The budget categories were looking good.  I was pleased.  And then I got an Evite reminder.  For a fundraising dinner that I had agreed (and wanted) to go to.  It’s for a cause I very much support, thrown by a girl I very much like, and the price is $20 and a bottle of wine (or your preferred beverage) per group.  So that meant hitting the ATM a few days early (I had $20 in my wallet, but don’t like to ever be completely out of cash) and a trip to the beer and wine store.  Sure, it’s only about a $30 overage when it’s all said and done, but I was SO close!  Some months, I’m so far from close that it’s not even funny.

But really, it’s not a big deal at all.  $30 over budget for a month that involved a bunch of travel, plus booking additional trips.  Not bad at all.  Here’s hoping next month is even better!

“I have to live on last month’s income?  But I’ve already spent last month’s income!”

For those of you unfamiliar with YNAB, their site explains it in much greater detail, but in short, one of the basic “rules” of YNAB is to live on last month’s income.  This means that on March 1, you know exactly how much money you have to spend in March.  It prevents living paycheck to paycheck and you no longer have to wait for a paycheck to clear to be able to pay your bills.  It’s really a great idea, but as many have pointed out, most people don’t just have an extra month’s worth of expenses sitting around.

The plan is designed so that you can use it while working to build up your buffer of an extra month’s worth of expenses.  (Note that you don’t need to save up an entire month’s worth of income, just the money you will need that month.  So if you manage to save up enough money to cover all of April’s expenses, then all the paychecks you earn in April will be your spending money for May (a.k.a. last month’s income).)  You are encouraged to scrimp and save as much as possible so you can get to that point, and let me tell you, it’s a very freeing feeling.

One friend brought up an interesting question though.  He had enough in reserve to pay for about half of his expenses for the month.  Could he just pull the other half out of his savings so he could start following the “last month’s income” rule for YNAB the next month.  His plan was to then work to repay himself so that he would never notice the loss in savings.

I wasn’t sure how to respond to this.  Of course, he could do this.  It’s his money after all, and he can do with it whatever he wants.  It felt a little bit like robbing Peter to pay Paul though.  Personally, I don’t like the idea of pulling from your savings unless you absolutely have to.  Sure, he had the right idea in mind by planning to pay himself back.  But why start anything at a loss?  And how motivated would he really be to save up that much money?

He seemed very eager to start living on last month’s income, so I had a feeling he would be a much more savvy saver if he was working towards that goal rather than just jumping to the front of the line and then having to work to pay himself back.  I don’t know about you, but if I have a debt to pay with no penalty, it’s probably not going to be my top priority, especially if it’s a debt to myself.

I’m not sure what he decided to do (and given that I suggested he not pull from his savings, I have a feeling that even if he does, he won’t tell me), but I think that overall, borrowing from your savings isn’t a good idea.  It’s one thing to borrow from your vacation fund or your fun fund, but borrowing from basic savings seems like a loan that you’ll struggle to pay back.

So then why haven’t I done it yet?  Well, first off because a lot of my computer time is being taken up by NaNoWriMo (just about at the halfway point).  Also, even with all my tips on staying healthy, I’ve managed to catch a cold, so I’m trying to get a lot of sleep.  (Thank you, plague filled co-workers.)  But mostly, I’m lazy.  My most updated budget spreadsheet is on my flash drive which is in the other room.  

But the good thing about this?  I know I’m doing fine with my budget.  I haven’t spent a whole lot of money yet this month, but I know that every expense so far fits right in with where I’ve budgeted.  It’s becoming a habit.  It’s taken almost a year, but I’m finally in the habit of thinking about spending money before I spend it.

It’s a weird feeling, to be honest.  I’m getting a little antsy about not having updated my budget.  I’m sure I’ll get to it later today or tomorrow.  But it’s really great that it’s no longer a concern – that I can stay within my budget without constantly having to use a spreadsheet.

One thing that I did was review my budget and pull all budgeted money for “fun” things and put that into the Pet Care category. This means that I no longer had any budgeted money for books or movies or music, for example. Not that I ever budget very much in those categories, but usually have $10-$20 to spend. Not being able to buy any books this month shouldn’t be a problem as I’ve put myself on a buying freeze until I get through the huge stack (read: box) of unread books taking up space in my apartment.

