PF Hour Episode 25: Jim and JD Tackle Budgeting With Several Callers

JD and Jim tackled budgeting this week on the Personal Finance Hour.  The word “budget” evokes negative connotations from lots of people, including people in the personal finance world.  JD mentioned some big names that seem to “hate” budgeting, including Ramit and Suze Orman.  There really seems to be an anti-budget sentiment out there, about budgeting and the guys wanted to delve into what is up with all the negativity.

Budgeting For Different Types of People

Both Jim and JD agreed that budgeting is not a cure all for people that are looking to get their finances on track.  However, one of the most important financial actions you can take is finding out where your money is going.  They discussed tracking your money, but that hardly ever works for people that it doesn’t come natural to (sort of like most new year’s resolutions that just don’t have sticking power in our lives).

What may be easier for people than tracking or coming up with a budget, is to come up with a spending plan.  JD referenced his spending plan (found here) throughout the show as a means of getting himself on track.  The spending plan helped him get to his goal.  Jim described it as a map to get from one side of the country to the other.  Once the framework was set, the rest just sort of fell into place.

Jim stressed that budgeting can be different for different types of people.  If you are a numbers person, a budget may work perfectly for you.  If you hate numbers, a budget may bore you, but you may look for other means to stay on track (a spending plan).

Do The Hosts Budget?

The guys turned the show towards themselves for a minute when JD asked Jim if he currently keeps a budget.  Jim said he used to when he first started working.  The transition from having no income to having income and more expenses made it valuable for him to use a budget to keep track of everything.  However, he no longer keeps track of everything.  He does feel that it’s more important to keep track of your finances specifically when making a bigger purchase.  Specifically, the big expenses for Jim are the same as most young people; eating out and going to bars.  If he reins those expenses in, he knows he will be doing well for the month.

JD uses Quicken to help him budget; however budgeting does not come natural to him.  One thing he tries to do is use the Balanced Money Formula from Liz Warren’s book All Your Worth: The Ultimate Lifetime Money Plan.

JD also mentioned that there are several online tools to help you with your finances including, Mint, Wesabe, MoneyStrands, Budget Pulse, PearBudget, You Need a Budget, Pocketsmith and Mvelops.  Jim stated that the framework of these sites is what is interesting as each take a bit of a different angle to the budgeting and personal finance conundrum.

Callers and Chatters

Brian (My Next Buck) called in to talk about hybrid budgeting.  He currently keeps a monthly budget, but he feels it hampers him slightly as he can’t make any purchases over $50 or so without fear of going over budget in a specific category (new clothes was the example used).  He is considering using a hybrid monthly/yearly budget, and breaking things out to fit what he would like his lifestyle to be.  He also mentioned that budgeting has helped him cut out big expenses, as there isn’t “room” for them in his budget.  JD responded to Brian’s idea of a hybrid budget by citing an August 2008 article in the Journal of Consumer Research which discussed that people making an annual budget are much more accurate than those keeping a monthly budget.

Kelly (The Censtible Life) called in after Brian to talk about how she has handled the hybrid budget.  She says that planning both monthly and yearly is ideal for her and her family because her children have a lot of ups and downs with regards to spending.  She mentioned that there are times when the kids have to go to a lot of birthday parties in one month and they end up having to buy all sorts of gifts in one month and not the next.  This type of spending is hard to plan for.  She puts a larger buffer for herself and her family in the yearly budget than she often does her monthly budget.  She makes adjustments to her budget constantly and if she misses a goal one month, she looks to see if she should pad that category with extra money from somewhere else to make sure she isn’t spending too much.

Baker (Man vs. Debt) dialed into the guys to talk about his wife and his experiment with a three-month budget.  He said it was a challenge as their spending went very quickly in the first month, which left them very cash strapped in the second two months.  He recommends budgeting in shorter blocks of time, but also keeping an eye on the big picture.  Baker also had another suggestion in terms of tracking/budgeting.  He stated that he and his wife use rounding to their advantage by rounding their income down and rounding their expenses up.  This provides another little cushion each month in case they do go slightly over what they planned on spending.

Shara was a first time caller into the show and she stated that she is a budgeting geek.  She keeps eight budgets going at once in case life events alter her course.   She has a budget in case her or her husband lose their jobs; she has a bi-weekly budget, and a yearly budget (to name a few).  Jim asked how she got to the level of running so many budgets at once, and she replied that she is a numbers person and this just came naturally to her.  She said the system took years to develop so that it works perfectly for her and matches her personality.  She also added that if she had to track every penny, there is no way she would have been able to stay on track.

Concluding Thoughts

Budgeting is a valuable tool for people to get started and to stay on track in the personal finance world.  Even a loose framework of a budget may be able to start you down a successful path.  Jim concluded the show with a thought that we all should consider when looking into money management tools, “it doesn’t hurt to try it.”  By setting up a budget, it doesn’t mean you are committed to it.  After a few weeks, or a few months of it not working as intended, feel free to scrap it and find something that works best for you.