How can I build a better budget?

January 4, 2011 8:33 PM

Special snowflake budget filter: I tracked my spending in 2010, how can I improve my budget for 2011?

I tracked most of my receipts in 2010 from latte to plane ticket. It seems about 10% got lost in the shuffle. I am trying to pay off significant debt and will be looking for a new job 3/4 of the way through this year, so I have some saving up to do in 2011. I am a childless early thirties working professional.

What do you think of my numbers? They represent the percent spent of my net income. Can you suggest on where to improve? What do you think of my categories? I plan to eliminate Misc in 2011.

22% - Home (rent, utilities, cell phone, home improvement). Rent is 17%
15% - Food (groceries, cafes, restaurants) Eating out is 6%
5% - Transportation (bus, taxis, bike) Taxis are 2.5%
2% - Entertainment (movies, plays, concerts)
10% - Health (naturopath, dentist, supplements, massages, osteopath)
9% - Vacation (plane tickets, car rental, food) Plane fare is 5%
2% - Recreation (gym, yoga, sports)
2% - Dues (internet connection, website)
18% - Personal (clothing, makeup, haircuts, gifts) Clothing is 11%
5% - Financial Obligations (debt payment, bank fees) Savings 0%
10% - Misc. (untracked or uncategorized)

Thanks for your input

posted by gillianr to work & money (14 answers total)

You can probably cut clothing down quite a bit, as long as you've got a solid wardrobe for your current workplace.
posted by Tomorrowful at 8:45 PM on January 4, 2011

No savings?

I'd say if you're going to cut out the miscellaneous, then why not just turn that 10% into your savings? Everyone needs an emergency fund, start there and then maybe broaden your way into retirement funds and other things. If you start saving 10% of your income, that's better than most people are doing.
posted by mostly vowels at 8:57 PM on January 4, 2011

It's kind of hard to know for sure without seeing your actual income. It's the savings 0% that would concern me. But without knowing the actual numbers, I don't know if it would be reasonable to have savings on that budget. E.g. at 15% of your income, if you are earning 60,000, you are spending nearly $200 a week on food. That's a ton, and you could probably make cuts and put about half that into savings. But if you are only earning $30,000, spending 15% of that on food is pretty reasonable.

I spend a lot less (percentage-wise) on health than you do, but maybe you have expensive health conditions, and if you are in the USA, I guess health insurance costs a heap.

I agree with Tomorrowful that you can probably cut down on clothing. You could make it a game at first, if you find it hard - try and see how many different outfits you can put together from what's in your wardrobe. Or see how you can dress the same pair of pants or the same shirt up in different ways so that you can wear it two or three times a week without looking the same. Or have a clothes swap with some friends now and again.

You might want to look at switching banks or bank account types to cut down bank fees. In Australia at least there are types of accounts that have no fees at all (online only, for example), or deals banks will cut with you in the short term for low fees if you switch to them.

Vacation could be cut altogether (just for a year, to generate some savings. Then the interest on those savings, or the saved interest you aren't paying on the debt can be used to help fund vacations in future!). This summer my husband and I decided not to go on vacation, but instead to spend as much of our vacation budget as we liked (which is usually around $2000) on stuff and experiences that we could have at home. We ate out at awesome restaurants that week, bought new electronic equipment, new sheets and towels, expensive wines and cheese - basically had a vacation at home!, and still only spend a FRACTION of what we would have by having a vacation.
posted by lollusc at 9:04 PM on January 4, 2011

18% - Personal (clothing, makeup, haircuts, gifts) Clothing is 11%

This jumped out at me. You're spending more on "personal" than rent. But these appear to be luxuries (e.g. gifts, and considering that you have vacation, entertainment, cafes and restaurants accounted for elsewhere).

9% - Vacation (plane tickets, car rental, food) Plane fare is 5%

Take a "staycation." You live in Montreal, according to your profile. It's a wonderful place. Explore it more than you have.

