I read a blog post recently over at the YouNeedABudget (YNAB) blog where Erin was talking about cutting down on the number of accounts you have and trusting your budget. She was saying that a lot of people use accounts to budget their money because they either don’t have or don’t trust their budgets.
Because ultimately, accounts are just storage containers for our money. (Dollars by location) The budget is where we keep track of WHAT our money is doing. (Dollars by job) When it comes right down to it, the budget doesn’t care WHERE your money is. You can keep it all in pennies in a sock drawer if you want – as long as you tell the budget what you spent those pennies on.
I really like the idea of trusting my budget and not using so many accounts (I have at least ten), but the thought of getting rid of my accounts made me nervous, and I think I figured out why:
I have trouble controlling my spending.
Ideally, you set up your budget based on how much you spend each month, bills, food, coffee from Starbucks, savings, etc. You give each dollar you earn a job, as they say over at YNAB. Every month you look at your budget and decide if you’ve given each dollar the right job, and if you haven’t, you move them around.
But here’s the thing, a budget is all well-and-good as a theoretical thing, and I maintain that it’s very important to have one, but if you can’t control your spending, it doesn’t matter how much your budget says you have to spend on Groceries, or Food, or Coffee. Every dollar should have a job in your budget, but if you overspend in one area then you have to pull dollars from other jobs to cover the overspending. And then wherever you pulled those dollars from is going to be short, which can only lead to tears.
Out of Control Spending
This scenario has happened to me more times than I can count: I set up my budget at the beginning of the month, and as we go along and I track our spending, just like you should. But then I’d get to the end of the month and realize that because we overspent on Groceries and ate out even when we didn’t have $50 in our Eating Out category, and bought that DVD on a whim at Target, we had far less money in our account than I was hoping, and I had to move dollars around to get the budget categories to balance.
And the thing that really frustrated me when this would happen is that the place I often had to move money from to cover overspending was our savings categories. I always try to put aside $100 for our emergency fund each month, and $10 a month for car repair, and $50 a month toward a house downpayment, and $20 a month toward Christmas presents, etc. Theoretically, then, at the end of every month, we should be flush at least those $180, but because of overspending, we never are.
After a while of being frustrated about this, I decided that maybe not having the money in our main account would be the solution, so I set up a few separate accounts, mostly for saving.
As nice as it is to see our savings grow each month, transferring money out of our accounts didn’t stop the overspending. Instead of not saving money because of overspending, we’re running out of money because of overspending.
I update our transaction register (like a checkbook register, except I rarely use checks) once a week. So now, about a week before we’re due to get paid, I realize we might run out of money before then because we spent $60 more at the grocery store than we had budgeted, and went out to eat even though we couldn’t really afford it, and, and, and. But instead of shuffling money around within the budget to get it all covered, now I have to physically transfer money from another account, which often takes a few days (they’re not at the same institution).
So far we’ve managed to pull it together, and I still have a no-overdraft record on my current bank account, but it’s frustrating to have to scramble to find money to cover our butts, or even stop spending completely until we get paid again.
So clearly Erin at YNAB is right, using accounts in lieu of budgeting is not the answer, but trusting your budget isn’t necessarily the answer either if you have trouble controlling your spending.
So what do you do?
I haven’t quite figured out how to solve my overspending problem. I’m not sure if the problem is that we don’t have enough in our budget categories, or if it’s that we just need to check our budget before we do anything. I know the title of this post is “How to Control Spending,” and while I don’t know the answer, I have a few ideas that I’m going to try to implement next.
How I Plan to Control My Spending
The area in which we are most likely to overspend is Fun stuff — eating out, movies, alcohol, etc. The area I usually have to pull money from to cover the overspending on Fun stuff is savings. Clearly, as I described above, moving the savings money from my account is not the solution, so maybe moving the fun money out of the account is.
Transfering Fun money to another account: As an experiment, this month I’ve set up a separate checking account for each of us and transferred half of the money we’ve budgeted for fun purpose into each account. When the money runs out, we’re done, we can’t spend any more.
The other area that we often overspend is at the grocery store. There are a few ways we could handle grocery money so we don’t overspend.
- Use a grocery list: It has been proven that if you shop with a grocery list, you’re less likely to spend on stuff you don’t actually need.
- Take out cash: We could pull out only what we are allowed to spend at the grocery store in cash, and make sure that we don’t go over that.
- Buy grocery store gift certificates: This is something my grandmother does. She buys gift certificates in the amount of her grocery budget each month, and uses them until they run out. It does two things for her: a) it lets her manage her spending, and b) the grocery store donates a percentage of the gift card money to a charity of her choice.
The other thing that I need to do which would help with overspending is Update my transaction register every night and compare it to my budget.
This is something I know I should do, but I don’t always manage it. If I were to update my transaction register every night, I wouldn’t have to check my bank balance online (which is almost always wrong) and I would have a more accurate idea of what we have left to spend each month. I’ve learned this lesson the hard way time and again over the last few years, and I’m getting much better. I used to not even look at my transaction register once a month, and but now I’ve taught myself to update it at least once a week. That still doesn’t seem to be enough, though, so I’ll have to do it every night and see if that makes a difference.
The last thing I’ve going to suggest is to never look at your account balance, only rely on your budget and transaction register. As I said, your account balance is almost always wrong, because it doesn’t take into account checks or purchases that have yet to clear. You could look at your bank balance on the second of the month and see that you have $900 in your account and get all excited and go buy something you’ve wanted to get for a while for $300. But what your bank balance doesn’t know is that you just paid rent for $700 and now you’re going to be short $100. Not good.