plan ahead. Instead, they recommend separating your fixed and flexible spending in different accounts and automating the paying of bills:
With a fixed vs. flexible split in my expenses, it doesn't matter. I may need groceries and merely want auto insurance, but that car insurance bill is due on the 15th regardless of my priorities. If I don't have enough money to cover my flexible needs, I need to cut back on my fixed expenses somewhere.
Once we had those numbers, we set up our finances between the two checking accounts like this:
My husband's direct deposit goes into our local bank account, where I deposit all my little checks and cash payments as they come in.
- Once a week, the amount of our fixed expense budget is transferred from our local checking account to our ING account.
- All of our recurring, fixed expenses are automated to pay out of that account.
- All of our flexible spending for things like groceries and entertainment comes out of the local account.
After separating the expenses, you don't have to constantly stress out about how much money to save for those bills and worrying about the due dates (though you should still check regularly and make sure everything's going as planned). Hit up the full post for more on fixed vs flexible spending, as well as other advice on how to manage them both.
Fixed Expenses and Flexible Expenses: How to Budget for Both [Get Rich Slowly]