Budgeting: Top down v bottom up

[catherine]

I've always been intrigued by those of you (iris lilies comes to mind, but I know a few of this do this) who don't budget because they simply only buy what they have to. No frivolous spending--you are very frugal and just bank what you didn't spend. Kind of a "bottom up" approach

This is the opposite of the "top down" approach where you figure out how much you're going to have coming in and then you allocate it to various categories. The assumption there is, even if one of those categories is "savings," you are "spending" the money. Dave Ramsey calls this "giving every dollar a name."

As I'm trying to really get serious about retirement goals, I'm wondering if I and DH would be able to master the bottom up approach. DH has always been the spender in the family. I've always fancied myself to be the "nerd" as Dave Ramsey would say, but frankly, "in the land of the blind, the one-eyed man is king"--meaning, I can pat myself on the back for being MORE frugal than DH, but that's kind of a low bar.

How many of you do the bottom up (just don't spend) vs the top down (budget all the income, even if you budget for savings, which really isn't "spending")

[herbgeek]

Bottom up here. 1) I'm super lazy and just keep track of spending after the fact (but I do know how much we spend on different categories for many years) 2) hubby is super frugal, me frugal but not as much as him 3) we're in a place in our lives where we are just buying consumables and some replacements. I don't need to be adding a lot of things to the house at this point. And we have a saved surplus so this works for us. If things were tighter, I would do things differently perhaps. I've always been focused on savings and if there was any extra in the early days, it went to paying off principal on the mortgage or padding the retirement savings. If I had the personality where I blew money if it was "extra", then that wouldn't have worked either.

Also, knowing I /can/ buy most anything I want within reason, makes not buying things easier because its a choice. If I was in a position where money was tight, and I got a small bonus without knowing when that would ever happen again, I would be more likely to blow it and enjoy now rather than save, knowing it would just get eaten up by regular bills.

[Teacher Terry]

I budget top down so no help to you in this. My income was cut in half with the divorce but I have extra money most months. I don’t buy stupid stuff that I wouldn’t use like my ex did the last 6 years which I couldn’t get him to stop. Now that my condo is remodeled and furnished there’s not much I need. I belong to a dining group, a woman’s group and go out for lunch with friends. My dining group has many happy hour events so for the price of one drink it’s a nice time out.

[ApatheticNoMore]

1) I have a set amount I dedicate toward savings (this is a dollar amount to reach a certain yearly amount, but sure many use %, and yes it's reevaluated with a raise, or the other way if costs go up beyond my control etc.) 2) then I know what the basic stuff is going to cost: this is rent, food, gasoline, quarters for laundry, utilities including phone, internet and a gym membership, that's the basic stuff, every month. 3) And then have a discretionate enough that it's usually not increasing my stress levels and I don't feel "never enough money, never enough money". The discretionate may be spent, saved (this would be in additional to what is already dedicated so bonus savings that month), or the car needed repair or a new battery this month or something (so the less discretionate or planned spending).

Not a very intense approach, yes I could try to cut discretionate down to the lowest possible minimum WHEN ALLOCATING, and I have tried that before, but then I get stressed out if I have a bad month, oh no, how will the bills ever get paid, I'm so poor. the car needed repairs, I bought 4 shirts this month (um I pretty much never do, trust me they had very nice shirts and of course I needed them if that's true). Like money stress becomes a major focus of my life, when I'm not that poor that it needs to be constant money stress. But no I don't do a lot of frivolous spending either except maybe on food, buy some fancy cheese or something, I give myself some leeway in the food budget. I realize I might have to budget much harder if my income was low, it's not low, it's not super high - I'm sure many on the forum have made more and certainly for COL, but it's nothing to complain about.

[Yppej]

I set a total monthly spending goal but don't break it into categories. With crazy inflation right now how can you budget? Gas went up 20 cents a gallon overnight a few weeks back. I just do the best I can to not be wasteful.

[rosarugosa]

I do top-down budgeting.
Catherine: What do you think would be the benefit of doing the reverse? I'm just curious. I think bottom-up probably works best for those who are naturally very frugal, and that doesn't really sound like either of us (no offense intended).

[SteveinMN]

ETA apparently I did not read the original post correctly. Or I did and I messed it up when I responded. Please swap "bottom up" and "top down" in this post. :|(

Kind of both...

We were bottom up when we were figuring out those many years ago if I could leave my corporate job and if DW could retire last year. We felt we needed a good handle on just what we were spending our money on. So we determined that and got a little instruction on the spending categories we need to watch (what we spend on entertainment, on gifts, and on Miscellanous [the budget category that holds the amorphous charges from Target, Costco, and Walgreens]. Those can creep if we don't watch). But we've never set a budget; months when we pull from savings have been followed by months we could throw money into savings, and -- so far -- our spending hasn't changed that much. A lot of it is self-limiting. When the price of beef shot up last year, we started buying less beef and more poultry and pork. We've been thinking about new living room furniture; at the price of what we want, we'll probably spend the money on that rather than a fancier vacation.

The standing rule for us has been "We can buy pretty much anything we want (we don't want much) but we can't buy everything we want." Remembering that helps us determine what we want to spend on the bigger items. So, from that perspective, we're top down. We haven't had to fret that one of the cars had a big repair bill this month; we'll fret more if there's two or three of them in a year and decide to just pay for it or change the car.

[Alan]

We're bottom uppers. Luckily, over the past 25 years or so we've been able to buy pretty much anything we want (as long as we don't want too much) without creating any problems so we've never felt the need to act otherwise.

