How i used to “budget” and how i use the bottom line system now instead.
Before I started taking a close look at my finances and well before I created the Bottom Line, I used to think about money in this way: I knew my big, fixed expenses – rent, car insurance, health insurance, utility bills. After I covered those, I thought of everything else as money I could spend. So, for example, if I had $4,000 of income in a month and I knew my fixed expenses required $2,000, I would spend the remaining $2,000 however I wanted.
How did this pan out? Not very well. I would buy whatever I wanted with that balance, not ever anticipating things I should have known I needed that month, or even in months to come. When I would inevitably be met with an unexpected expense, the funds weren’t there. This would lead to dipping into savings. When I had a “good” month, I might replenish my savings, only to continue repeating this pattern. When I would feel bad about my spending, I might tell myself I needed to have a “no spend month”, a sort of crash diet for budgeting. None of this ever worked. I impulsively bought whatever I wanted, always feeling like I had the cash for it because I only ever looked at that $2,000 surplus amount as mine to spend in any way I wanted.
This practice resulted in mindless spending (think gadgets, clothing, shoes, convenience, eating out), and I also felt like I wasn’t getting to where I wanted to go financially. My savings would dwindle, then be replenished, but that money I used to replenish my savings could have been going to investing for retirement or something else for my future. As I earned more money and my fixed expenses remained the same, my mindless spending increased. Instead of using it to fund my future, I just bought more stuff.
Does this sound familiar?
How do I use the Bottom Line System instead?
The Bottom Line System considers those big expenses, the fixed ones, and it also factors in variable expenses, both those that are certain and those that we can plan for (like a new set of tires you know you’ll need in the next year or a big event). With the support of the Bottom Line System, we make spending decisions ahead of time, rooted in reality. We know exactly how much to spend in various categories, so the “surplus” in any category is limited to what we allocate in advance. Because we can see the whole picture ahead of time, we know we aren’t spending in a way that interferes with those bigger goals we have – saving for a down payment, investing in retirement, taking a vacation.
My husband and I were recently having a conversation about how this works for us. Within our Bottom Line, we each have some money we can spend on anything. He said his favorite part of the System is that he never feels guilty about how he spends that money. He explained that before we got together and managed our money together, he used to budget in the same way I did. He thought about the big-ticket stuff and spent the surplus mindlessly, on anything else. This would often leave him borrowing on a credit card or simply doing without something he otherwise needed. Whenever he bought anything, even something meaningful he’d saved up for, he’d feel guilty because he didn’t know what he might need later. Because our Bottom Line Budget captures everything we need (and most of the things we want!), this little bit of money he can spend on whatever he wants is truly guilt free – it doesn’t deprive him (or our family) of things we want or need.