10% - Health (naturopath, dentist, supplements, massages, osteopath)
2% - Recreation (gym, yoga, sports)

Keep the massages, the gym, the dentist and the yoga. Ditch the others. If you must, just scale the others back temporarily and re-evaluate.

10% - Misc. (untracked or uncategorized)

Stuff happens, of course. But 10 percent of your income went *poof* while you have debts to pay -- debts that no doubt incur additional interest costs. If you were able to improve this even by 1-3 percent, you could make a fairly big dent in debts.
posted by Cool Papa Bell at 9:08 PM on January 4, 2011

Again with the clothing.. but also look at your gift budget. My husband and I talked to family and we are only giving gifts to nephews and nieces now... and even there we cut the amount in half. Our reproductively-minded friends are getting cheap baby gifts - something very local and cute books. Even our wedding gifts are pretty cheap (but we rarely go to weddings unless one of us is in the wedding party.) No one seems to mind, some folks seemed relieved to not have to get us gifts so win-win.

The other thing that jumps out are the taxi costs. I don't know Montreal at all but consider what's worth more to you - saving $ and using public trans or the convenience of a taxi. 2.5% seems like a lot to me.
posted by adorap0621 at 9:22 PM on January 4, 2011

The naturopath, the supplements and the osteopath immediately jumped out to me as some things you could eliminate or seriously reduce. (I assume these are discretionary services and you don't need them for good health since you already play sports, work out and take yoga.)

I think you should keep the massages and the vacations!

I'm surprised that your makeup budget is large enough to warrant a mention. That might be a good place to cut back.

I agree with whoever said that you must have a pretty good wardrobe at this point and probably would need to devote only a bit of money to this area in 2011. Wear your clothes out, sew patches on them and then wear them some more!
posted by cranberrymonger at 9:22 PM on January 4, 2011 [1 favorite]

You need to figure out what your values are. I could tell you not to spend money on a naturopath and not to take vacations when you're in debt, but that would reflect my values, not necessarily yours. You need to sit down and look at what you're spending money on and whether the things you're spending it on are worth the money you spend on them when compared to other things you value, like getting out of debt. Money is a tool to be used to get things we want and need. No one can tell you what you should want and need except for you. Look at your spending as a reflection of your values, and see which parts of your current spending don't line up with the values you'd like to hold.
posted by decathecting at 9:24 PM on January 4, 2011 [2 favorites]

First:
5% - Financial Obligations (debt payment, bank fees)

You need to separate this out. Debt payment is good, but interest payment and bank fees are not. Few people realize how much they're costing themselves in interest and overdraft fees. Don't be this person.

Secondly:
I don't know how bad your situation is but you do claim to have "significant debt". Maybe you're doing fine and just want to get out sooner. Maybe you're in dire shape. You appear to value massages more than having emergency savings, which suggests to me you're more in the "dire" camp.

Rather than just say where to slash, I'll suggest you do two things:

1. Save yourself first. Set up automatic deposits into savings accounts for 10 percent of net income.
2. Pay down debt. If that debt is truly significant, you're paying a lot of interest that will bury you for years. I'd say 10 percent of income is a good guide here.
3. Build emergency savings. If you're moving later, you should escalate savings now. I'd say another 5 percent for six months or so.

So overall, you need to find roughly 20 percent. It seems doable, but I don't have specific numbers. You can probably cut that 10 percent Misc. but only because you can cut about everything you've listed. The other 10 percent should probably come from vacation. At least in the US you can cash out vacation time when you change employers, which you can use to help build the emergency fund, or moving, or paying down debt or just trading money for time to focus on making your first year a great one at the new job.

If vacation is really important, or already booked, etc. Then take a hard look at how much you spend on clothes and makeup and quack medicine. I know you work in advertising so you kind of have to live this crap every day, but sometimes doing what capitalism tells you to leads to ruin.
posted by pwnguin at 10:32 PM on January 4, 2011

In case you are interested in the comparison, I just went through my bank statements for the past year and tried to figure out what my equivalent spending was for each of your categories. I don't know if you can use it as any sort of model - I might well earn a lot more than you, and I am married (no kids) so we get some economies of scale. The figures are based on our joint income and expenses. But it might be interesting as a comparison (note that we manage to save around 50% of our net income).

