Monday, January 10, 2011

The Budget Experiment

Beginning with the new year, I started a little experiment on myself. I decided to take up the challenge of limiting my discretionary spending to $100 per month. This includes food, entertainment, gifts, clothing, etc. There are a few specific exceptions: I didn't include gym membership in this amount, mainly because of the complications that would result due to the fact that I'm on a family plan. I also did not add two possible reunion trips and a wedding I'm attending this year. They will have a separate budget. In fact, the trips are part of what prompted me to cut my spending.

Okay, to be honest, it's not the most well thought out plan ever, but I want a plan that's challenging yet still doable. I have a general idea that it's going to be a long term experiment without a set ending date. I figured that if I do this for at least 6 months out of 2011, I will definitely come out ahead of my savings goal. The trick, however, is not to go on a spending spree afterwards. That'll defeat the whole purpose.

What other reasons, besides the potentially costly trips, prompted this experiment?
I looked over my financial records for 2010 in December, subtracted out all of the non-discretionary spending, gym membership, and a few trips, and found out that I have no idea where a large chunk of my money went. Sure I enjoy a cup of Starbuks coffee in the morning a few times a week, but I consider myself a pretty frugal person. I make it a point to almost always buy things on sale, and I try to think about whether I really need something before I buy. So where in the world did my money go? I checked the spending pie chart on my bank account, but the categories were not specific enough for me to be able to tell what's what. It'd be nice to know the exactly things and how important they are in terms of contributing to my overall happiness as a consumer. What will I miss doing/having the most if I don't have the budget for it? What can I cut out of my routine? It's a great way to make my money more personal and to understand my own habits better.

In addition, after much research on setting financial goals, I find that there are generally two camps of people. Those who find budgeting essential to financial planning, and those who are against setting a strict budget. I had never set a strict budget for myself before, so I want to try it out (and yes, in a very extreme way), and see how it works with my financial "personality."

This past weekend, I mentioned the plan to a friend, and she thought I meant $100 per week. Even then, it may not be very much since I live in the San Francisco Bay Area, and things are not exactly cheap here. The standard of living is high compared to the national average, so this won't be easy, I'm pushing the envelope a little bit. As usual, I will update you on how it's working out. For now, let's just say the first 10 days have been somewhat painful. Although, the great thing is that I am becoming ultra-aware of all of the things I spend money on.


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