I have a confession to make.
I have two budgets. I don’t mean two (or five) versions of my budget that support, say, different financial goals. I mean I have two everyday budgets that I track my spending against. One contains all the routine stuff … expenses that always happen and in predictable amounts—housing, utilities, food, child care, health insurance, transportation expenses, and so on and so forth. The other one contains … all the other stuff.
So helpful, right? Stay with me here. Let me give you a couple of examples of line items in my other, let’s call it shadow budget:
— new refrigerator for rental property
— Bucks-Spurs basketball tickets
— replacement solar panels
— political contributions for midterms
— late winter sanity trip to Florida
— moving costs
— plumber for Thomas throwing pine cones down the toilet
— medical expenses related to Thomas’ broken collarbone
— car repair from Thomas putting quarters in the CD player
And most importantly …
— income vs. routine budget income
It’s that last item that pays for everything in this other budget. Here’s how it works. Say your household takes home $6,000 a month. You determine $5,000 is needed for the routine budget—with all of your known expenses—leaving you $1,000 each month for your shadow budget, all items TBD and occasionally WTF. Honestly, though, it’s not all doom and gloom and pine cones. I happily paid for most things on that list. It is, though, where we’d budget things that may or may not happen in a given year—family vacations trips, for example—depending on how four-ish my four-year-old feels like being (hello, staycation!).
Sometimes you even get a little not-routine gift on the what’s coming in side. A larger-than-expected tax return. Seasonal overtime. A work bonus. An unexpected inheritance (i.e. someone else’s Net Worth). Lottery winnings. Advance to “Go” and collect $200. To the shadow budget they go!
In a good year, the pluses in the shadow budget outweigh the minuses and you end with a little surplus … which, of course, goes straight to your Net Worth. In a not-so-good year, with that 500-year flood, the surgery and cancer scare, the eight-month period where one of you was unemployed and the income vs. routine budget income was actually negative, the frogs, the hail, the locusts … well, in those years, good thing you have that Net Worth, hmm?
Technically, you could put a $1,000 monthly “All Other” line item in your routine budget, but that seems needlessly messy, especially given how both the income and expenses here fluctuate. Some months, it’ll look like you were wildly profligate … when maybe you just had to save democracy from the birthers. Better to have all that income and all those expenses “off the books”, so to speak. Can you tell I used to work in Corporate Finance? Haaaaa.
This shadow budget of mine isn’t even a monthly budget—it’s just a running tally of all those extras. I don’t know what they’ll be, but I know they’re coming.