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Three Levels of Budgeting

What a fanastic way to think about budgeting, to make sure that you're not missing anything and can cover all of the annoying htings that come up to try to wreck your budget! I love thinking about my finances this way and am going to implmeent the 3 levels of budgeting system into how I manage my money going forward. I can't wait to discuss this with my husband and get him on board too. Our net worth is going to climb this year, I know it!

These last couple of months have been filled with all sorts of unexpected monetary hurdles, so I thought this would be a good time to bring up the three levels of budgeting we use to keep ourselves on track.  Our monthly, annual, and random expenses are all taken into account on our monthly budget.

Our Monthly Budget

I use three columns of an Excel spreadsheet to list all our budgeted categories, the target amount for each category, and how much we actually spent.  This makes it easy to do spot checks.  It also has helped me to have detailed records of our expenses. I know, I should probably move all this to budget software but I do love spreadsheets 😉

It’s amazing how often I want to know how much we spent on food, vacations, or grad school in any given month.  I used to simply be curious and anal, now I have a blog to think about.  Having those records makes blogging so much more fun for me since I don’t have to estimate my numbers.  It’s hard to have full disclosure without having the actual data, right?

For non-bloggers, long-term budgeting data is useful in order to see how you are looking overall.  It also can be used to track spending differentiations that may lead to budget changes in the future.

Annual Expenses

Like everyone, we have several annual expenses.  We used to pay for these out of our emergency fund, but it always hurt to watch that fund get hit for easily remembered events like homeowners insurance.  Now we have a spot on our monthly budget for these annual charges.

It’s much less stressful to pay that $800 insurance bill when I can see we have the money waiting in our “Insurance and Tax Account” at ING.  Contributing $67 a month to that account is also much easier than watching our emergency fund take an $800 whack in the face. We would like to put more money towards investments and in fact we’re using a stock investing app to diversify our money. We also recently started putting more emphasis on investing in real estate hence why we put together a Fundrise vs Realty Mogul article.

Random Expenses

Some things just can’t be budgeted for very easily.  You expect to buy tires every two or three years, but you don’t know exactly when.  You know your dog may require money for a big vet bill someday, but how do you know when it will get sick?

We budget for these items by putting a set amount into extra ING accounts every month and keeping an eye on current money market account rates.  Spending $500 at Discount Tire can really hurt, but it stings a lot less if you know your “Home and Auto Account” will be able to cover it.

Does your budget take into account all your expenses?  If not, how do you cover annual and random bills? Are you looking for advice on how to invest your money? We cover all these topics and more in other articles.

13 thoughts on “Three Levels of Budgeting”

  1. Everyday Tips

    You are very well disciplined BFS! I do not have separate accounts, but it is something I am considering. I pretty just have a lump sum that I draw from when emergencies happen.

    Psychologically, it is probably better and possible more effective to have separate ‘pots’ for different items like taxes and such.

    Good food for thought!

  2. MikeS

    I like to be able to track spending down to the dollar. It let’s me see if I’m spending money inefficiently. My spreadsheet now has data going all the way back to June 1998.

    I also have the separate buckets (all one account, but tracked separately in a spreadsheet) in savings for the annual or semi-annual expenses that happen. Things like property taxes and insurance lend themselves to something like that. I actually get a discount on my auto insurance by paying once a year.

    For everything else, I have a general savings bucket for the times that my expenses exceed my monthly income.

  3. BFS

    Everyday Tips, hey, if your way works for you, then it’s perfect. The trick is finding the right method for the right person. 🙂

  4. BFS

    MikeS, the spreadsheet method of tracking worked really well for me until I started spending a lot more time with blogging, friends, and family…I just don’t get to my spreadsheets often enough any more. That’s why compartamentalization works so well for us.

    Your method (my old method) works great if you update regularly and it keeps you from having to keep up with 7-9 accounts like me. Woot!

  5. Money Reasons

    Every year at the beginning, I look over my calculations in a spreadsheet that I have and come up (actually just revise what’s already there) with an estimated income and spending allocation. Then sadly (or happily if you’re me), I just check what my bank statement said that I spend for the month and make sure it’s close the my monthly estimate. If it isn’t, I figure out what put it over and try to make up for it over the following months…

    Lame, but it works for me 🙂

  6. Squirrelers

    That’s a novel way to do it. I have budgeted with one budget on a cash basis where possible, and factored in a surplus for unexpected expenses as a % of the total budget. Because, as we know, we should expect the unexpected!

  7. Suba @ Wealth Informatics

    We do the “targeted” accounts too. We used to do just one account method, but whatever we save we always ended up paying for insurance premium or a expensive car maintenance. Now everything is budgeted, we have a separate insurance account (ally bank sub accounts) in which we pay $insurance/12 every month. Same with scheduled maintenance $last-year-maintenance-amount+$200/12. Only what is actually required comes into the checking account to pay for current month’s bills-after everything is deducted. It is too confusing for my husband 🙂 but he “gets” it and know what to spend and what not to. So works for us!

    (OT: I am a Yakezie member – very very late comer and a very low ranked member 🙂 but I am not in the member list, could you add me too? Thanks.)

  8. Julie

    I do the same things that you do. I have my sub accounts in ING with titles such as vacation, home repair, etc. I also have some goal accounts in Smarty Pig like my husband’s pants fund and a car fund.

  9. BFS

    Money Reasons, if you are hitting your goals, your method is not lame. I’m a big believer of doing what works.

    I just share my personal methods to give people ideas if they want it. If they already have a method that works (like yours), I love hearing about it and it’s good to give readers other options too. So thanks!

  10. BFS

    Squirrelers, your way sounds much simpler! In regards to prepping for the unexexpected, I’d expect nothing less from a wise squirrel, lol.

  11. BFS

    Suba, yep, that was the problem I kept running into before I set up multiple ING and Smarty Pig accounts…we’d be running along and WHAM, new tires or broken something-or-another caused us to take out unexpected money from our one savings account. It was disconcerting. With the multiple accounts, it doesn’t hurt as much when unexpected expenses pop up and punch me in the nose, lol.

    Our method sounds identitical. 🙂

    Oh, and you have been added to my Yakezie list. Thanks for the heads up!

  12. BFS

    Julie, I put our emergency fund and annual tax fund into Smarty Pig too…right now those don’t exist anymore since we decided to use it to pay off the car, but they’ll be back in a month or so. 🙂

    The car fund into Smarty Pig is a good idea too…I’ll leave $1000 padding in ING for maintenance issues, but put the rest into Smarty Pig to sit around until I need a new car. Thanks!

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