4 ms·

I very strongly disagree with that method. There is a lot of natural variance in how much people spend in a month. Some months you spend $1k, some months you sp

I very strongly disagree with that method. There is a lot of natural variance in how much people spend in a month. Some months you spend $1k, some months you spend $10k. It doesn't make sense to use a fixed monthly budget at all. It also just encourages arbitrary gerrymandering of your expenses. If you want a PS5 but have no more room in your budget this month, you might decide to buy it next month instead. But then you'll just end up spending the exact same amount next month, so you've deprived yourself for one month for zero financial gain just because you're gaming the arbitrary constraints you impose on yourself.

BeetleB 6y ago
Your scenario is not at odds with the parent's one. He's saying "Figure out how much I want to save for long term goals, and set that aside first" It doesn't preclude saving for long term expenses.
tachyonbeam 6y ago
Depends. If you work as a software developer, odds are you make more than you need to live comfortably. In that scenario, it makes a lot of sense to be disciplined and put some amount of money aside first. I picked an amount to put into savings that still leaves me enough to not have to stress about groceries or going out once or twice. I basically always manage to hit my monthly budget, and save what I planned. If I wasn't putting money in savings first, I think I might end up spending a lot more than I should on tech gadgets and other things that I don't really need. My approach: 1. Put a reasonable amount in savings first, but make sure to leave yourself enough to enjoy life, because you can't be completely sure you'll be alive in 1, 5, 10 or 20 years. 2. Spent on monthly expenses without stressing about savings, because some fun money is also part of your budget. 3. If there's any money left over when you get your next paycheck, send that into savings as well.
- esoterica 6y ago
  You’re suggesting saving a fixed amount, which is bad for the reasons I outlined in the comment you responded to.
  - BeetleB 6y ago
    It's only bad if you poorly estimate your minimal expenses over a long term. If buying a PS5 is really important to you, then by setting money aside for it you are paying yourself first. For most working people, though, there are much more important things to save for, and the wiser decision would be not to buy the PS5 if it means reducing the savings.
setr 6y ago
The problem you're really trying to avoid is not knowing that you're subtracting from your savings target. It's too easy for expenditures, especially small ones adding up over time, to grow unbounded without you noticing, and if you're putting "the rest" into savings, you end up noticing the problem after the fact -- you can only affect the next month. If you instead allocate first, and operate the month assuming you never add had access to the funds, then it becomes painfully obvious that you've spent beyond the target -- and can make the decision then whether that's fine, and pull out the money from the savings buffer as needed (and presumably up the savings envelope for next month). The main thing, I think, is that most people (not living hand-to-mouth) spend to their financial comfort -- not their physical comfort -- growing concerned mainly as they approach their upper limits, and then reduce accordingly. I'm thinking of Braess's paradox; you spend to the money you have, even if you'd be happy & fine with less. So by reducing the total funds up front, you reduce spending earlier accordingly. Of course, no more so than what would make your lifestyle uncomfortable.
- esoterica 6y ago
  The psychological bias works both ways though, if you operate on a fixed monthly budget you might be tempted to spend more on stuff you wouldn't otherwise spend on if you notice you're under budget for the month. Also a mental bias against spending is not necessarily a good thing. Spending is like eating, unless you have a problem where you're doing it too much of it, doing less of it is not inherently desirable. I spent way less last year than 2019 because of Covid and my life certainly wasn't any better for it.
  - setr 6y ago
    > The psychological bias works both ways though, if you operate on a fixed monthly budget you might be tempted to spend more on stuff you wouldn't otherwise spend on if you notice you're under budget for the month. Which is significantly better than the other way around, because you’ve met your saving target(s). Really, that money constitutes legitimate excess cash. You can shove it into risky investments, or spend it freely; it doesn’t matter — you’ve met your needs. > Also a mental bias against spending is not necessarily a good thing. Spending is like eating, unless you have a problem where you're doing it too much of it, doing less of it is not inherently desirable If you’re spending over your saving targets, you are spending too much. If you’re spending under your targets, you’re free to spend more, guilt-free (you’ve covered your necessities, you’re playing with excess). The only problem is if you set your savings budget so high that you can’t spend to your actual comfort (given your lifestyle). Then it becomes a question of accepting you simply don’t have so much money, and either reduce your lifestyle or extend your saving targets accordingly. TLDR; meet your targets. Beyond that, do as you wish.

