Tag Archives: spot budgeting

The Power of Spot Budgeting

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Okay, I’ve posted a similar post about this before, but there is power in this process!

What is Spot Budgeting?

Spot Budgeting is the lazy man/woman’s way of doing a limited form of budgeting.  The beauty of this technique is that instead of running your life like a bookkeeper or accountant, you just track 1 or 2 areas of concern to keep the spending in that area under control.

I use it to track my breakfast and lunches, presently I have a weekly spending budget of $20.

So what could you use it for?

 

Latte

Latte

 

  • That $4.00 latte 

     Don’t cut it out entirely, but have a weekly budget of $8.00, track it on a scrap piece of paper… piece of cake!!  Don’t cut it out entirely, but have a weekly budget of $8.00, track it on a scrap piece of paper…

  • Breakfast and Lunch meals (like me) set a max spending amount and stick to it… (so out of the $60 I use to spend, now I only spend a max of $20).  $40 dollars a week now goes towards investments.
  • Dinners out per month.  Maybe budget a max of 2 dinners out a month
  • Fast food dinners out per month.  Maybe budget a max of 8 to 10 dinners?
  • Entertainment. This is a prime area that you can cut out some of the fat, without living like a hermit.  There are many free activities that are still very entertaining.   Examples (walking or hiking, cycling, video games – “online or game consoles”. and movie night with friends).
  • Common sense thing.  You should know what you’re spending to much money on, and be able to create a spot budget for that weakness.

I’ve heard that it take 21 times of doing something to make it a habit.  With spot budgeting, I think it’s possible to change your behavior and make it a habit.  Then move to the next area you want to have spot budget.

Personally, I’ve been using this technique for the last 25 weeks, and I have to say… it works great!!!

What do you think?

Spot Budgeting To Save Money For A Goal Fund

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First, let me say, that I’ve always admired people that create budgets and could follow them to the T.  I’ve actually tried to create a budget when I was in college, but it’s never worked out for me. There was always something that would pop up that I didn’t save the receipt for.

Surprisingly, while doing my Breakfast/Lunch experiment, I “out of the blue” realized that my experiment is really a form of budgeting.  I decided to call this type of budgeting “Spot Budgeting“.

Here’s how “Spot Budgeting” works for me:

  • First, every monday, I clip 5 sheets of paper I recycled together and use them as a log for things I do at work.
  • At the top, I add Breakfast and Lunch cost to these 5 sheets, 1 entry for breakfast and 1 for lunch on each sheet.
  • On Friday, I add up the total cost for breakfast and lunch, then I do the following calculation:
    • Is 60 – (weekly breakfasts + weekly lunches), greater than 40?
      • If 60 – (weekly breakfasts + weekly lunches) is greater that 40, then I pay myself the full $40 dollars for an allowance.
      • If 60 – (weekly breakfasts + weekly lunches) is less that 40, then I pay myself the amount that’s less than $40 dollars.
      • The following week I’ll make it up by not eating out for lunch as much.  Then I’ll pay myself the amount over $40 dollars that I didn’t spend.
  • Since I’m adjusting and tracking this weekly, I don’t do any monthly or yearly budgeting comparisons (this makes it simple).
  • Since it a weekly comparison, and it typically only involves 20 entries (only 2 a day) to log per week, it’s very simple and quick to do.
  • If I want to calculate my yearly savings, it’s just (40*52, which is $2080)
  • That’s it…  My budget is just for Breakfast/Lunch and during the typical workweek only.

Now my next stage is to take the money I save by budgeting and put it into a dividend yielding stock (etf, bond, mutual fund or whatever).  Then use the dividend paid by that investment to increase the amount of money I have for lunch.  See my attached spreadsheet table below:

So after 3 years of saving, I can afford to buy another cheap lunch per week, while I’m at lunch… so instead of 2 days out for lunch per week, I’ll added another lunch out with the guys after every 3 years of savings.

My view on the “Spot Budget” is that you are no longer paying for the lunch out of your earned money, but instead using the money from your investment dividends.  So after the 1st year of investing the money, this will effectively be my “Lunch Fund”.

To speed up the savings, I also add “Additional Savings” to my “Lunch Fund”.  The “Additional Savings” could come from bonuses, part of my tax refunds, etc.

Additional Main Adult Total Yearly Amount & Interest Monthly Weekly
Savings Savings Allowance Contributions Interest Interest Rate Earnings Earnings
2009 1000 2080 3080 3,080.00 $154 3,234.00 5.0% $12.83 $2.96
2010 2080 2080 5,160.00 $258 5,418.00 5.0% $21.50 $4.96
2011 2080 2080 7,240.00 $362 7,602.00 5.0% $30.17 $6.96
2012 2080 2080 9,320.00 $466 9,786.00 5.0% $38.83 $8.96
2013 2080 2080 11,400.00 $570 11,970.00 5.0% $47.50 $10.96
2014 2080 2080 13,480.00 $674 14,154.00 5.0% $56.17 $12.96
2015 2080 2080 15,560.00 $778 16,338.00 5.0% $64.83 $14.96
2016 2080 2080 17,640.00 $882 18,522.00 5.0% $73.50 $16.96
2017 2080 2080 19,720.00 $986 20,706.00 5.0% $82.17 $18.96
2018 2080 2080 21,800.00 $1,090 22,890.00 5.0% $90.83 $20.96
2019 2080 2080 23,880.00 $1,194 25,074.00 5.0% $99.50 $22.96
2020 2080 2080 25,960.00 $1,298 27,258.00 5.0% $108.17 $24.96
2021 2080 2080 28,040.00 $1,402 29,442.00 5.0% $116.83 $26.96
* The idea here is to pack food, which saves money and to pay my allowance out of that money

This is my first “Goal Fund”, eventually I plan on have other “Goal Funds” that will pay dividend for other goals, perhaps vacations, taxes, etc.

Well, this is my evolution of my lunch experiment into a Lunch “Goal Fund”.  I’m kind of excited to see this come to fruition!!

Goal Fund for lunch

Goal Fund for lunch

– D