Does Your Budget Have a Bike Lane?

Does Your Budget Have a Bike Lane?

Budgets help direct our spending, but by nature they constrain us. While that doesn’t sound very fun, these restrictions are for a good cause. By voluntarily limiting short-term spending, we can stay out of financial trouble and work toward achieving longer-term financial goals. Though it sounds contradictory, we achieve financial freedom by choosing to limit ourselves.

In theory, if we could predict all of our expenses then we could live on the bleeding edge (paycheck to paycheck) of our income and not have to worry. In practice, it ain’t happening — at least not long-term. ‘Life’ happens to us and our budgets.

If you’ll bear with me, let’s set a scene: Picture driving along a winding, coastal road. Nice, isn’t it? You should probably picture yourself in a convertible if you aren’t already. Better. Are you smelling that salty, sea air? Mmmmm. Now, think about that road. It is made up of asphalt, lane lines, maybe a rumble strip or Bott’s dots, a bike lane, a guardrail, and sits atop a hillside or cliff leading to that beautiful beach below.

You get to safely enjoy this wonderful scenery while travelling rapidly because someone at some point decided to put some paint on the ground, and for some reason you decided to follow said paint while you drive. Would it be more scenic if the guardrail wasn’t there partially blocking your view? Probably. Would the driving be more fun or exhilarating if the lane went all the way out to the edge of that cliff? Fun for some, scary for others.

You can probably see where I’m going with this. Let’s think of this scene metaphorically in budgeting terms:

The road or asphalt is life. Hopefully nice and smooth, but likely winding with ups and downs; potholes and debris, though infrequent, are to be expected from time to time.

The lane lines, dots/markers, and rumble strips are our budgets. They guide us along the road, keep us headed in the right direction, and help us avoid danger. Sometimes if we drift beyond the line, only a small correction is needed. Sometimes when you hit that rumble strip, things get loud and uncomfortable. The same goes for our budgets.

The guardrail is your emergency fund. It’s effective at keeping you from going down a cliff, but it’s painful. If you hit it, not only will your car be damaged, but so will the guardrail; both will be in need of repair. Same with our finances. If we need to tap into our emergency funds, it probably means we’ve hit a painful point of life. Once we free ourselves from relying on it, we might have some scrapes and bruises (dinged credit score, perhaps?), and our emergency fund will be low, if not depleted (dipped into that retirement account?), and in need of replenishment. Early in your career you may be young, poor, and driving an econo-box; it won’t take much of a guardrail to keep you from going over. As you progress in a career and get older, maybe you get married and have kids; your guardrail will need to be bigger and beefier to stop that minivan fully-laden with increased financial obligations.

What is the bike lane? I would suggest that this is a buffer you should create by self-imposing constraints on your spending and generally living below your means. It augments the typical emergency fund and is used more for unexpected expenses that pop up here and there and less for the “I just lost my job” emergencies. It may include ‘savings’ you have earmarked for other goals: vacations, car fund, medical funds, etc. If it is narrow or non-existent, you are rightfully going to be white-knuckling that steering wheel and focusing on avoiding the guardrail above all else — not very fun. The wider it is, the safer you are, the less you’ll stress, and the more you can enjoy the beautiful scenery of life. If you have to swerve to avoid a pothole or boulder here and there, you’ve got extra space — no biggie!

Some might wonder where to draw the line between bike lane funds and guardrail/emergency funds or how distinct that line should be. J & J have previously given their take on answering “When is something an ’emergency’?” It is going to be different for everyone and their unique circumstances. Regardless, you won’t be able to build that buffer or widen your bike lane if you are spending every penny that comes in. Eventually, your lifestyle and budget need to blend to allow you to live on less than what you earn.

