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Retirebyforty’s Pools Budgeting


Ummm, this isn’t about budgeting for a swimming pool although Google ads seem to think so. 😀 I’ve been using Mint.com for 6 months now and it is great for tracking expenditures, but I am getting a little tired of the “Exceeded budget for Gas & Fuel” emails.

Actually, I moved on from Mint to Personal Capital. It is similar to Mint, but it’s geared much more for the investors. Their tools and financial adviser made it no contest.

Today, I would like to share our Pools Budgeting solution that we’ve been using over the last few years.

gas budget

our Gas & Fuel category

We auto contribute to 401k and pay tax first, then we have our monthly budgeting to play with.

The monthly budget is divided into 3 big pools.

1. Checking Account – The bills in this pool are fixed costs and includes mortgages, utilities, HOA fees, and insurance. We auto pay as many of these as possible to simplify the bill pay process. The bills in this pool are paid from the checking account and the expenditure are very stable from month to month.

2. Credit Card – I call this category the unavoidable expense. These are the things that we need to function in everyday life such as gas, cell phone minutes, medical bills, formula and diapers.

3. Cash – We give ourselves $100 each/week to spend on discretionary spending + groceries. Groceries is included here because our grocery store only accepts cash or debit. Other than that, we use this money any way we want to. We use this budgeted pool for eating out, clothes, entertainment, and other fun purchases.

* Emergency fund – We have an emergency fund in our savings account and won’t touch this unless some emergency situation arises (i.e. when our car broke down).

If we take a closer look, you can see the only variable in this budgeting plan is #2 the credit card pool. Lately we have been doing really well with the credit card. The January and February bills are well under control and I’m quite happy about it. Of course, some months we slip and put more on the credit card than we should. Sometime I charge IKEA and Target purchases on the card instead of paying cash like we are suppose to.

In any case, I also have another control valve on the credit card spending. I check our credit card account online every few days and if I notice the outstanding balance creeping up near $1,000 then I put a brake on expenditures. I notify the Mrs. that our balance is getting higher and we should try to put off purchases until the next billing cycle. Amazingly, this works pretty well. Anything that puts off the actual spending is good. It give us a little time to rethink the item and sometime we figure out we don’t need it after all. Our target is to pay off the credit card balance in full every month.

What do you think about our budgeting strategy? This way we don’t have to track every pennies, but still have some control over our expenditures. This has been working pretty well for us over the last few years. When we first started out the credit card portion was always a little high. I think we have a handle on it now though. The bills are a lot more under control since I’ve started posting our monthly credit card posts. You guys keep us honest. 😉

I think this pool budgeting works quite well if you have spending under control. If you know you spend too much money, then it’s probably best to stick with the traditional budgeting plan and have a more detailed budget. Mint is actually pretty good at showing our trending and I mainly use it for that purpose.


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{ 29 comments… add one }
  • LifeAndMyFinances March 28, 2011, 3:52 am

    It sounds like your system is fairly complex — Paying some items with the checking account, others with a credit card, and still others with cash only.

    Since Mint.com tracks all of your expenses through debit and credit cards (cash just shows a blanket $100… you really don’t know what you’re spending money on when you look at the transactions), I would much rather use only those forms for purchase. This way you won’t have to think so much about using cash in a certain instance, plus, Mint will automatically categorize your purchases.

    • retirebyforty March 28, 2011, 9:05 am

      Mint is useful to track expenses and I can see my gas spending go up for example.
      The cash pool is for discretionary spending so I don’t care what I spend on as long as it doesn’t go over $100. It’s good enough for us since we are pretty careful about spending.

  • Moneycone March 28, 2011, 5:09 am

    Pretty good strategy! In fact mint should adopt this strategy – use a spend bar that turns from green to yellow to orange and red depending on how the spending is!

    • retirebyforty March 28, 2011, 9:06 am

      I think you can set it up to do that, but you have to manually go change the transaction category.

  • Everyday Tips March 28, 2011, 5:31 am

    I think it is a good strategy. You guys are such controlled spenders that I think just about any system would work well for you.

    • retirebyforty March 28, 2011, 9:08 am

      Before we changed to the cash allowance system, we use credit card for everything. It was so much easier to just charge a purchase that we just spend more money. With cash, we are much more conscious about the discretionary spending. When we run out of cash, we’re done for the week. 🙂

  • Melyssa March 28, 2011, 9:14 am

    #2 scares me a bit. Well moreso because I don’t use a credit card since we tend to overspend. And because I’m so OCD about where every dollar goes before it is spent. But I agree that we all have to find a system that works for us.

    • retirebyforty March 28, 2011, 10:18 am

      We try to avoid the credit card too and have been doing a good job so far. I suppose we could go to an all cash system, but then I would have no idea how much I spend on gas and those other I listed.
      Yeah, budgeting is why personal finance is personal. 😉

      • Melyssa March 28, 2011, 11:15 am

        For gas, I calculated how much I needed to commute to and from work and included a bit extra for misc travels. I have a fixed amount I provide myself at the beginning of each month. If anything is left over, it goes to savings.

        With the hubby since he refuses to use cash, I leave a certain amount on the debit card every paycheck.

        For the rest I have an envelopes. But I do have a Misc. envelope that I fund each month to cover other misc items such as those you list.

