The Loose Budget

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Hi I'm LAL from LivingAlmostLarge and LAL Musings. I am a twenty-something (barely) Dual Income No Kids (DINK) searching for financial freedom. I hope to one day "live large" and be able to enjoy life to the fullest. But for now I'm doing it in small steps and little ways. Check me out when you have a chance. I do a weekly book review giveaway as well.

The first step in personal finance is setting up a budget. But for many people it's the hardest and most difficult step to follow. Personally I find it very difficult to stick to a budget. But that's because I don't really budget. I set guidelines and budget backwards. Let me explain.

When my DH got a real job we were finally able to save for the first time in a long time. But we were unsure as to what to do with all the excess money. So instead we sat down and talked about our priorities. To us the most important priority, because we were getting a late start, was retirement. We decided that we would maximize our retirement savings.

So we started off with our annual gross income and then deducted our retirement savings. Then we estimated our taxes and insurance. That left us with what we could spend. We decided that housing was important to us. So we prioritized that to take 30% of our income. From there we decided we would spend the rest of our money on different things every month.

We don't name every dollar. We know our important fixed items like retirement, taxes, and housing are accounted for. But if we want to spend more one month on food, entertainment, or travel, as long as we stay within our leftover money, we can. Here is an example.

Income	Amount	Percentage
Income	$50,000	100.0%
Expenses	Amount	Percentage
Retirement	$7,500	15.0%
Taxes	$10,000	20.0%
Housing	$15,000	30.0%
Excess	$17,500	35.0%

Thus we know we've committed 65% of our budget to fixed expenses. But how to spend the excess 35% is up to us. Granted things like car insurance, property taxes, or known medical expenses need to be budgeted in. Or even things like cable, internet, and cellular phones are known fixed expenses.

The difference is that this budget is not fixed and strict. It's loose and fluid. It can change based on needs and, since it's not fixed, you don't feel obligated to spend $600/year on clothes. Or eat out $100/month because it's "budgeted". Instead you are looking at the bigger picture by budgeting annually, and you are able to spend $50 on eating out one month and $200 another month because of unexpected expenses.

I prefer the loose budget. I know that my money is going to go where it's most important: Retirement, Savings, Taxes, and Housing. But everything after that shifts in priorities and is open to being increased or decreased. I hope this explanation of how I budget helps. Or perhaps making a strict budget and naming every dollar is better. To each his own! But consider the "loose" budget if you have trouble tracking every dollar spent!

Stop by my blog LivingAlmostLarge for more financial tips, and LAL Musings for ramblings about life! ~LAL

Thanks LAL, for a great post! I'm pretty close to a "name every penny" budgeter so I was happy to get a different take on the always difficult task of budgeting. How you do it is not nearly so important as that you do it!

What sort of a budgeter are you? Do you name every penny or do you, like LAL, leave things loose?