Everyone’s definition of a budget seems to be different. And the way Johnny and I budget isn’t necessarily exactly how someone else should budget. A lot of it depends on the health of your finances. For instance, when Johnny and I first graduated from college, we had a $1,000 emergency fund, a couple thousand in savings, and $20,000 in school loans. And then we moved to one of the most expensive cities in the world — NYC. In order to put ourselves in a position to aggressively pay down our loans, save money each month, and contribute to our 401ks, our budget was very uncomfortable in the Big Apple.
So what’s the definition of an uncomfortable budget? During the two years of paying off our student loans, we rarely had more than a few bucks left in most of our budget categories. It was only through careful daily planning that our spending stayed within the boundaries of the budget we’d set. That’s not to say we were living off rice and beans (more like halal rice and lamb) and not showering regularly, but we were being extra frugal.
Now that we’re out of debt, our budget is less uncomfortable, meaning more comfortable. That said, we’re still trying to save a good percentage of our income each month to put toward an eventual down payment and second car, maxing out our Roth IRAs each year, learning to live on one income instead of two, spending money on Sally, and paying for things like car insurance, life insurance, and 529s, which we didn’t have to think of before.
That’s a lot of stuff. And if we weren’t saving for all that stuff, our budget could probably be a heckuva lot more lax. But those are our priorities, and so we keep our budget more comfortable than before, but way less comfortable than it could be.
Now, you. Is your budget as uncomfortable as it needs to be? In order to answer this, first I’ll ask a series of questions that Johnny and I have asked ourselves. Answer “yes” or “no” to each of these questions. For the questions in which you answered “no,” ask yourself if you’d like to be working toward that thing. If the answer is “yes,” then it’s time to see if you can make your budget more uncomfortable. Writing this paragraph gave me flashbacks of taking the SAT… sorry.
- Are you out of debt (other than a mortgage)?
- Do you have a 3- to 6-month emergency fund?
- Are you saving for retirement?
- Are you on track to have enough retirement savings by the time you’re retirement age?
- Are you saving for your children’s education?
Two disclaimers: One, you may already have your budget as uncomfortable as you can have it, while still wishing you could save more. That’s okay. Keep on keepin’ on and stay focused on one goal at a time. Two, as uncomfortable as a budget should be, make sure to give yourself some “fun” money each month to spend on something, anything, even if it’s just $10 or $20.
Is your budget too comfortable? Any other questions you’d add to that list?
Really great article!! It’s something I really need to re-evaluate, and anyone else should, after a big purchase or change in life. Sometimes the hardest part is sitting down and knowing what you need to do, but having to put it into action.
Agreed. Every time we make a big life change, like when Sally was born or when we’ve moved, we always have to reevaluate our budget.
My budget is pretty comfortable, but maybe it shouldn’t because I still have student loan debt. I have a pretty decent savings rate (~30%), but it would be great if I can get that to 50%, which is doable if I make my budget really uncomfortable. I’m not sure if I want to do that just yet and this might be the reason why I have to work a few more years before I retire, but my current plan still allows me to retire earlier than most. My plan is really to get a new job that pays more so I can keep my current budget but save more money. I’m working on this.
30 percent is great. And, yes, quality of life is a big consideration when deciding how uncomfortable to make your budget. You always need a little wiggle room.
I think your comfort level adjusts according to how much debt you have and what your goals are. If you’re heavily in debt and panicked by the prospect of never getting out, you’ll give up the treats in order to pay off the debt because that is more important to you. If your next goal is to have a comfortable life then you may want to relax the grip on your spending and treat yourself a little more. Alternatively, if your goal is to retire by 30, you’ll be saving every cent you can and making sure your money works hard for you to reach your goal, sacrificing the treats now for the freedom later.
Great points, Myles. It’s all about what your end goal is.
I’d add “Are you saving to buy a home?” My husband and I put our retirement savings on hold for one year (after crunching numbers with our Dave Ramsey financial coach) to work towards this goal (we live in Boston, so it’s a challenge). I feel like our budget is a bit comfortable given our goals, but my spender husband would probably say it’s a bit uncomfortable. This is a good reminder to check in if we’d be willing to be a bit more uncomfortable for the sake of our goals, but I have to remember it’s a balance when there are two people with different baseline comfort levels (and spending habits)!
Very true! When there’s two people and one budget, there’s always compromise. I’m the spender, and for all I know, Johnny thinks our budget is *very* comfortable right now.
And great question to add!
Yes, my budget is too comfortable. I save about 28% of my income…but I spend $300-$400 per month on fun…..does anyone else spend that much on fun?? I go out to eat and happy hours 2-3 times a week.
Are you out of debt (other than a mortgage)? Yes
Do you have a 3- to 6-month emergency fund? Yes
Are you saving for retirement? Yes
Are you on track to have enough retirement savings by the time you’re retirement age? I think so..different calculators say different things. But I max out my Roth (about 8.5% of my income) and my company puts in 10% regardless. Dave Ramsey says I should ignore what my company contributes, but I don’t. Do you guys ignore your company’s contributions and put in 15%?)
