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Don’t Budget To the Penny

Posted By Jim On 03/22/2007 @ 4:38 pm In Devil's Advocate | 20 Comments

Budgets are great, they keep you in line and they help you reach the goals that you’ve set for yourself and your family. The thing is, there’s a point when the budget stops being a means to an end and they start dominating your life… and that’s when you start tracking things to the penny. Listen, if you’re going to budget, experts advise that you track everything but I’m going to give you a few reasons why you should track to the dollar and not down to every last cent.

This particular DA is a little weak in the sense that the “conventional wisdom” aspect, budgeting to the penny, isn’t something that everyone thinks you should do but merely the default approach towards budgeting. Personally I do not budget (anymore), but when I did I budgeted to the penny and felt that technique was a little restrictive. I eventually stopped in part because of reason one. So, in this respect, I am truly the Devil’s Advocate and not merely playing the role for grins and giggles.

If It’s Hard, You’re Less Likely To Keep It Up

Let’s be honest, no one likes to budget in the first place because no one wants to feel like they have to track every single thing that they do because it takes the actual fun out of doing it. Going to the movies becomes “watch a movie, oh yeah I have to put $9.50 in my budget,” and you get a little bit away from the enjoyment of the movie. Also, if you have to track every last penny every single time, you’re probably going to put it off… and put it off… and then maybe not even track it at all! You want to put as few roadblocks in the way of you and your goal, of saving money to do X or pay for Y, and tracking to the penny is a headache that is a potential roadblock.

That Level of Visibility Not Necessary or Useful

$1.05 or $1? $50.87 or $51? Let’s be honest, when it comes to your budget, tracking to the penny really doesn’t get you all that much. Depending on how you opt to do the rounding, at the absolute maximum your budget will be off by the number of transactions you have; on average, you’ll be pretty close to your actual budget. If you always round up, you’ll be off but never short, which isn’t that bad when it comes to budgeting because you’ll “find” money at the end of the month. Unless you enjoy tracking down to the penny (and there are certainly folks who do and there’s absolutely nothing wrong with that), you can see how it doesn’t get you all that much more given the added effort.

That’s Not The Point

The purpose of budgeting is to track your expenses so you know how much you’re spending and what you’re spending it on. If you’re the type of person who blows their whole paycheck and has no idea where it went, budgeting is for you. If you’re trying to find places in your spending to trim the fat in order to pay off debt or save for something, then budgeting is for you. If you just want to keep an accurate picture of where you are, then budgeting is for you. In all three scenarios, tracking down to the penny is absolutely irrelevant and likely to derail your attempts to budget. Getting “close enough,” that is within fifty cents for each transaction or any of the other rounding tricks, is good enough and likely to keep you at budgeting a while longer.

I know there are a lot of readers who budget, so please share your strategies (down to the penny? round up? round down? keep a notebook? anything you want to share!) so we can all learn!


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