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The Best Option for the Extra Budget Money at the End of the Month

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.

budget moneyPut 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 debtthen 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.

And if you are 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:

  1. 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.
  1. 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.
  1. 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?

Image by Derek Bruff at Flickr Creative Commons

Next Post: 2 Milestones You Need to Reach Before Investing Money

Prior Post: Is the Bible Really Clear About Paying Taxes?

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  1. Hi Brian,

    Excellent post. I usually put anything extra in savings because sometimes in later months, the reverse occurs and we go over the budget. That way it balances out over time.

    Laura Beth

    • Having enough in savings to cover emergencies is a big deal. I try not to use the savings money though to increase our expense categories just because I want to.

  2. Our budget is so tight right now that we have the opposite problem. Not enough budgeted for the month.

  3. Hi Brian,
    thanks for the article, liked it a lot. Lately, the only place we are really strict on our budget is the groceries. We often have a surplus and normally I end up doing one of the two first options – spend more or roll it over to the next month. As a bonus we sometimes use it for a family evening out at a restaurant.

  4. I don’t budget so I can’t really answer the question. I do track our spending and income each month so when I see a category spike I typically try to figure out how to get it lower. If I under-spend it just means more money in our bank accounts and ultimately ends up in our emergency fund or gets spent on a house project.

    • We also track but don’t do a monthly budget (though it’s somewhat understood from our yearly budget). We find we spend less this way, in part for the “license to spend the leftover” phenomenon. So our “extra” goes to investments or early mortgage payoff (our big financial goals). It’s interesting how people can use budgets differently but end up at the same place when they have similar principles behind the practical.

      • We could never make a yearly budget work. It just didn’t click for us in part because it was too big a timeframe. We had to break it down month to month and when we did the budget became much easier to manage.

  5. If we go under budget, we generally put the extra into savings. Like Holly said, there always seems to be something that comes up. We just hope it doesn’t all happen at the same time!

    • “…doesn’t all happen at the same time!” Haha…when it rains it pours, right? 🙂 Funny how often that seems to happen with money.

  6. I usually transfer the unspent money to my emergency fund as I normally do not have anything else to spend it on. I am glad I have been doing this as I have an emergency on which I suspect I will have to spend quite a bit of money.

  7. I always love having extra money in my budget because having to figure out what to do with it is a “fun” problem to have. We rarely do #1 unless the amount is fairly small because you mentioned it can be a dangerous habit to get into as well. 🙂 Ultimately for us, it depends on where the excess comes from, if, for example, we spend less on clothes than we expected for back to school shopping, we will likely rollover the amount into the clothes budget for other needs throughout the year. Unless there is a higher need elsewhere, than that would come first.

    • We sometimes rollover our clothes budget. But because we do cash envelopes for clothing it gets excessive at some point if we don’t buy any clothes. I don’t like having that much cash around the house.

  8. I know that we should save that money, but we tend to spend it like bonus and this is because part of our budget is savings and other planning so we build our cushion and the little surprise bonuses that we get keep us focused and re-energize us for our bigger goals.

    • I can see that Shannon. Nothing wrong with spending it here or there to reward yourself. I think the danger is getting into the mindset where you spend all the budgeted money all the time. Just because the budget says you can spend “X” amount doesn’t mean you have to.

  9. Any extra money I make (when I make it) goes directly to my emergency fund in times when income isn’t so great. That’s what I did at the beginning of last year and it really covered my ass in the second part of the year!

    • Cool…we do that too. Kim makes more from Jan. – Apr. because of tax season. We save the extra and use it the rest of the year.

  10. Similar to John at Frugal Rules, we kinda do a combination of 2 and 3. On a spreadsheet, we keep a reserve account for each of our spending categories. Each month we transfer unspent money into a reserve category for that expense. So if in the spring and fall, our utility bill is less due to good weather and no heat or A/C, the excess goes into the reserve fund to be used in the summer and winter when the bills are higher than the allotted amount. We have total reserve goals and at the end of the year if we are fortunate to have more in the reserve than the goal amount, then we divert some of the excess to another category that might be weaker. In the happy instance where all categories are fully funded and we still have extra, it usually gets invested, but sometimes we take just a little to do something fun.

    • “…excess goes into the reserve fund…” We set some aside in a reserve fund as well but ours goes back into the monthly budget. Because of my wife’s profession (CPA) her monthly pay is based on when the most work is done (i.e. Jan. – Apr.). We have more income those month so we set some aside to be drawn on each month from May – Dec.

  11. We do a combination of #2 & #3, though admittedly don’t deal with this a whole lot anymore since we’ve been living with a budget for so long – it has made it easier to know what we need, relatively speaking, for most of our categories. I have a distinct feeling that will change though as our kids get older and new expenses pop up that we’ve not dealt with and will have to make some changes. That being said, we like to do an annual review of our budget to see if something was completely out of whack so we can make adjustments for the following year so we’re more on course.

    • We can pretty much nail our budget down as well at this point. There is not much unused money. And yes…the budget will change as the kids get older. 🙂

  12. We use a zero-sum budget so we allocate a certain dollar figure for each budget category. Even when we go under in one category, it seems like we always have a surprise expense or overage that makes up for it somewhere else. As long as we stay on course, it doesn’t bother me that much.

    • “…a surprise expense or overage that makes up for it somewhere else.” Haha…I hear you on that one. That happens a lot to us as well. Gotta love those surprises! 🙂

  13. All of my extra monthly budget goes back into my brokerage account. Anything I don’t use from the previous year gets used the following year for stocks and investments.

    • We use most of our extra to fund vacations, save for projects around the home or for future purchases. This is one way we were able to purchase a vehicle recently…we saved a lot of our left over money for it.

  14. Jayson @ Monster Piggy Bank says

    For the extra budget money, I usually save it to my emergency fund. It’s better to be ready than not, Brian.

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