Do You Have a Monthly Allowance? Are you budgeting your expenses up front?
Allowance
So here's the deal, in our family we have 3 allowances every month. These are fixed amounts and they are wired in separate accounts. Here's how that works:
My wife Bianca, myself and our 'food account' gets replenished every month. We transfer the amount of $150 to my account, as well as Bianca's and $350 to the food account. (we used to get $350 ourselves as well, however we have since then purchased a home, and Bianca has been to India for 5 months which meant she had to quit her job in order to be able to leave. I've also made some business investments and due to those factors our income temporarily dropped $2000 a month.)
The $150 is all we're gonna get that month. If it's gone, it's gone. The food account is a little less strict but supposed to be limitative as well. (of course we'd rather cross the budget a little now and then instead of starving).
Power
So here's the powerful thing about setting an allowance. First of all, the budget, when maintained strictly forces you to think and re-think about expenses. Yes you can buy sushi every day at the local supermarket but your food account will drain quickly. If you purchase new Nike sneakers your monthly allowance might be gone for the whole month. (and yes in our example the $150 is a bit too low to be honest). However, by maintaining this our 'monthly variable costs' aren't variable anymore. We've got our mortgage, council taxes, and supply bills, along with the allowances and that sums up our total monthly expenses. Of course, there are some unforeseen expenses now and then, yet the power of the allowance is that the variety in expenses is not a choice. It's kind of not having a bag of crisps laying around the house will almost 100% guarantee you won't eat crisps that night. Whereas, when you know it's in the cupboard......
Procedure
So here's how we do it; Every 20th of the month salaries come in. I immediately transfer the exact amount of $150 to my personal account, as well as Bianca's. I also transfer $350 to the food account. I then transfer the entire amount that is left over (our salaries vary hugely every month due to the fact we own our own businesses), to our 'fixed costs account'. This means we now have 4 accounts that are in use already, 4 actual bank accounts.
We then have a debit card for the personal accounts, and the food account. Whenever we are in the supermarket to buy groceries we use our shared 'food account bank card'. Whenever we are in a store and buy personal items, buy train tickets, book concerts whatever, we use our personal card. This ensures a nice split between shared expenses and personal expenses.
Bonus
As a bonus we never have to fight about what we are spending our money on. If I want to spend $150 on pop corn, I can do that without having to check with the misses. If she wants to get her hair done every month, so be it. However, do not start asking for more money because you'll have to wait until the 20th!
Conclusion
There are many positives to creating an allowance plan.
- It limits your spending
- It gives great analytics and in-depth to your spending habits
- it limits marital arguments about spending money
- it ensures that, even with a variable salary, the largest amount possible will be saved for future investments
- it reduces your variable costs (and impulse buys) and combines these into pre-structured fixed costs with a variable character.
- it forces you to think and re-think your expense pattern, and allows you to save for larger personal purchases.
Read my previous story: https://steemit.com/money/@markdeheide/investment-v-s-fun-financial-freedom-episode-5
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