What’s so special about paint on the ground or reflective, plastic trapezoids? These simple, man-made items when appropriately placed and properly followed, allow us to safely do and see more. Similarly, we need to find man-made or artificial constraints for our budgets that will allow us the freedom to do more. Here are some I use to maintain or grow my financial “bike lane”:

  • 24 vs. 26 – I get paid every two weeks, and that means 26 pay periods in a year, yet I budget as if I get paid twice a month. That means twice a year I get a little extra. Maybe that money helps me catch up if I’ve overspent, replenishes my emergency fund, pays for a vacation, or whatever. I specifically don’t budget for it, so I can use funds where needed when it comes.
  • Frugal Months – tighten those screws every once in awhile and get back to basics. It’s sort of like hitting the reset button mid-year, and hopefully it helps you save a few hundred here or there.
  • Hidden Savings – $200 from every paycheck goes to a separate savings account that isn’t part of my regular budget. Though I know it is there, I’ll go months without thinking about it. It is always nice when I remember it, log in, and see that I’ve got a little extra I haven’t been planning on. Some are against this method, but it works for me.
  • Beef Up Your Tax Refund – Claiming fewer tax exemptions will cause you to take home less each pay period, but it will result in you learning to live off less and getting a bigger tax refund.

Alone each one might not result in huge savings, but altogether they result in a meaningful amount for our family.

Thanks for coming along for the ride.

What do you do to ensure you live on less than you earn? Do you have a bike lane in your finances?

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  • Reply Financial Panther October 14, 2016 at 1:10 pm

    Really great points by you guys! I’d love to keep my bank account on the bleeding edge, but you never know what might happen. That’s why I always keep around a $500 to $1000 buffer in my checking account. Sure, the money isn’t “working” for me, but it makes me feel safer.

    Living on 24 paychecks and treating the other 2 as extra paychecks is really important. I did the same thing when I was paying off mys student loans. I lived on 24 and sent the extra 2 directly to my student loans.

    • Reply Tyler October 31, 2016 at 4:45 pm

      “the money isn’t “working” for me” Tough to have it working for you at today’s rates. I’ll take peace of mind over tiny bits of interest.

  • Reply Derek @ MoneyAhoy October 20, 2016 at 7:38 pm

    That’s neat to read about your frugal months. I thought I was the only one that enjoyed throwing one of those into the mix every now and then. For some reason, I just love those months where the credit card bill comes with only gas purchases on it and nothing much else. Sigh :-).

    • Reply Tyler October 31, 2016 at 4:46 pm

      “the credit card bill comes with only gas purchases on it” What about food?! 😉 I find those months quite refreshing.

  • Reply Trevor McClintock October 27, 2016 at 8:56 am

    Good post.

    I think most of us at some point in our lives have had to budget due to one constraint or another.

    I’m a firm believer in planning ahead. With careful financial budgeting you stand a much better chance of not getting yourself in any money mishaps.

    • Reply Tyler October 31, 2016 at 4:47 pm

      “I think most of us at some point in our lives have had to budget due to one constraint or another.” I guess my point was that you shouldn’t wait for life to force you into a constraint. Ideally, you should have the discipline to impose your own, so that when “life” happens, it isn’t so painful/stressful–the planning ahead that you referred to.

  • Reply Melanie October 29, 2016 at 7:20 am

    I also do the hidden savings thing where I have $300 diverted from every paycheck into a different account. On expensive months, I’m very aware of that money and sometimes have to transfer it into my checking. Other months, like October, I was able to transfer the entire $600 to our wedding savings fund (yay!). It’s just helpful that it goes somewhere else than my checking account. I also do the larger tax refund thing too. It coming in a larger lump sum makes it more meaningful. I also got a raise in August that amounts to $80 more per paycheck. I told myself that no matter what, that $80 from each paycheck will be transferred directly into the wedding fund. When I do my budget I just use my old paycheck amounts pre-raise and it’s worked every time! Kind of amazing how tricking myself works pretty well 🙂

    • Reply Tyler October 31, 2016 at 4:49 pm

      “Kind of amazing how tricking myself works pretty well” We too often gloss over the psychological aspects of budgeting. Maybe it isn’t for everyone, but it sure helps me. Just keep putting that $80/paycheck towards something good AFTER the wedding too! 😀

      • Reply Melanie November 1, 2016 at 1:30 pm

        Goals: Debt free wedding & honeymoon
        After that, purchase home
        After that, purchase replacement cars with cash.
        That $80 will be working hard!!! 🙂

  • Reply Kendal @HassleFreeSaver January 6, 2017 at 5:17 pm

    Excellent metaphor!

    I’m hearing more and more about the benefits of multiple savings accounts. Your “bike lane” fund sounds like the “inconvenience fund” I learned about recently, which covers costs like speeding or parking tickets.

    I haven’t considered the 24 vs. 26 strategy — I may have to try that this year as we try to tackle a pretty big savings goal. Thanks for the tip!

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