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?