Friday was the first payday of the New Year for me, meaning it’s time to put my new budget into practice. For a while now I’ve been living on cash to protect myself from racking up any additional debt. Now that I am putting aside money into savings, paying my bills in full, and eliminating debt, I need to focus on the tactical elements of my plan. For example: how to spend my cash in a manner that supports my goals. This means I need to track my expenditures with laser-like precision!
A few weeks ago I posted my budget for the New Year which incorporated all of my new expenses. At the time I had only four categories for variable expenses: gas, laundry, groceries, and miscellaneous. Altogether they added up to $560 per month, with the miscellaneous category being the largest at $250. As Joe and others pointed out at the time, $250 for miscellaneous expenses is far to vague. I definitely need to be more specific about where my cash will go, so I looked to Gail Vaz-Oxlade for the answers.
As a fan of GVO’s show, Til Debt do us Part, I picked up her book Debt Free Forever when it first came out. I love reading personal finance books, but was never organized or motivated enough to actually put a plan into action. Nowadays — and for the first time ever — I know exactly how much money I am making per month, my fixed expenses, and the amounts that I owe. This knowledge is power; it means I can finally try out the jar method for my cash, which makes budgeting fun and exciting.
Knowing that $560 is my monthly cash allowance, I needed to calculate out how much I’ll get each payday. I get paid biweekly, and that is how I have always planned my spending. That’s $280 cash in my wallet every other Friday, while the rest of my paycheque stays in the bank to either be automatically withdrawn or transferred when the bills come in. (Editor Joe’s Note: unfortunately it’s inaccurate to simply divide the monthly amount by 2. If you have $560 per month, and you want a true biweekly allowance rather than semi-monthly, you should multiply $560 x 12 and divide by 26, which equals $258.46.)
The next thing I did was adjust my spending categories (again, because my original ones weren’t specific enough). My new categories are:
- Groceries and household
- Gifts and clothing
- Entertainment; and
Here’s my bi-weekly budget for each of these categories:
Transportation – $80
I don’t do a lot of driving beyond going to and from work every day, and my car is really good on gas. This means I usually only have to fill my tank once every two weeks, and sometimes not even that. $60 should be enough for my bi-weekly gas needs alone, but this jar will also cover less regular cash expenses, e.g. oil changes, wiper fluid, e-testing, and license renewal. Each of those things costs a solid chunk of change, but if I’m saving $30 to $50 a month for these irregular expenses I should be able to cover them when they arise.
Groceries and Household – $100
Food is way too expensive nowadays! When I was in university (just a couple of years ago) I could get by on $25 per week in groceries. Now, I’m lucky if I escape a trip to Food Basics without spending $60. This category will also be tight for the first month or so because I just moved into my new house; there are always staple products you don’t notice until you need them. So far this week I have had to purchase canola oil, flour, baking soda, a sugar dish, and a baking sheet. As far as straight-up groceries are concerned, $60 should be enough to get me through two weeks, as long as I plan my meals and purchases ahead of time. The balance of the cash will be for household and hygiene items like cleaning products or shampoo.
Gifts and Clothing – $30
This is one category that I never budgeted before. It’s a great idea. If I am putting this money in a jar every other week and only touching it when I need it, I should have a totally stress-free Christmas in 2013 (not to mention the ability to go out and buy myself a pair of jeans without worrying about cutting into another budget item). This is one jar that will remain almost untouched. Because my history with keeping cash on hand has been poor, I may actually hide this jar from myself. (Editor Joe’s Note: I recommend opening a separate savings account at ING for this particular line item, rather than keeping unproductive cash around the house.)
Entertainment – $60
This will cover fun activities; anything from my weekly swimming to going out to the movies. The entertainment jar will be my fun stuff savings account as well. I really want a new computer monitor, so I will need to save up for that from this line item. This is the category that will take a hit until I can afford it.
Other – $10
Yep, I still have a miscellaneous category but don’t worry, I renamed it “Other”. Also, it’s a lot tighter now. This one will probably be untouched during most biweekly periods, just like my clothing and gifts category. I mostly envision this category to be cash-on-hand for things like Dristan during allergy season. It is also handy because if any of the other jars fall short, I can move some of the accumulated money from my “other” jar to a different category.
So far I’m really optimistic about my plan. I’ve been tracking my spending to gauge my success, so in one month’s time I will know if the jar method works for me or not. I’ll do a review early next month and let you guys know how it went, and how I felt about the jars overall.