I’ve been known to be rather “careful” with my money, which is a polite way to say that I can be cheap at times.  One of the drawbacks of tracking every penny that you spend is that when something comes up that you didn’t plan for, you have to make a decision whether to stick to your budget or to loosen your purse-strings.

Tracking Every Penny

When planning a monthly budget, you take into account your large monthly expenses such as your mortgage payment, RRSP contributions, car payment, groceries, monthly utilities, and insurance.  But not every expense is fixed.  And unless you know exactly to the day that you will run out of household staples like toilet paper or cleaning supplies, some unplanned purchases can sneak their way onto your shopping list.

Not only that, variable expenses come up in other ways too.  Pitching in for an office retirement party or fundraiser, catching up with a friend over lunch, or grabbing an ice cream with your family are all spontaneous activities that are most likely not accounted for in your budget.

And making a habit out of living in the moment with no regard for your budget can wreak havoc on your finances if not kept in check.

Related: Why Budgeting Is Not A Waste Of Time

So how do you avoid financial misery without becoming a miser yourself?

In your budget you should set aside some petty cash for any of those unexpected expenses that do inevitably come up throughout the month.  Decide what you can afford that amount to be and then take this cash out from the bank right after you get paid and keep it in your wallet.

If you spend it all, that’s fine…it was accounted for.  But if you don’t spend it all, throw the left over cash in a jar and save it for a rainy day.

How about the readers, are you also “careful” with your money?  Do you track every penny and sweat the small stuff?

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9 Comments

  1. Ian Brennan on October 6, 2010 at 9:20 am

    I believe that all of our income, and all of our time should be allocated (budgeted), even if in broad categories. Then, if our expenditure of time or money falls outside of the way in which it was allocated, the decision becomes what to trade off. By comparing what we want to what we have to give up, we can then qualify the decision. Will I work the extra hour of overtime, or would I rather have that hour of sleep? Do I buy that new ipod, or do I buy the flowers I budgeted for, instead? If I go out for dinner, what is there in my budget that I feel I can do without?

    • Echo on October 6, 2010 at 10:59 am

      Hi Ian, that’s a good way to think about it for sure. I wish all of those decisions were that simple. I think the most common choice that people make is, “Do I enjoy life right now, or in 30 years?” Delayed gratification is not always the popular choice.

  2. A.Rajah on October 6, 2010 at 8:27 pm

    I used to have very strict budget and I was unhappy if we spent anything extra. But then I realized that is not making me happy. I now allocate some extra cash for masc. and that is for any unplanned entertainment/enjoyment. I want to keep a balance between enjoyments now enjoyments later.
    For example few years ago, I went backpacking in Colombia and I may not be able to do the same trip in 30 years from now. I may have ailments, medications, and dietary restrictions. Therefore my opinion is there should be a balance

    • Echo on October 6, 2010 at 9:03 pm

      @A. Rajah
      Thanks for stopping by. That’s a great comment regarding the balance between enjoyment now or later. That’s precisely what I’m looking for, and your example of traveling while you are young and healthy is something I really need to consider.

  3. Mike on October 12, 2010 at 10:59 am

    I think I’m doing something along the lines of A Rajah.

    I usually keep a monthly slush fund above and beyond my emergency fund. I keep it around $500 or so. Since I’m not really a big spender to begin I typically don’t spend that much but at the same time I want a decent amount in there to cover random events or opportunities which might actually not be considered REAL emergencies.

    But anyway it usually covers literally ANY random things that could come up. Going out for an dinner with friends. A last minute road trip. A night at the ballgame. Something I need for work. Minor home/car repairs. The list could go on and on…

    If that amount were to run out or I know about a larger expense coming up though, that’s when I would really clamp down because I don’t want to actually have to use my emergency fund. I’ll either cut expenses or save up to fund whatever it is that I want/need.

    Obviously you have to have some self control to do things this way. It works for me though since like I said, I’m not really a big spender. The vast majority of the time, a large percentage of my slush fund is unused each and every month. In that case, I just slice off the excess (assuming it accumulated excess funds) and divert it to my long term goals. Typically those are retirement investments and/or mortgage prepayments. Once the mortgage is paid off, the surplus will probably be geared more towards long term luxury spending. I’m thinking some big vacations I’ve been putting off while I pay off my mortgage.

    • Echo on October 12, 2010 at 12:04 pm

      Hi Mike, thanks for sharing your comments. I would like to set things up like that, however I always go back to the concept of ‘paying yourself first’ and fear that if I just saved the leftovers at the end of the month that there wouldn’t be much left over.

      I’m assuming you are setting aside money for retirement, and any additional leftover money from your slush fund just tops up that amount?

  4. The Investment Blogger on March 19, 2011 at 9:52 am

    I keep track of my monthly expenses, but I found that too limiting so I also have everything tracked into a yearly total to see where I have underspent/overspent. I can then see how close I am getting to the allocated grand total as well.

    I also find it helpful to allocate a certain amount for unexpected non-emergency type expenditures. These also go into categories such as going out to dinner with friends, etc, because as Mike mentioned they do come up.

    A balanced life is good, and many times this can be achieved through determining priorities. I spend more money things that are more important and less on those I find does not improve my life. For example, I spend a lot on groceries, books, etc but very little on clothes, TV, electronics, etc.

    I also put investments into my budget.

    Budgeting for vacations are also good. The problem is yearly tracking doesn’t quite capture how going on vacation affects your long term goals because they may or may not occur every year and are typically much larger sums of money. So for that I make a long term budget… of years… to see how they impact my plans in the long term. The drawback is that how the future goes becomes less and less clear as we span into any years beyond two. Anything could happen, so the long term tracking is more for projecting and used as a guideline.

    And from doing the long term projections, I find that even yearly expense budgeting is really used as a guideline rather than an inflexible budget, as long as you put in enough buffer space and the expenditure was justified. Although some categories you may put your foot down and limit it down to the penny.

    My methods may be a bit overkill, but it works for me and maybe some aspect of it can be helpful.

    Great post topic by the way. =)

    • Echo on March 19, 2011 at 12:27 pm

      @The Investment Blogger

      I’m glad I’m not the only one who puts this much effort into budgeting and forecasting. As you said though, I like to use the yearly forecast as a guideline, which helps me remember to budget for birthdays, anniversaries, vacations, insurance, etc.

  5. JohnnyStash on June 26, 2013 at 6:37 am

    Great article, we essentially follow the same path as Mike and have opened the maximum number of accounts we can under our banking plan to act as various buckets, such as rainy day bucket, emergency bucket, vaca bucket, kids sports bucket etc.

    I would however like to see better benchmarking in terms of % or $ household spends relative to mortgage, groceries, vehicles etc to see where we fit in. I sometime get concerned that we are planning for the future too much and not living enough in the now.

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