Monday, September 29, 2008

My Backwards Budget and Financial Plan (no pie charts included)

I know I've been talking a lot about mindfulness lately, which is more about financial Philosophy than it is about Strategy.  And as fun as philosophy is, sometimes you just need to buckle down and do some work.  Budgeting work, that is.

So, I've had some more time to tinker with, and to think about my financial goals and how to accomplish them.  I know a few things about myself already.  One is that I'm not big on budgeting.  I know people who love to categorize their spending and fiddle with charts and graphs and manage multiple accounts for different things.  I am not that person.  Still, I know that keeping a budget can be useful.  So I've created a budget to fit my personality.  Call it the "I-couldn't-care-less-about-pie-charts-and-categories" financial plan.  It looks like this:

*  I have two budget categories.  That's right--just two.  The first is bills (things I have to pay) and the second I'll call "household spending" (aka everything else).  Since the first category doesn't fluctuate much, I basically leave it alone.  The second category, then, is where spending less can equal saving more or paying off debt.  
*  I have a debt-reduction plan.  It goes like this: pay extra on monthly loan/credit payments.  My current goal is to pay off my mortgage, so I'm adding additional principal payments every month.  I've just decided to increase that amount, which means (you guessed it) trimming the fat in my spending.  
*  I have a savings plan.  I make it automatic, meaning that I set up a transfer from my checking to my savings account monthly.  To increase my savings I just add more, which means (you guessed again) spending less.
*  I have an allowance.  This is money I can spend on what I want.  This is also where my budget wanders into a gray area full of temptation.  Should home improvements fall under allowance?  Should gifts for others?  I don't always have the answers, but I'm working on it...

As you can see, my "budget" is less about spending categories capped with set amounts as it is about setting specific goals and investing in them.  Forcing myself to pay extra for savings and debt automatically decreases the amount I have to spend every month, which (naturally) forces me to spend less.  It is kind of like a backwards budget.  It is more of a "where can I spend more to decrease debt and increase savings?" plan than a "how can I spend less on dining and entertainment?" plan.  

Of course, this is just my plan.  It wouldn't work for everyone.  It barely works for me.  But one of the keys, I've decided, to financial success is to take the time to figure out the plan that does work for you.  

On that note, click to read a good article on the "12 Steps to Financial Fitness," which I found on mint's blog.  It's less about budgeting and more about the bigger financial picture, which (of course) fits me better than an article on pie charts.  Enjoy!

Share your plan with me!  Email me at

Also, stick around for Monday's Marketplace Maven, posting soon.  Be inspired by entrepreneurial women!  Click here to learn more.

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