        Like sara, I learned this from Dave Ramsey too.

        Fun discussion learning of how others budget.

        • retirebyforty March 28, 2011, 9:10 pm

          Wow, you are very detailed oriented. 🙂
          I can’t keep track of all the little things so the weekly allowance works better for me.

  • sara March 28, 2011, 10:09 am

    We’re following Dave Ramsey’s budgeting system, and have an all cash/envelope system (we do not have debit cards or credit cards). It’s been working great for almost two years now, and we’ve paid off over $16,000 in debt so far, since being on his plan 🙂
    I’ve heard good things about Mint.com, but we already have a really detailed spread sheet set up that works well with our envelope system, so I don’t think there would be any advantage for us to use it.

    • retirebyforty March 28, 2011, 10:16 am

      Mint is nice if you use plastic because it will generally put the spending in the correct category. If you already has a good spread sheet, then you don’t need it. I’m not detail oriented enough to log every pennies. I concentrate on not spending. 😀 It doesn’t always work though.

  • krantcents March 28, 2011, 11:16 am

    Is it working for you? If the answer is yes, then keep using it. Budgets are little like diets, you have to find the right one that works for you. If you use target a lot, you may want a Target credit card for the 5% rebate. I think they have a debit card too and it gets a 5% rebate. I am not sure about the debit card.

    • retirebyforty March 28, 2011, 9:11 pm

      Yeap, it’s working for us. We tried the detailed spread sheet budget, but it’s just too much work and I don’t log everything.
      I like Target, but I don’t think we use them that much. I don’t want anymore card either.

  • Jessica07 March 28, 2011, 1:58 pm

    My husband and I had a similar budgeting plan a couple of years ago. It worked for about the first six months, and then one of us (I won’t name names, but it WASN’T me) went over the credit card allotment, and that messed us up for the next couple of months. Like krantcents said, though, you have to find what works for you. 🙂

    • retirebyforty March 28, 2011, 9:12 pm

      Hahaha, both people has to be on board for this to work. One of us messed up once in a while, but it works for the most part. 😀

  • Spruce Up Your Finances March 28, 2011, 5:45 pm

    We use our credit card a lot too so we can take advantage of the rebates but of course we have tried to paid it off a couple of months later. On one of credit card, I got a 5% rebate whenever I purchase gas so this really helps alleviate whenever gas prices go up.

    I think as long as your budget works for you, then you should be ok. There is really no standard way of trying to work on your own budget. Sometimes the best way is the simplest and the one that you are mostly comfortable doing. For as long as you are still reaching your savings goal, have an emergency fund, I think you are very much ahead than most people out there.

    • retirebyforty March 28, 2011, 9:14 pm

      We used to charge everything on plastic too, but I read that people spend less if they use cash. So we tried it for a while and it’s been working really well for us. The credit card makes it too easy for me to impulse buy.

  • Money Reasons March 28, 2011, 7:45 pm

    Nice budget! Complex for us though. I call ours an automatic budget, but really it’s more of a month reconciling process, where I compare expenses and income via bank statements and credit card bills…

    Sounds like a great system. I didn’t realize that mint.com would give you the averages to compare your spending with. That’s pretty cool!

    • retirebyforty March 28, 2011, 9:16 pm

      Mint would help make your method easier. You should check it out.

  • youngandthrifty March 28, 2011, 8:58 pm

    I like Mint too, I upload/ refresh it on my iPhone almost daily (sad sad OCD-like habit of mine).

    Do you know how to make the expenses cut in half without doing it manually? Can it be automatic somehow?

  • Melissa March 29, 2011, 8:54 am

    I think this sounds like a good plan. We may try to copy it :). I have tried cash only, but I find it hard to track every expense. This may be a bit easier.

    • retirebyforty March 29, 2011, 11:16 pm

      We use cash like kid use allowance – just buy what ever we really want. For things that we want to keep track of, we put on plastic. 🙂

  • Lindy Mint March 29, 2011, 1:27 pm

    I do enjoy using Mint. We use debit for everything, so it gives us a pretty accurate picture of our spending.

    I like that your pool system allows for you to put the brakes on when things get too high. It’s a great idea for reigning in spending. I tend to over complicate when it comes to budgets and become overwhelmed with all of the variables – like gifts, haircuts, other unknowns. But in reality, those things are not such a big deal.

    • retirebyforty March 29, 2011, 11:18 pm

      Budgeting for every little spending is too difficult for us. I am not detail oriented enough to do that. I’m more of a big picture guy. 😀

  • Financial Planning Tips March 30, 2011, 9:44 pm

    I like the pool idea – seems like a more sophisticated version of the envelope method. But it might be cute to get little plastic pools to put your receipts in? J/k. 🙂

    Personally good old Excel still does the trick for me, record every expense and categorize and filter, can do the graph easily etc.

    Just make sure to pay off that Credit Card every month, and take advantage of the CC companies instead of the other way around!

    • retirebyforty March 31, 2011, 3:43 pm

      Excel is great if you have time and the inclination to do it. I think I will use excel for 3 months to get a really detailed picture of our spending.

  • 101 Centavos April 1, 2011, 3:31 am

    I’m so used to working w/ our Excel spreadsheet that it would be hard to make the switch. But we each find what works for us individually. Well done on controlling your expenses.

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