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New Budget Plan

January 28th, 2015 at 03:18 am

I know I've been going back and forth quite a bit about different budget plans / allocations the past few months.

I haven't totally been happy with any of them.

Today though I read something on the MMM blog about his 2014 expenses, as well as a couple comments, which really resonated with me.

To put it simply, MMM doesn't go by a formal budget - he simply makes values based spending decisions.

For me, before I spend money from now on outside of the basics (rent, car insurance, giving, Roth, 10% of net EF) I am going to ask myself a series of questions (from MMM blog).

1. Will buying this really improve my overall lifetime happiness?

2. Is there another, more efficient way to meet this same need?

3. Can the same benefit be had if I delay the purchase?

4. (my own question) If I purchase this item now, how will it affect future me? I.e. Is the item worth the opportunity cost.

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I redid my whole January budget. I emptied out all categories that had positive balances to put them back into the Available to Budget (ATB).

Then I created a new category - Slush - which I funded with $1000. The rule is that if it ever goes under $1000 then it is the first category to be refueled.

I still have umpteen number of small categories - they just are not funded. After asking the series of questions if I decide the purchase is worth it, then I'll spend the money in which ever category it belongs to.

At the end of the month all money that was not spent will go to the EF until I hit the $12,000 goal. I am going to focus 100% on this goal until I reach it.

This is not to say that I won't be taking any vacations or trips - I just will be scrutinizing the expenses and value of them very hard.

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So for example if I am really wanting some chocolate I can ask myself if the chocolate is really going to help me be happier overall. Let's say I'm really wanting a whole bag of chocolate. Buying a whole bag isn't going to help me happier overall, and it won't help my future self be happier or healthier. However, if I purchased a small single chocolate bar I would get my chocolate, but at a very small cost. ($.50 vs $3.49)

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Purpose of slush fund: Let's say there's a month where Murphy hits hard and I have a large expense which uses up all of the ATB - I can then use the money in the slush fund.

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Here's January for an example:
Must Haves:
Giving: 10% of Net from prior month
Rent: 430
ROTH: 200
Car Insurance: 36
EF: 10% of Net from prior month

All other categories use the ATB money.

I have 322.93 left. All $322.93 goes to the EF category.

When you add up ROTH, EF 10% and EF ATB, it gives me an approximate 48% savings rate (of Net) for January.

Once my retirement starts being subtracted, I'll look at two savings rates - Net and Net+7%.

7 Responses to “New Budget Plan”

  1. chloe Says:
    1422418914

    Interesting idea. I went and read the MMM post you referenced (haven't read much of his stuff before), and he mentions that this could be hard for a newbie until you get used to it and it becomes automatic. I know it would be hard for me. I wish you lots of luck look forward to seeing how it goes for you!

  2. creditcardfree Says:
    1422467568

    I think I'm following what you are doing...and it tends to be how we functioned in the past. I think you will like it!

  3. FrugalTexan75 Says:
    1422489377

    Hi Chole - Yes, it could be difficult for newbies. I've been budgeting off and on regularly for at least ten years. One of the most frustrating things for me has been figuring out what to put into each category. I also have sometimes seen that I have so much in a category left ... so why not splurge a bit. I think this way of doing things will help me with my frustration - and while it won't stop me from splurging, it will cause me to think the splurge through fully.

    CCF - I'm glad you followed it. Smile I wasn't sure if I was being very clear on my thought process. I really do think I'll like it.

  4. chloe Says:
    1422500292

    Follow-up question, if that's alright: Are you still going to track your spending, even if you aren't sticking to budget categories? Or will you not worry about it, as long as your savings are growing? Just curious!

  5. FrugalTexan75 Says:
    1422504721

    Good question Smile
    Yes, I still do plan on tracking my spending. That way if I'm seeing that my savings rate isn't where I want it to be, I can look and see what areas might need to be questioned more stringently. Also, so I can see trends over time. I still want the data, I just don't want to have the pre-spoken amounts so to speak.

  6. bluesfemme Says:
    1422547190

    Good luck Laura! I use a variation of this and it's working so far for me (a budget feels like someone telling me what to do and that doesn't work for me :-) ).

    I have an added incentive though, as my cumulative pay sits in my offset account, reducing the mortgage interest for the month - my competitive nature of wanting to see significant reduction of interest each month means I really think about purchases. The hyper awareness now is really thanks to the fine folks at sa blogs!

  7. FrugalTexan75 Says:
    1422586745

    Thanks Blue!

    That would be a great added incentive.

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