The Retirement Newsletter: Thinking about budgeting

Issue Number: -23 — What am I to do?

Nick

Aug 13, 2023

Photo by Towfiqu Barbhuiya on Unsplash - Budgeting

Welcome

Welcome to issue -23, where I will be thinking about budgeting.

Budgeting

Budgeting is a simultaneously interesting and boring subject.

All the advice is that we should budget, budget, budget. And yet when you ask, most people will admit that they don’t, are rubbish at it, or are a budgeting pro. And the pros will say budgeting is the best thing since sliced bread. So what are you? Where do you sit in the budgeting spectrum?

You can split budgeters into two broad groups — macro-budgeters and micro-budgeters. And where do I fall into these two groups? Well, I am a macro-budgeter and not a micro.

Macro-budgeting

I am a macro-budgeter. And when it comes to macro-budgeting, there are two approaches. Some look at the big picture and don’t worry about the fine details, and there are those that budget on needs and wants. Or, if you are like me, you are a mix of the two.

If you are looking at the ‘big-picture’, you are most probably focused on something in the future. Possibly, your retirement. For me, that was undoubtedly true. And for years, I tried to maximise my input into my pension.

If you are a ‘needs and wants’ budgeter, you split your money into three pots — needs, wants and savings.

The ‘needs’ pot pays for necessities such as everyday living expenses like food, housing, and bills.

The ‘wants’ are entertainment — eating out, holidays, new clothes etc. The ‘wants’ you don’t need, but they are what make life a little more fun.

The ‘savings’ is your savings for an emergency or your pension.

One approach often used in macro-budgeting is the 50/30/20 rule — 50% on needs, 30% on wants, and 20% on savings. If you can live by that, then great. I have tried it, and it hasn’t worked for me.

My approach to macro-budgeting will horrify most people. It's a sort of 50/30/20 approach, but not quite.

My money comes in; I spend what I need on needs. I limit my spending on wants and doubt I hit 30%. And at the end of the month, I move any remaining money into savings.

But, for years, I ’top-sliced’ my income at the start of the month with set amounts into various savings schemes and my pension. I then start my rough 50/30/20 approach without worrying about the 30 or 20 (too much).

What I have never been is a micro-budgeter. I have tried micro-budgeting, and it doesn’t work for me.

Micro-budgeting

The idea with micro-budgeting is you divide your income into pots even smaller than 50/30/20 pots above. You have a pot for your rent (or mortgage), one for food, one for going out, one for clothes, etc. You get the idea.

The idea behind micro-budgeting is ‘if you look after the pennies, the pounds will look after themselves’. And I get that; I can see how it would work.

But, for me, it has never worked. It was too fiddly and time-consuming, and when I tried it, I spent a lot of time trying to decide the pot for an expense. It was too much hassle.

And my lack of being able to micro-budget is partly down to my money personality type.

Money Personality Type

There is an argument that your money personality type dictates the type of budgeter you are.

And the Money Personality Types are:

Gambler: The gambler takes risks with their money and doesn’t worry about the outcome. They do not assess the risk of their actions. They most probably don’t budget.
Indifferent: These people exist, and I have never met one. They are not concerned with money and often have no idea of how much money they have. They certainly don’t budget, or someone else does their budgeting.
Money Maker: This is like the Saver below. The Money Maker works hard for their money, makes a lot, and uses their money to make more money. Money is their focus. Very likely to be a micro-budgeter but may go macro.
Saver: The name says it all. These folks like to save and frequently go without, so they can save. They will look for a bargain. They will stockpile money in their accounts. Furthermore, they are not known for spending money on hobbies or fun. Members of this group are usually micro-budgeters.
Saver-Splurger: These people like to save and then spend. Save and spend. They build up money in the bank and then spend it. When it comes to budgeting, they could be anything but more likely to me a macro-budgeter.
Spender: Likes to spend, and their bank account is regularly close to zero. They will be impulse buyers. Spenders are unlikely to budget.
Worrier: These people worry about their money. Even if they have a lot of it. This group tend to be micro-budgeters.

Me? Like most people, I am a mixture of the above types. When I was younger, I was a compulsive spender. And as I got older, I moved into the Saver-Splurger, and I am now a Saver with some of the Worrier. Ideally, I would like to swap out the Saver and become a Money Maker, but I can’t see it happening.

Which one are you, and what is your budgeting strategy?

Travel — Nostalgia Corner

This week, I continue with my stories from my trip to Myanmar (Burma):

Myanmar (Burma) — Riding the circular train in Yangon (Rangoon), Myanmar (Burma) — All aboard — exploring Yangon by train. This was a fantastic experience and something I would recommend doing.
Myanmar (Burma) — Yangon (Rangoon) War Cemetery, Myanmar (Burma) — A tranquil place in the hustle and bustle of Yangon. A small, beautifully maintained Commonwealth War Graves Cemetery in a Yangon suburb.
Myanmar (Burma) — Shwedagon Pagoda (Paya), Yangon (Rangoon), Myanmar (Burma) — A stunning pagoda in Yangon, but watch out for hot marble on bare feet. Ouch!
Myanmar (Burma) — Vintage Luxury Yacht Hotel, Yangon (Rangoon), Myanmar (Burma) — A strange yacht in Yangon and my new base for a few days.
Myanmar (Burma) — An evening stroll in downtown Yangon, Myanmar (Burma) — Out and about in downtown Yangon, Myanmar (Burma)

Next week, more on my time in Myanmar (Burma).

Next week

Next week, in Issue -22, I will look at passive income streams that could help support my retirement.

Thanks

Thanks for taking the time to read this newsletter, and please don't hesitate to share it with your friends or on social media using the buttons below.

If you want to say 'thanks' for the newsletter, why not buy me a cup of tea?

Until next time,