I figure this wouldn’t be a problem. Then I heard a song on a tv show that I really wanted to download from iTunes. But that was going to cost me 99 cents. My music budget had no money in it. So technically I couldn’t afford it. I actually went back and forth for a solid ten minutes on whether or not I should still buy the song.

Then I realized that I was being ridiculous. I bought the song. I have enjoyed it more than I expected. And I learned a lesson. While it is important to keep your budget as tight as possible, there has to be some room for fun in the budget. Now, how much money that equates to varies from person to person, and for me, even varies from month to month.

In moments like this, I begin to wonder if I’m focusing too much on my finances. I shouldn’t let a 99 cent expense stress me out so much. Of course, if we’re talking 99 cents every day, that will add up. But one 99 cent song purchased this month is clearly not going to break the bank.

Some days, I just need to remember to put things into perspective.

One glaring problem, however. I have $100 in my “pet care” budget category. My cat is having surgery in a few weeks, and the estimate I was given was close to $400. Plus I will likely need to buy food and litter at some point this month.

The question now is how to deal with this. Admittedly, it’s a minor problem. I use YNAB, and for those of you not familiar with the system, one of the key points is to live off of last month’s income. What that means is that the money that I have available to spend this month is actually from the paychecks I earned in July. August’s paychecks will be used for next month’s budget. So even though there might not appear to be money in the budget to cover the vet bill, there is money in my bank account. Sure, it’s money that I’ll need for next month’s budget, but one of the great things about YNAB is that these unexpected expenses can happen, and you just tighten the budget each subsequent month until the problem is solved.

For example, let’s say I absolutely cannot tighten the budget at all this month and go over budget by $300 this month. So in September, I have $300 less to budget. But what if I need that money next month and can only cut $200 from my September budget? No worries. I can just keep things tight again in October, and suddenly, my budget is looking perfect again. Confusing? Kind of. That’s why I have a spreadsheet to keep me on track.

Of course, my plan is to not go over budget by $300 this month. But looking at my budget, there just isn’t room to tighten things by $300. Not unless I pull money from the savings categories, which I refuse to do, or take money that I have budgeted for my upcoming eye exam, which I could do, but I’d just have to re-budget it later, so it doesn’t actually change anything.

It’s not a huge problem, and part of the reason I used YNAB was so that if these large, unexpected expenses occurred, I wouldn’t have to touch my savings or my emergency fund. But even knowing that, it bothers me to look at my budget and know that I’m going to end the month in the red. Not much I can do about it, but I am going to really watch my spending this month so that I save where I can. I’d like to finish out the month less than $200 over budget.

It’s also incentive to finally deal with the box of stuff labeled “Things to sell on eBay” that has been sitting in a corner for a month.

I think once this is all said and done, I’m going to start setting a bit of extra money aside every month in my pet care fund, just to have a bit of padding in case of unexpected expenses. Even though I have an emergency fund, a little extra preparedness never hurts.

Each of these accounts has a different purpose.

The ING Savings Accounts are each named according to their purpose: Long Term Savings, Short Term Savings, and Frivolity Fund.

Long Term Savings is fairly self explanatory.  This is my main savings account.  On the first day of every month, I have a set amount transferred into this account.  Where does it transfer from?

That leads us to the Short Term Savings account.  This is what I consider to be my spending money.  A set amount of money from each paycheck is deposited into this account after every payday.  This account is essentially my bill pay account as well, though because it is a savings account, it can’t be used for online bill pay.

Which is why I have the Electric Orange account.  When my credit card bills arrive, I transfer money from Short Term Savings into the Electric Orange account and then use that to pay the bills online.

The Frivolity Fund was created to try to spur me into action on my budget.  Every month, I start the budget with a set amount of money budgeted as fun money – savings for a big purchase.  However, to encourage myself to stay on budget, at the end of the month, if I’m over in any categories, the money comes out of the fun money budget category to cover.  If there’s still money in that category after covering my overages, then I transfer that amount from Short Term Savings into the Frivolity Fund.  Watching it grow and earn interest really does encourage me to stay on budget.

