3/11/2011

Where the Money Goes - Life Pie Ratios

I had a good conversation with my supervisor yesterday as he's also planning on buying a house.  We wound up talking about budgeting and his suggestion was that  no matter how much money comes in, or where it comes from, you come up with a family rule - like 50-25-25 and so 50% goes to saving, 25% debt, and 25% fun.  Then, you're never faced with, well we got a $500 refund from our taxes - what to do with it.

That conversation got me thinking about Gail VazOxlade's financial pie - and I wonder where Jordan and I were sitting on it.  So I used our 7 month trailing averages that I've been posting as well as our budget and basically plunked in all our numbers into Gail's spreadsheet and then cleaned it up a bit.

This is what I came up with:

The fixed expenses are actually our fixed expenses and the variable expenses is our 7 month average - not what we intend on spending each month (which is very different).












We intend on putting away $1,500 each month into our planned spending saving categories.  These include the house fund/wedding fund/christmas ect.

The average we have spent on emergencies is $200 but we actually put away $100 month.

The intent of going through this wasn't just to do another budget but to help identify where we are squeezed.  You can see from here that while we intend to put away $1,500 a month - with what we're actually spending, we wind up being $760 short every month.

To identify areas for potential saving based on Gails' financial pie, we can summarize all of the categories (the colours are hers by the by).


I can see write away that we're spending 114% of our income each month.  Keep in mind we're not actually going into debt for this - we just wind up saving less then we intend to to make everything work.  But this really shows me why/where/what is going on.

We spend nothing on debt and are below the housing expectation.

We spend more on transportation and life then Gail's recommendations.

We know from Gail that if you spend less or under in one category, it's 100% okay to spend more in another.  For instance, our saving at 35% is great, but we're not actually achieve that - it's just what we intend to do.

Jordan often says that we would have a lot more flexibility with our budget if we saved less (or planned to spend less) but I beleive that we'll spend the money whether we have it or not, so it's better to try to put that money away ahead of time (like at Christmas for example).

I think the biggest place for improvement is in life.


Life.  I was telling my mom that the last two months that Jordan and I have been really trying to spend less and we feel stressed over it because even though we're trying really hard - we're still spending a lot....so that's really de-motivating.   So we'll have to have a think about getting our life spending down and perhaps having a think about our saving/planned spending down to a bit more realistic number.

One example could be:


If we did something like this, we would save/planned spend $300 less a month and spend about $425 less on life - taking some from each would certainly be easier then all from one or another.

I feel like this post is a little all over the place and apologize for that - I wanted to go through and share this exercise to get my brain thinking about the least stressful way to make some changes.
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4 comments:

  1. I'd start with separating your Retirement savings (which is Gail's 10%) from your planned spending savings, which are really life. Protect those at (almost) all cost, and go from there.

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  2. I've been doing the exact same thing! I have been "overspending" but not beyond my means. Instead of putting the $1000 I have budgeted for debt repayment every month I have been putting about $600 and spending the rest on variable items. I am hoping to put a huge stop on this now that I will be making more money, but I can certainly understand the frustration of spending more than you think you should/more than you want to. As well, once you have a house that will change your life pie again. I think this is a very useful exercise I will try it out and post it on my blog soon. Thanks for the idea :)

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  3. I see on your chart that you have 0% on debt but keep in mind that having a car payment is still consider as a debt.

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  4. @ Mom - that's a good suggestion. I think If I did that then I should also include the pension money that comes right off my pay - so will need to make a few other changes too..hmm...

    @ Morgaine - I'm looking forward to reading about yours too!

    @ Anon - I agree with you, it is debt. For the purpose of this exercise, I was follow Gail Vaz Oxlade's method and that includes vehicle payments under the vehicle category, not debt.

    I probably have a play with this and post it again.

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