The trouble with budgeting

The simple words 'spend less than you earn' are repeated on many personal finance blogs, closely followed by instructions to track every penny that you spend. That's all very well, but tracking what you spend can frankly be quite boring. Plenty of people seem to really hate budgeting. So how can we make it more fun and achievable?

Whilst I was living at home, I didn't worry much about budgeting. I knew my rough bare minimum expenses (cost of travelcard plus work lunches), I had a flexible amount of 'fun' money on top, then the rest all went to savings. It wasn't too difficult to keep an eye on how much I had spent on 'fun' as I knew my income and my minimum expenses, so the bit in the middle was my discretionary pot. It was also small enough that breaking it down into categories could just be done in my head.

Now however, I'm unwilling to be so casual. Unfortunately, my attempts at budgeting so far have been somewhat extreme. There was the time I kept all receipts (resulting in scary shoe boxes full of paper), the time I spent going through credit card bills, the problems trying to work out where cash went when I just had an ATM withdrawal to begin my detective work, the time I used mobile phone app to try and track spending, the pen and paper I carried around....all boring!

However, I've finally discovered a method that I think will work in the medium term at least. The first trick was realising that my spending actually falls into three categories:

1. Spending is definitely allowed, and will not be affected by behaviour changes. Not many things fall into this category, but rent, medical expenses (why are glasses so pricey?) and fixed charity giving are in this category.

2. Spending is work related and mostly allowed. There might be room for some savings by changing my behaviour, but the impact means it is not worth worrying about. My commuting bill, plus food for work are the main items in this category.

3. Flexible expenses; where I have a lot of power to change my behaviour and the amount I spend.

The key to the categories is that 1) I will not lose any sleep over, 2) is not worth paying attention to unless I have time on my hands (which means it won't happen), and so 3) is the only thing I need to pay attention to.

My second trick is to separate these three categories out in the least painful and boring way possible. I chose to put:

1. As a standing order (or I use my debit card)
2. On one credit card
3. On a second credit card

This means that sorting expenses happens at the till, as I choose which card to use. If I'm buying a work travelcard, I use a different credit card to when I am buying clothes. Then at the end of the month (or maybe later...), I just look at one bill with all my category 1 expenses, and they should all be pretty expected. Next I look at a credit card bill with all my category 2 expenses and just eyeball the shops and the bottom line to check that it is reasonable and dump the whole big figure into my budget as 'work related'. I don't have to worry about the breakdown particularly, and I save lots of sorting time.

Finally, I look at the credit card bill with category 3 expenses 'properly'. To make things even easier, this card is with a provider who will display the bill online, and export the entries as a .csv file, which means I can download all of the details straight into Moneydance (the software I use). Moneydance will then have all of the entries and the date they happened, and I can assign each one to sections of my budget. The software even starts to learn which part of my budget shops fit into, so that it will suggest groceries for 'Sainsbury's' which makes the process a bit more bearable.

I've been doing this for about 3 months now, and I wouldn't say the last stage has caught on yet, but I am separating my purchases as I make them automatically now, and I feel like I've saved a lot of future sorting time at least! I'll let you know how this method works.