Perhaps you’ve had this experience with your monthly budget money:
At the beginning of the month you allocated “X” amount for a particular budget category. Due to clipping coupons, noticing that sale item or exercising some intense discipline, you didn’t end up spending as much for that category as you had planned.
Put another way you budgeted $600 for groceries but only spent $525. You thought that dress would be $100 but you lucked into a half-off sale. There was no car maintenance for the month so the $75 you earmarked for that wasn’t used.
What do you do with that extra money? Where does (or should) it go?
It may seem like a silly question but there are actually some issues here that need to be addressed. I can think of three different options for your extra budget money at the end of the month with one of them being the clear winner in my book.
Options for the Unspent Budget Money
If you didn’t spend as much as you thought during the month and have some margin left in your budget categories you have three options:
Option #1: Spend it
The inner child in me loves this option. Woo-hoo…! Let’s use up the rest of the money allocated to that budget category. That’s what a budget is for isn’t it…to spell out how much you can spend?
Well, not exactly. The budget is a spending plan not a license to spend. There is a big difference. Just because a budget says you can spend that amount doesn’t mean you have to.
A spending plan gives you guidelines to follow. However, they are not set in stone. The plan can be (and most likely will be) adjusted during the month based on what life throws your way.
There is nothing about a spending plan that says you have to spend your money. It’s not forcing you too. If you save money on groceries this month, great! No one is holding the plan over your head demanding that you spend right up to the amount you allocated in the budget.
In my opinion, this option is not the most responsible path to take with the extra budget money. There is nothing wrong with using up the eating out money now and then but to make it a consistent habit will keep you from moving forward and kicking your financial gears into overdrive.
Option #2: Roll it over
Just like you can with your rollover cell phone minutes, I’ve known some people to roll the extra budget money from one month over into the next month.
You could head several directions with the roll it over option:
First, you could roll it over and keep building that category/fund. For example, if you allocated $300 a month to your family clothing budget but only spent $200, then the following month you would have $400 to spend ($100 from prior month + $300 from current month = $400 clothing budget for current month). In essence whatever isn’t used for one month gets added on to the budgeted amount for the next month.
The challenge I see here is that the rollover money could grow to a substantial amount if it’s never used. I hardly ever buy clothes so continually rolling over my allotted clothing money month after month becomes excessive at some point.
That can be mitigated by the second roll-it-over option. Under this plan you would roll over the unused portion of the budget money and not fully fund that same category for the next month. If I had planned to budget $200 for clothing but had $200 left over from the previous month, I wouldn’t let the clothing fund in the current month become $400. I’d simply move the left over money into another budget category for the current month.
I don’t really like this option either. For starters it’s adding layers of complexity to the budget that really don’t need to be there.
Plus, I like my budgets to remain the same month in and month out as much as possible. We’ve been doing it for so many years now many of the numbers stay the same. Because of that, I can completely prepare a monthly budget in about 15 minutes. The movement of cash from one month to the next and reallocating it to another category is a step into confusion and extra time commitments for me.
Option #3: Redirect it to your biggest need
Of the three, this option provides the biggest bang for the left over budget bucks. Instead of spending it or rolling it over to be used in the following month, redirect the unused dollars to your area of biggest need.
What’s that mean exactly?
If you are paying off credit card debt then all the money you didn’t spend in the budget should go as extra to pay off the credit card.
If you are building your emergency fund then all the money you didn’t spend in the budget should be used to grow that even faster.
If you are finally funding retirement or the kid’s college through investing or saving for that special vacation, let the extra budget money flow into those categories.
Look to place the extra budget money into whatever stage of money management or personal finance goal you are currently pursuing.
Following this course pays off big time in three ways:
- It rewards your discipline. You worked hard not to spend as much and your discipline should be rewarded. Not through frivolous spending though but by achieving your goals.
- It builds excitement through unexpected momentum. Remember this wasn’t money you thought would be available. It will create enthusiasm because you will see the potential of how your goals could be reached sooner than you thought.
- It allows you to start with a clean budget every month. For me this is huge. I want this month’s income dollars to go toward this month’s expenses. By putting the extra budget money towards the biggest need I essentially end every month at zero and start over. It’s the simplest form of budgeting to me.
If you are disciplined there is a great likelihood you will not spend every dime for every category you have budgeted. In fact, it happens to me somewhere in the budget every month. Use the unexpected money to create momentum towards your goals by funding them to a greater extent than you anticipated.
Questions: Do you routinely not spend as much on a budget category as you anticipated? How do you handle this issue? What other options for the extra budget money do you see?
Prior Post: Is the Bible Really Clear About Paying Taxes?