[Guest article today by my blogger friend, John Schmoll from FrugalRules.com]
What do you think of when you hear the term black hole? According to NASA, some of the hallmark characteristics of black holes are invisibility and varying size. They literally can’t be seen, and can be sized anywhere from a puddle to a sea.
What does this have to do with budgeting? A lot actually.
Budgeting black holes are any untracked expenses in your budget. Depending on what you are or aren’t tracking, these holes can be so tiny that they are virtually unnoticeable, or so large that they could be derailing all of your efforts to save money, spend wisely and invest for the future.
There are a variety of budgeting methods out there from the Zero Sum Budget, to a traditional budget to no budget at all. One of the main arguments against using any of them is that people picture the “typical” person who budgets, and they don’t want to turn into one of them. A bean counting grunt who never has fun. Trust me, I used to be an accountant and do NOT want to turn into that either. :)
I resisted budgeting for a long time at least in part because I grew up watching a family member who fulfilled the budgeting stereotype to a tee. He brought new meaning to being cheap and watched his budget like a hawk. Nothing was spent that he did not plan for and he knew where each penny was. Or at least, so I thought.
I was astounded one day to discover that my bean counting, penny pinching relative had an enormous black hole in his budget – booze and cigarettes. I kid you not, this man was almost religious about his budget, but when it came to his alcohol and smokes his diligence went straight out the window.
I’m not going to go into the impact on one’s health those habits can cause as I know I enjoy a drink or two. ;) I’d rather address the budgeting issue. While this family member was always harping about a budget and being diligent about watching it, there was an area which he didn’t watch and who knows how much money he spent on those two items over the decades he was doing so!
A Good Budget Gives You Room to Breathe
While the example of my family member is a bit on the nutty side, I believe it points out a solid point when it comes to budgeting – that you need to order your budget such that it allows you freedom to live. There are certainly times when you do need to watch your budget more stringently (like when you’re paying off debt) but even then you need to allow yourself to live a little.
The problem comes in when you allow this area to go unchecked wasting hundreds, if not thousands of dollars over the span of your life.
It’s going to look different for everyone, but what we do in the Frugal Rules home is budget for my wife and I to receive a small allowance each month that we can do whatever the heck we want with. While I may hold some of it back to do something fun with the kids, I largely save most of it so I can enjoy one of my guilty pleasures – my love for K-State football or my new one, brewing beer.
It may sound like I’m justifying my wants a bit, and maybe I am ;), but the point is that we allow ourselves this amount so we have something to enjoy. Yes, it may be frivolous, but it’s what I enjoy and we’ve worked to find balance with it. Additionally, knowing we have a little bit to spend on our wants keeps us from going overboard and making unwise, spontaneous financial purchases simply because we feel bored or deprived.
Comparing this lifestyle with what my family member did, I see that balance is what keeps us from having black holes in our budget. Spending, on many levels, is value based. We all spend money on what we value. There is nothing wrong with that at all as it’s human nature, but the problem occurs when it’s left unchecked.
The key is being able to spot these black holes, and knowing the size of them. Yes, it might mean that you have an area of your budget which isn’t as strictly watched, but life isn’t always about counting the beans.
Do you have a “booze and cigarettes” portion of your budget? How much do you allow yourself?
John Schmoll is the founder of Frugal Rules, a blog created to help people experience financial freedom through frugality. John is passionate about budgeting, saving and investing and enjoys sharing his knowledge and experience with others so they can avoid making some of the mistakes that he made. A veteran of the financial services industry, John has an MBA in Finance and experience as a licensed stockbroker
[Awesome doodle by: Orin Zebest]
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