The HSBC Direct account is used for my Dollar a Day plan.  I chose to host the plan there mainly so I could have the opportunity to try out HSBC Direct’s features.  After using it for seven months, I have decided that I very much prefer ING’s features and will be transferring all the funds from that account back to ING Direct at the end of the year, even though HSBC does have slightly higher rates.  I’ll sacrifice that for the preferred banking experience.

Every two weeks, my paycheck deposits into the checking account at my brick and mortar bank.  For a while, I considered having it deposit to ING, but I like having instant access to the money, just in case.  I keep enough in this account to cover my rent and monthly cash withdrawls.  I keep a small reserve of money in the savings account “just in case.”

It seems like a lot sometimes, but I know that there are many others out there who are juggling many more accounts.  Most of the transfers I indicated above are automatic – the only transfers I ever initiate are those to pay the credit card bills and to the frivolity fund, plus the occasional transfer from brick and mortar checking to savings.

I hope to open another ING sub account later this year to start a “charity fund,” rather than just keeping it as a budget category in YNAB, but beyond that, I’m happy with my current setup.

I finally became eligible for the matching in my TSP this last pay period, so that was an exciting moment. It’s almost like getting a 5% raise, if you think about it. Just a 5% raise that I can’t touch for a number of years.

I showed a very solid increase in my cash accoints, which means that my plans to spend less and save more are going well. I do have a few big bills coming up this month (car insurance, for example), but because I’ve been using YNAB and setting aside a small amount of money every month in preparation for the bill, so I’m not concerned.

The plan for this month? Just keep on keeping on.

I went back through two credit card statements and found the missing transactions. Two small online transactions and one transaction where I distinctly remember not getting a receipt. So that threw off the budget a bit. Not a big deal, but definitely a reminder to make sure I’m logging EVERYTHING. Part of the problem was 99 cent iTunes songs. I need to either be sure to flag the receipt when it arrives in my inbox, log the purchase immediately, or just buy myself an iTunes giftcard and not have to worry about it.

I’m considering trying to tighten my financial belt for July and see how much money I can save. July isn’t the best month to be doing that, as I have family visiting and will need to spend a bit of extra money while they’re here. But I can always tighten my spending except for things related to their trip. But I think I’m going to try to see how many no-spend days I can have this coming month and how much I can pad up my budget for August.

Spending Spree – $800
With a spare $800 to toss around, I would buy plane tickets to Seattle to visit a friend who I only get to see about once every few years. It would be a cross country flight, which I hate, but with $800, I could likely get a direct flight, and it would be great to see her and her husband.

I’m pretty good about guesstimating my cash use. If I’m traveling, I plan to need more cash that month. Additionally, now that the farmer’s markets are open, I’m spending more cash. (Of course, this should mean that I put less money into my grocery budget, but that doesn’t seem to be how it’s working.)

This month, I barely touched my dining out budget. I ate out once, and that was to grab something small the night that the power went out in my building. Yes, I could have still eaten at home, but seeing as there was a smoking power transformer visible from my window, I wasn’t sure how long the power would be out and therefore, didn’t want to risk opening the fridge.

Of course, the converse to that is that my grocery budget is an absolute disaster. I spent nearly $100 more than I had budgeted for. What happened to the plan of perusing ads and using coupons, you ask? Well, that plan went into effect, that’s what happened. I spent way more than I planned to, but I also have much more food in the house than I did last month. I bought a lot of things that I use regularly while they were on sale and won’t need to buy again for a few weeks. The theory is to stock up when things are on sale and ultimately save money, but I’m not really seeing that in the budget yet.

Plus it’s nice to know that during next week’s grocery trip, the only things I will really need to buy (I use the word “need” very loosely) are fresh fruits and veggies, most of which can be picked up at the farmer’s market.

I’m sure that part of the problem is that I struggled to stick to this particular grocery budget six months ago, and that was before the increase in food prices. So it’s entirely possible that my grocery budget is just a little too ambitious.

For July, I’m going to attempt to keep my spending as tight as possible. I’m not sure how well that’s going to go, seeing as I have family and friends coming to stay with me for a few days, and as they have always taken me in and made sure I had whatever I wanted to eat and drink, I feel the need to repay the favor. But I’m going to try.

Abundant Life Spending Spree Day 3 – $100
With a spare $100 to spend, I think I would take a friend or two out for dinner. It’s nice to be able to treat others from time to time.