This post is pre-written; I’m away for a few days at a conference. I should still have internet access but responses to comments will probably be slower than usual.
I’ve been refining my budgeting strategy for a while now — as those of you who’ve been following know, since I can’t shut up about it — and there’s one thing I started doing in January that I really like. If you look at my budget categories, you actually see four that could be filed under “misc.” I take out $300 in cash every month; I have a line item for “gremlins” (more on that in a sec) that I’m now putting $100 into every month; I have $500 going into the emergency fund kept in a separate account; and I also have a line item for “slush” that is currently getting about $120 a month.
I realize this might seem overly complicated, but what it allows me to do is make sure my budget is focused on my financial priorities. It’s all got to do with self-knowledge. Each of these four categories represents a line of defense so that I’m sure I won’t spend all my spare $$ on random wants.
1) Emergency Fund. For now, I’m trying to get this to $5000. It’s my backup backup cash and I only want to use it in case of job loss, a medical emergency, or car trouble I couldn’t fund any other way. Maybe also emergency travel, like to see a sick relative.
2) Gremlins. I wish I could take credit for this term, but I can’t! It was coined by Cat from Budget Blonde, and I loved it so much I just had to use it. I guess you could say these are like mini-emergencies — they’re all the stuff that kind of pops up randomly in your financial life every month. A good example for me would be the flickr pro account that auto-renewed last month. Or maybe buying an air conditioner if I had to do that. Anyway, the point is that eventually this stuff is going to come up, and I want to have cash available for it that isn’t my emergency fund, but also hasn’t been spent on a night at the casino.
3) Slush. This is where my “leftover” money goes after I allocate to all my other categories every month. Some people call it “blow money.” This is money I feel free to spend on pretty much anything I feel like, and unless it’s the basics of rent/gas/insurance/medical, it’s also where I try to go first even for things I technically have budgeted for in other categories. For example, if I bought some clothing, I might try to find some cash for it in here instead of using my clothing category. I paid for the flickr pro account last month from slush, actually. Of course, I also use it for entertainment like meals out or movies, assuming I haven’t paid for them with cash (see below). I pretty much expect to use all of this every month and my hope is to be frugal enough that eventually my category sinking funds can start to add up a little.
4) Cash. I more or less give myself an allowance every week. I buy groceries from it, then use what’s left over for other stuff, like coffee and postage and movie tickets and a church contribution and basically whatever. This is the most liquid version of “misc” and I definitely expect to spend it all every month because I try to use it first for fun/entertainment stuff, before dipping into the slush line item.
For an example of how this works: when I had to pay for a $350 car repair last week, I already had $125 of this sitting in my repairs/maintenance fund. I started finding the rest of the money by reassigning my entire slush category ($121) to the repair, and only after that moved $104 from “gremlins” to repairs. So, for the rest of the month, if I want to make a purchase I’d normally make from slush (eg movie tickets or eating out) I’ll need to think *really* carefully about whether I should further empty the gremlins fund, or else use my spending cash. If I’d left anything in slush, and pulled most of the repair amount from gremlins, I’d be much more liable to spend what remained in slush.
So, my four misc categories basically exist to protect the two really important ones (emergency and gremlins) from the two that I feel freer to spend (slush and cash.) It’s OK if I end up emptying my gremlins category because I need to, but I don’t want to do that without thinking about whether I really need to, so I keep it out of my spendier categories. Seems to work pretty well for me.
Do you guys do anything like this, basically multiple categories for the same kind of thing meant to prevent overspending?