Layered budget – it works for us!

Setting up and following a budget can be very complex and time consuming. It also can be a light task. It depends on what you aim for.

Our budget system has grown over the year and is – in my opinion – a good simplification. It allows me to follow up on a monthly basis where we stand money wise, it leaves room for fun activities without too much checking and doubt, we can  calculate a savings rate, it avoids that we get shocked by a big invoice. In summary, it brings piece of mind.
wp-1485585495026.jpgThe first part of the budget is a list of monthly recurring items. Most of this are classical
big billers like mortgage, electricity, internet, car insurance,… These are easy to identify after already a month.
Then we have 2 line items: one for kids expenses and one for general living covering grocery, entertainment, … We do not split this is different line items. Too much work compared to what you get out of it.
Finally, my wife and I each have a fun money budget to do what we want. No questions asked…! This creates a lot of freedom in the mind. It allows us to spend guilt free and yet stay frugal. This is one big line on my personal books. Do not ask me what I spend my money on.
The second part is a pro rata payment of expenses that do not occur every month like the quarterly water bill, yearly housing tax, some yearly insurance. Basically, each month we set aside the amount consumed that month. Imagine that a yearly bill is 1200€, then each month we transfer 100€ to a savings account. When the 1200€ bill comes, we are stress free, pay,  log it and move on. All with a smile.
The last part is a monthly contribution to the life happens fund. Many things can happen in life that you can not plan. Hence, we set aside money for that. Call it a regular contribution to an emergency fund when that helps to understand.
Once a week, I go through the accounts and log the expenses. This takes about 3 minutes. While doing this, I get a quick insight in where we are.
It does not allow, to figure out in detail what we spend on grocery shopping, clothes and restaurants. To us, this is not a disadvantage. We are happy with the current level of lifestyle and actually aim for this life style the rest of my life. So, no need for further optimization. We reached what we aim for. Key now is to stay here.
What do we with the rest? We Invest it!

13 thoughts on “Layered budget – it works for us!

  1. Simple is often better! Good to see that you are pretty much on auto pilot 🙂

    For most people I get why putting money aside for the big ticket items, so you can pay for them once they arrive without worry. We actually stopped doing this on purpose. With two full time jobs and rental income, the cash-flow income is ridiculous. We now just wait until the storm around the end/beginning of the month is over, make up the balance and book as much towards the investment account as we can. Have not seen a bill in a long time that is so large that we could not cover it with the basic cash-flow.
    It’s a very luxurious position to be in, we realize that all to often! But it would not have happened if we did not stream line our expenses and invested all our savings. It’s great satisfaction seeing that snowball picking up speed, that’s for sure.


    1. Having that much if cash flow is indeed nice. I should actually once compare the impact of not doing this. It means we invest more each month and in case of a big invoice might have a negative SR… Why not?


  2. Thanks for sharing Amber Tree. I track my financials at the end of each month to ensure I’m not spending too much. If I see an area for improvement, I act on it in the next month.

    I don’t like contributing to the Life Happens fund… I had a leaky pipe recently… $700 later it’s fixed and the house is back to normal, but you never know what could be next.


  3. I honestly view my Independence Fund as my emergency fund also. Ideally I never want to withdraw money from it but in the event that I would need to I could simply sell a few shares and transfer the money out within a week. I’d much rather have my emergency fund working harder for me in good quality dividend paying stocks. Awesome article though, I love how you include how happy you guys are with your current lifestyle!


  4. I need to check expenses each week, if I don’t we tend to get a bit too loose with it. Also saving up front every first of the month is key to achieving our goals. Also doing the inputs in excel, but would like to see something a bit more automated. I need to think of improving this process.


  5. I love the simplicity of your budget. It looks like it’s super easy to follow along with and I especially like that any excess funds get further invested 🙂 Looks like an awesome system!!!


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