When I was in grad school, I "budgeted" by holding my breath and trying not to buy anything. It actually worked pretty well -- I managed three and a half years without overspending my stipend or going into debt, though it helped that I also had savings from my two years of work between college and grad school. I also wrote down everything I spent, which probably shamed me into spending less. The problem, however, was that I constantly felt poor and insecure because I didn't know how much I had to work with. I knew what was going out, but I didn't really know what was coming in or what the reserves were.
Now that I have a regular and reliable source of income, I would like to have a real budget, and also work toward my two personal financial goals: paying off my <a href="http://mblog.lib.umich.edu/~eklanche/archives/2007/02/paying_the_pipe.html">student loans</a>, and building up a contingency fund in case I get <a href="http://en.wikipedia.org/wiki/Heather_Armstrong">Dooced</a>. So I have been doing a lot of online lunch-break reading about budgeting and decided for March to try the <a href="http://articles.moneycentral.msn.com/SavingandDebt/LearnToBudget/ASimplerWayToSaveThe60Solution.aspx">60% Solution</a>, which I have seen recommended by several personal finance experts and bloggers. The way it works is that I limit necessary expenditures to 60% of my income. That is, 60% of my pretax income, and necessary expenditures include all taxes, health care costs, housing (from mortgage to utilities to toilet paper), groceries, transportation (gas, car insurance, and those rare times I have to pay to park). The other 40% gets allocated between fun spending, long- and short-term savings, debt service, and giving away. I have decided (for March, anyway) to give away 5% (half in donations and half in gifts), save 5% for retirement (automatically deducted from my paycheck and double-matched by <a href="http://www.umich.edu">UM</a>), put 10% in my contingency fund, put 10% toward debt service (in other words, give it to <a href="http://www.salliemae.com">Sallie Mae</a>), put 5% in short-term savings, and use the remaining 5% as spending money (for yarn, <a href="http://mblog.lib.umich.edu/~eklanche/archives/2007/02/a_new_diet.html">skin-care products</a>, haircuts, eating out, etc.).
The two tricks will be to limit my essential spending to 60% of my not-so-big income, and to limit my non-essential spending to 5%. I am already thinking of loopholes. For example, if I knit something as a gift for someone, then I should pay for the yarn from my gift money rather than my spending money. And what if I knit for charity? Then I could buy the yarn with my donation money. But what about purchases where the profit goes to benefit a cause I care about? For example, if I buy a skein of <a href="http://violetsribbon.blogspot.com/">Violet's Pink Ribbon Yarn</a> from <a href="http://www.lisaknit.com/index.htm">Lisa Souza</a>, the proceeds from which go to pay for medical care for Miss Violet of <a href="http://limenviolet.com">Limenviolet</a>, who is currently undergoing treatment for precancerous breast tumors and has what sounds like the world's worst insurance policy, does that money come from my non-essential spending category or my donations category? And what if I use that yarn to knit a pair of socks for someone else? I guess nobody said budgeting was easy...
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