BeetleB 6y ago

Your scenario is not at odds with the parent's one. He's saying "Figure out how much I want to save for long term goals, and set that aside first" It doesn't preclude saving for long term expenses.

tachyonbeam 6y ago

Depends. If you work as a software developer, odds are you make more than you need to live comfortably. In that scenario, it makes a lot of sense to be disciplined and put some amount of money aside first. I picked an amount to put into savings that still leaves me enough to not have to stress about groceries or going out once or twice. I basically always manage to hit my monthly budget, and save what I planned. If I wasn't putting money in savings first, I think I might end up spending a lot more than I should on tech gadgets and other things that I don't really need. My approach: 1. Put a reasonable amount in savings first, but make sure to leave yourself enough to enjoy life, because you can't be completely sure you'll be alive in 1, 5, 10 or 20 years. 2. Spent on monthly expenses without stressing about savings, because some fun money is also part of your budget. 3. If there's any money left over when you get your next paycheck, send that into savings as well.

esoterica 6y ago
You’re suggesting saving a fixed amount, which is bad for the reasons I outlined in the comment you responded to.
- BeetleB 6y ago
  It's only bad if you poorly estimate your minimal expenses over a long term. If buying a PS5 is really important to you, then by setting money aside for it you are paying yourself first. For most working people, though, there are much more important things to save for, and the wiser decision would be not to buy the PS5 if it means reducing the savings.

setr 6y ago

The problem you're really trying to avoid is not knowing that you're subtracting from your savings target. It's too easy for expenditures, especially small ones adding up over time, to grow unbounded without you noticing, and if you're putting "the rest" into savings, you end up noticing the problem after the fact -- you can only affect the next month. If you instead allocate first, and operate the month assuming you never add had access to the funds, then it becomes painfully obvious that you've spent beyond the target -- and can make the decision then whether that's fine, and pull out the money from the savings buffer as needed (and presumably up the savings envelope for next month). The main thing, I think, is that most people (not living hand-to-mouth) spend to their financial comfort -- not their physical comfort -- growing concerned mainly as they approach their upper limits, and then reduce accordingly. I'm thinking of Braess's paradox; you spend to the money you have, even if you'd be happy & fine with less. So by reducing the total funds up front, you reduce spending earlier accordingly. Of course, no more so than what would make your lifestyle uncomfortable.

esoterica 6y ago
The psychological bias works both ways though, if you operate on a fixed monthly budget you might be tempted to spend more on stuff you wouldn't otherwise spend on if you notice you're under budget for the month. Also a mental bias against spending is not necessarily a good thing. Spending is like eating, unless you have a problem where you're doing it too much of it, doing less of it is not inherently desirable. I spent way less last year than 2019 because of Covid and my life certainly wasn't any better for it.
- setr 6y ago
  > The psychological bias works both ways though, if you operate on a fixed monthly budget you might be tempted to spend more on stuff you wouldn't otherwise spend on if you notice you're under budget for the month. Which is significantly better than the other way around, because you’ve met your saving target(s). Really, that money constitutes legitimate excess cash. You can shove it into risky investments, or spend it freely; it doesn’t matter — you’ve met your needs. > Also a mental bias against spending is not necessarily a good thing. Spending is like eating, unless you have a problem where you're doing it too much of it, doing less of it is not inherently desirable If you’re spending over your saving targets, you are spending too much. If you’re spending under your targets, you’re free to spend more, guilt-free (you’ve covered your necessities, you’re playing with excess). The only problem is if you set your savings budget so high that you can’t spend to your actual comfort (given your lifestyle). Then it becomes a question of accepting you simply don’t have so much money, and either reduce your lifestyle or extend your saving targets accordingly. TLDR; meet your targets. Beyond that, do as you wish.