Before that we really should have set and maintained a reasonable budget but we didn't and hit a financial low 30 something years ago, one of those low points where you don't want to answer the phone because you know its going to be someone looking for a payment. That's when we made the decision to pay cash for everything and if there wasn't enough cash for something we wanted, we didn't get it. That attitude carried over when finances improved and we learned to keep a pretty accurate mental picture of where every dollar came from and where it went, which made it easy not to over spend even without a budget.

[jp1]

If I were looking to increase my retirement savings I would probably get serious about doing the YMOYL method of tracking different categories and using the up and down arrow approach to decide which categories to make cuts. I don't currently do this because I'm banking a lot of money every year towards retirement and generally am on track for my long-term goals. I wouldn't really describe myself as frugal, but after years of consistent spending I know where the frivolous money goes so if I needed to tighten up for some reason making the cuts would be a straightforward process (less meals and drinks out, less wine from wineries, more effort making less expensive dinners at home).

So I guess currently I'm doing bottom up. I generally spend an average of about $500 less than my takehome pay every month. Any extra money, such as my annual bonus, doesn't get spent. It either goes into non-tax-advantaged savings since I'm maxed out on my 401k every year or towards the mortgage principal. We don't have other debt and the few projects we would like to do around the house will happen with money from our annual bonuses over time with the hope that they at least somewhat get recouped when we retire and sell.

Corrected to say $1000 per month not spent. Not $500 every two weeks.

[iris lilies]

I want to make it clear that in our years of wealth accumulation, we bought that which was necessary OR was highly valued, and we had a pretty good bead on what was really important to us.

I say this because I don’t want anyone to think I am currently a paragon of frugal virtue now, all that was back in the day.

[razz]

For most of my life I was a top-down working within a strict cash-based budget. No money, no spend, no excuse.
In retirement, I am still very frugal because I cannot change from habits of a lifetime but feel freer to spend within a monthly limit. These past 20 months I have been so economical in my needs that I have donated way more than other years to organizations that I value that are struggling. I ended up spending the same amount each month as before.

It is hard to be the manager of the purse when both partners are not aligned in the goals in any relationship.

[catherine]

I do top-down budgeting.
Catherine: What do you think would be the benefit of doing the reverse? I'm just curious. I think bottom-up probably works best for those who are naturally very frugal, and that doesn't really sound like either of us (no offense intended).

haha, no offense taken! You're right, and that's why I've always gravitated to budgeting gurus like Robin/Dominguez, Ramsey and Elizabeth and Amelia Warren (All You're Worth). I think I've always aspired to be more like the bottom-up folks--even to the extent of austerity as the moneyless ones (Suelo, Mark Boyle, etc.). But I need to recognize my limitations. I remember reading Jim Merkel's book (a great one)--Radical Simplicity--and I wasn't shocked that he lived on $5k a year, but I was really shocked that he had just a couple of beers a month (can't remember the exact number). That put austerity in perspective fo me.

Same with the Nearings: I so admire their austerity, but I was disappointed when Scott Nearing said in a book that the biggest challenge he had was not wanting things. I always thought that if you chose not to indulge in owning stuff it was because you didn't want it.

Kind of a meandering response, but I do like being able to buy stuff, even if I tell myself no most of the time. So, you're right--the top-down approach is still probably best.

[ApatheticNoMore]

Categories might lead to more spending, I mean sure it depends on how austere the categories are, but say you have a category clothes, then you almost feel like "I need to spend x on clothes, haven't met x yet this month/year, etc.". Maybe it was supposed to be a maximum, but watch it become a minimum. When no not really. You can buy clothes when you need them (need for me is kind of are they presentable enough you wouldn't be ashamed to wear them to the office) and not if you don't.

I drink alcohol infrequently enough that when I think food extravagance I think cheese and chocolate etc.. I don't have an alcohol budget, I'll pick some up once in a blue moon.

I may well get a bonus, if I do, car insurance is going to get paid in a lump sum for next year.

[herbgeek]

One of the best things of Your Money or Your Life for me was the monthly review of spending to determine if it was in line with your values. For me, takeout because I was just feeling lazy should be minimized (but not 0, I give myself some slack) but meals out with friends to strengthen social connections is a positive expense. Obviously if I had been in a "hair on fire" situation I'd have to reduce ALL spending, but that way of living is not sustainable long term.

[Tradd]

My budgeting is pretty simple. Just a notebook and a pen. I do a rough budget each payday (twice a month). I’ll account for the regular stuff and then see what’s left over. Most of my extras are local diving costs that can easily be covered, but if I’m going to have a hotel stay or two, I’ll note that. Since I’m saving for my rebreather and associated cost ($11K approx), I’m throwing much more into savings.

[Tybee]

We are horrible about budgeting and we need to change. I definitely am not top down but need to become so, at least for a while.

On the other hand, we are frugal and resourceful and have made some very good financial decisions over the years. So we should be able to do this. Am currently working on trying to find a budget software program because we need to get a handle on this so that we can know what we can afford to fix our housing problems created when we bought this house to be near my parents, to honor my dying dad's wishes.

[happystuff]

I'm more like herbgeek and do tracking after the fact. Maybe it doesn't count as budgeting, but I keep the checking account ledger balanced weekly, so I have a good idea of how much we have and what is upcoming as well as incoming. If it looks like we may fall short for upcoming payments of any kind, we just start cutting back more on things.

Once the work on the house is finished, I hope to sit back and do nothing extra over the winter and do more saving. Fingers-crossed! LOL.