Home (rent, utilities, phone): 28% - yours is 22%
Food: 11% - yours is 15%
Transport (we own a car, but rarely drive): 3% - yours is 5%
Entertainment (membership to a film club, weekly drinks with friends): 0.3% - yours is 2%
Health (doctors visits, prescriptions, supplements): 2% - yours is 10%
Vacation (didn't actually take one this year, but I calculated based on last years): 4% - yours is 9%
Recreation (gym, classes): 1% - yours is 2%
Internet connection etc: 1% - yours is 2%
Personal (clothing and gifts: I don't wear make-up): 1% - yours is 18%
Savings: 52% - yours is 0%
Financial obligations (I have no debt or bank fees): 0% - yours is 5%
Misc (unaccounted for): 1.7% - yours is 10%

(If that doesn't add up to 100%, it's because I scaled up or down to the nearest whole number on the bigger items.)

The big differences apart from the savings are the categories of health, personal, and miscellaneous. There's also a relatively large difference in vacation, and financial obligations, but that will decrease for you as you pay down your debt.
posted by lollusc at 12:25 AM on January 5, 2011 [1 favorite]

I don't think tweaking percentages around is going to be all that helpful. Percentages are useful as rules of thumb when deciding whether you can afford a big, financed purchase like a particular house or car, but they're not especially meaningful at this level of granularity.

If your goals are really to save and to pay down debt, then it seems obvious that you need to devote much more of your budget to savings and paying down debt, since it seems that very little of your resources are being applied that way now. Your list of percentages makes it look like your real priorities lie elsewhere.
posted by jon1270 at 2:49 AM on January 5, 2011

I did the exact same thing in 2010, and can probably break mine down to similar categories as yours for comparison. I can already tell you I spent a LOT more on a rent and a LOT less on clothes, but there is no way I could reduce rent to 17% of my spending. It's at a third of my *income*, so it will always be at least a third of my spending, unless I start giving out money I don't have. The more I reduce my other spending, the higher % rent takes up, and my goal is to have rent as 50% of my spending next year, so your low % really jumped out at me. Do you share rent costs with housemates or partner? (If I halved mine I'd end up close to your numbers for rent and utilities, I think)
posted by easternblot at 4:56 AM on January 5, 2011

people get so self-righteous about how other people budget for things. Here's the thing, as long as you are paying down debts in a time frame that makes sense to you, and you are saving at a rate that works for you to achieve your goals (and % might not be the right way to look at this) then everything else is your personal choice.
posted by JPD at 5:25 AM on January 5, 2011 [1 favorite]

I agree with decathecting. It's your personal budget reflecting your personal values. What you've done in writing out your percentages is a great tool for helping you think about this.
But consider, not only why do you spend 10% of each paycheck on clothing, but also how did you do that? (lots of little purchases, a major shopping spree but otherwise pretty low, stupidly expensive bridemaid outfits for 3 friends' weddings, a subscription to "shoes of the week" club) From there, you can consider (a) whether you are glad you spent that money and (b) if you eliminate all the purchases you aren't happy with or don't think you'll have to repeat (a work wardrobe, 3 weddings) what kind of spending level can you set for this next year? This then leads to (c) steps you can take to make sure all your upcoming purchases are things you'll be glad you did. You can think about trends in how and why and outcome - lots of $25 shirts because on Tuesdays you have an hour to kill between work and yoga and there's a great little shop across the street, yet you're getting to the point of having more shirts than days to wear them in. And then move on to thinking about solutions: arranging your work schedule to remove that hour, dropping off your bag and wallet at the yoga studio before you go across the street, setting up a strict "window-shopping only" policy and allowing purchases only if you care enough to go back there on a Saturday afternoon, etc.
I'm making crap up, but you get the idea. And I'm not picking on your personal spending - maybe that level is right for you, but you're the only one who knows for sure... or at least you will know, if you think about it a bit.

