Living on a per diem
When the first of June rolls around, I’m going to try out a new monthly budget. Kate and I are working to save some money, so I figured I could benefit from paying more attention to my finances. Unfortunately, I’m not very good at math, so anything but the simplest budgeting system is right out the window for me.
Thankfully, the good people at Lifehacker recently linked to a guest post on a financial blog called Get Rich Slowly. The system it describes is based on giving yourself a daily cash allowance. I thought I’d share it here, just in case anyone who might be reading this is looking for a simple but effective way to budget and save.
Essentially, what you’re meant to do at the start of each monthly budget cycle is set aside the money for fixed expenses, unique expenses that you know you’ll have to deal with that month, and anything you might want to save. After that’s done, you head down to the bank, withdraw the remaining amount in cash, and divide it into separate portions for each day of the month. From then on, you add another wad of cash to your wallet every day.
In my case, I started by adding up the paycheques I’m expecting this month. I subtracted rent, insurance, the portion of each cheque that I’m putting into my savings account, and stuff like that. After that, I was left with a pretty decent per diem, and I plan to spend it just as I would if I weren’t keeping track of it. If I spend less than expected, and my wallet starts filling up, then I’ll put some of that money back into my savings account. If I spend more than expected, then I’ll know I’ve got to rethink some of my spending habits.
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It’s an easy plan but you can do the same on a piece of paper and don’t have to have a lot of cash on hand or in your wallet. Just write down your expenses and classify them in categories. That way you get a lot more insight in your spending then just budgetting. Your also missing out on some interest(=i) probably. After one month all that remains in your wallet(=x) could have earned you: x*i^(1/12).
Good points all around, Grom. Interest isn’t an issue in my case; not only is the money coming out of a no-interest chequing account, but the surplus is going into a savings account, so I’m actually saving up more money faster than I otherwise would.
Classifying expenses is an important first step in this exercise, and the real value of doing this for a month is coming from physically seeing how much I spend on what sorts of things after the fixed expenses are covered. Like I say, I’m a non-math guy, and I’ve found it helpful to see it in real terms.
Having all the cash on hand is admittedly a bit of a hassle. It’s kind of fun to start the day by giving yourself some money, but I think the novelty might wear off by the end of the month.