Are you saving for your children’s education? Not married/no children yet
BUT I do really need to be saving more–for a down payment, for a wedding someday, a replacement car someday, for life, etc etc. SO, that being said, a few months ago I set up an automatic savings for $500/month…so after just “confessing” my issues, I just logged onto my online account I just switched it to $600/month…let’s see how it goes! 🙂
It sounds like you’re doing great, Melanie! And way to go on adding more to your savings. You go, girl!
Hi Joanna. Well, as you guys know my wife and I are both retired. This kind of puts a different slant on the topic of a comfortable budget, given that we don’t now have any employment income to budget with. However, being totally debt free, our house mortgage free, our 2 kids grown up and moved out, and having saved steadily over the years for retirement, our budget now is geared towards working within “passive income” streams.
This consists of income received monthly from our dividend investments, together with our regular monthly incomes from our Canadian government Old Age Security plans and our Canadian Pension plans. Gearing our expenses around this money, not touching the principle of all our other retirement investments, is what we now try to budget for as much as possible.
This however doesn’t mean that at times we can’t dip into our investment funds (which thankfully continue to grow nicely in value these days) for special spending (like vacations, a new car, or some other major purpose). It does help though to ensure that there’s money available, should we need it later on, for things like unforeseen major health issues, helping the grand kids, as needed, with their higher education expenses, stuff like that.
So at times we do still have a somewhat “controlling” budget, dependent on the ups and downs of the economy and other life situations. I guess you could say – once a saver, always a saver, eh? 🙂
Johnny and I will be very pleased if we find ourselves in the same situation of you and your wife someday. And I like how you think! Even when you could spend more, you choose to save because you’re a saver! I’m still working on being a natural saver, but luckily I have Johnny helping me along the way!
I think our budget is both too comfortable and too uncomfortable. I read this morning how the Frugalwoods just don’t plan to ever spend anything. Wow. We have a very detailed budget that I scrimp in some categories in order to give more buffer in others. I need to do better about making ourselves generally uncomfortable, because I think we’ find that we could rise to the challenge. Instead, we embrace the cushiness.
I can see what you mean. One thing I should have added, though, is that spending money isn’t a bad thing. And, if you are meeting your savings goals. you shouldn’t feel guilt for giving yourself a little extra wiggle room and cushiness with your budget. So keep that in mind as you decide how much more uncomfortable you’d like your budget to become!
I like those questions–I think that’s a great way to assess where you are on your financial journey. If I were to add a question, it’d be: are you spending money on things that add value to your life? Or are you spending unconsciously? For me, that presence of mind with each purchase helps keep me on track.
Great question. Spending consciously is key. Johnny always asks himself if the amount of money he’s about to spend is worth the x number of hours it took to earn that money. That always keeps his spending in check!
My budget’s definitely not as uncomfortable as it should be. Our biggest expense, our rent, is something that we’ve been discussing lately. We’re tossing around the idea of moving to someplace much cheaper, the only catch is if we do, that “new” place would be much smaller and our stuff wouldn’t fit. However, since we really want to buy a house next year, we might have to suck it up and just take the plunge!
I like that list. It makes me feel less guilt for all the money we spend.
Are you out of debt (other than a mortgage)? Yes, and we pay $300 extra on our mortgage every month.
Do you have a 3- to 6-month emergency fund? Yes, five months at our current spending rates, six-plus assuming we’d stop going out to eat, buying clothes, etc if a real financial emergency struck
Are you saving for retirement? Yep, maxing out the ole 401k
Are you on track to have enough retirement savings by the time you’re retirement age? Yes
Are you saving for your children’s education? No kids, no plans for kids. Yay!
I think sometimes, though, if I canceled my pricey gym membership or spent less money on clothes or didn’t buy the new iPhone the day it comes out or dropped my weekend brunch habit, I could save even more. But I suppose if I’m meeting these goals and getting iPhones and brunch too, I should just relax.
Hi Mel, it’s Melanie! I’m similar to you in the sense that I could definitely save more if I cut down on brunch, and social things like dinners/happy hours with friends. But like you said, if you’re meeting goals and saving well, probably not something to sweat too much!
I absolutely love your blog! So many great tips on budgets, I need all the help I can get. I will recommend a great find of mine, IMO anyway. A book by Charla Aylsworth and Marcia Manchester called The Joy of Skinny: Finances. They have such great practical advice, and I get so much more out of everyday people’s advice as opposed to big business. Good stuff! Their website is skinnylivingproject.com. It’s worth a look!
We have a very comfortable budget, it took some time to get there. But, we did it. I believe in fun money. We have a monthly entertainment budget, which includes money for a baby sitter. We use this money for date night, family brunch or no cooking night.
2) just started
4) we are currently putting 12 percent in each check and cannot afford to put in any more if we want to remain on track to save for our house down payment. we do plan on putting more in once we get a house. priorities. my growing family is out growing the apartment.
while i have answered mostly yes , we still keep a tight uncomfortable budget.