By the way, I'm going to hope that your "net income" means the amount of money that lands in the bank each pay period after all the taxes, healthcare, and at least 5% gross income sent to a retirement account (RRSP?), are taken out. Retirement savings are really truly important, even though I would guess (or is it just envy) that as a Canadian you can rely more on government pension/services than Americans do on Social Security.
posted by aimedwander at 8:00 AM on January 5, 2011

While I agree with JPD that what a person does with their money is their own choice I am assuming by asking the question that you DO want feedback.

Gillianr, I believe I may be in a similar situation as you - late 20's, slammed with debt (after finishing college), switching jobs, etc.

In the year 2010 I cut my debt more than I had in any year prior and increased my savings more than any year prior. A lot of the previous posts have been, in my opinion, spot on - and exactly what I did. In a nutshell, I cut clothing drastically. I still buy the odd piece here and there - don't go cold turkey - but I think do I really need more clothes or can I make do with what I have for a bit? For the most part, I could make do.

Cross out vitamins. The majority of vitamins don't get absorbed unless they're in food form (I think vitamin D is the exception). Concentrate on eating good fruits and veg and you can scratch out most vitamins. Cross out most of the -paths as well. Some people claim this is a life style choice but if you are truly trying to save money they are not worth your money at this point.

Others have said to cut your food budget - perhaps you should look into that. I buy organic foods when I have the extra money but really they aren't better nutritionally (and arg I hate the term organic. All food is organic unless you're chewing on rocks. ...or, I guess, pure salt). Buying organic is long-term care of the environment not short-term care for you. But hey, maybe you aren't even buying organic. Try to eat in a bit more, but that doesn't mean you have to sacrifice hanging with friends - I did a fondue night where I made a couple fondue pots (some I'd gotten from yard sales) and just asked everyone to bring something to dip (like bread or carrots) to share. It worked out great at about 50% of the cost of going to, say, The Melting Pot. Cut back on how many lattes you get. For every mocha I've bought I've probably bought 100 coffees that I could just refill in the cafe at no cost (and for each of THOSE I bought I've made 100 coffees at home).

I agree with everyone about keeping the yoga, massages, and classes. If you've been doing yoga for a long time you might be able to do some on your own (but if you've been doing it for a while you probably do! XD) - I do these things as well and have still seen my debt decrease and savings increase.

But bottom line I think a couple things have really helped me:

1. I made a budget and for the most part stuck to it (not 100% but roughly). I planned where I wanted to be by 2010 and calculated how much I had to save per month and pay to creditors to do this. For the most part I stuck to this and reached my goal.

2. If you have credit debt be aware of how much you are paying in interest (as another person mentioned above). Paying off higher-interest loans first helped free up some pressure.

3. I set misc. spending limits and stuck to them. I don't actually track my mocha's and latte's etc (as you may have guessed). I have a couple of bank accounts and only one has an ATM card. When I get a paycheck the majority of the money is deposited into bill-paying accounts and an amount of money (about $200/week) is deposited into the ATM account. This account is used for ANYTHING I want to purchase not bill/savings related week-to-week. This includes groceries, gas, massages, yoga classes, clothes, etc. Sometimes I'll use a store credit card (because they have points...so does my atm card, but the credit card is better XD ) but if I do as soon as I get home I will make a payment from this ATM card in the same amount of what I've just purchased. Sometimes I slip but for the most part I've stuck to this and it's been pretty good.

Bigger things (car repairs, medical bills etc) I will pay from savings or checking/savings accounts I've set up.

What's really helped me, I think, is I guess doing cost-benefit analyses. How much of an advantage will this thing I'm thinking of purchasing bring to my life versus the cost I'm incurring. Massages, for example, may seem like an extravagance but if you weigh that against having a messed up shoulder for a bit and being miserable because of that then it's really a benefit to just get the massage. Having a massage once a week just because you're used to it, however, might not be the best benefit. So weighing things like that has really helped me.
posted by Lt. Bunny Wigglesworth at 2:13 PM on January 5, 2011 [2 favorites]