I haven’t mentioned it much, but I’m researching a book on Holistic Personal Finance.

I’m finding the difference between modern and old fashioned household budgeting amusing, confusing and a disquieting indicator of the change in our values.

Modern Budgeting

Modern budgeting is seemingly quite simple; add up your expenditure and then work out how to bring it down so you don’t spend more than you earn. But it’s quite a dispiriting process:

1. add up the bills for each expenditure item (e.g. all your electricity bills, then all your debt repayments, everything you spend on fruit, dental costs, magazines, bus fares, school uniforms, and so on)  from the last year to get their annual cost
2. make sure you get every single item down to the bottle of water and Snickers fun size bar you bought while you were waiting for the train
3. add all the expenditures to get your total annual expenditure
4. deduct your annual cost from your annual income
5. work out how you are going to cut your costs (start by skipping the snickers) so you don’t spend more than you earn

It takes ages to get the information together, and all the while you’re stressing out over all the money you can’t account for.

And it doesn’t matter where you look – Google “how to write a household budget”, and they all start with working out how much you spend, and they all want you to account for every penny.

These days that does make a certain amount of sense. Your salary probably goes into your bank account, and you probably spend it bit by bit as bills and expenses come up. Maybe you sometimes check your balance to decide whether you can afford something or not, and if there’s money there, you probably think that you can.

Some of them offer the suggestion that you should include a component for inflation and the price increases that seem to come all too frequently. Some suggest that you should pay yourself first by contributing to savings or investments, and others that you should pay down debt first. Very rarely do they suggest that you should include a contingency for the unforeseen, and even rarer still that you should make more income, or sit down as a household to discuss the expenditure.

Oh, and if you want to simplify your financial affairs, get an app.

Old Fashioned Budgeting

By contrast, old school budgeting starts with what your income is. It perhaps got a bit complicated, because advice of the time included things like the money you don’t spend on:

• food because you grow vegetables, keep chickens and a cow in your garden
• servants because your wife cares for the house
• kids clothes because they buy them with their wages
• rent/mortgages because you own your home

Once the money arrived, you’d split it proportionally:

• Food (25% of income), e.g. raw materials, luxury items, confectionary, out of season and entertainment
• Housing (15% – 25%), e.g. rent or mortgage, repairs, improvements, taxes.
• Clothes (10% – 20%), e.g. necessities, personal adornment and fashion
• Operating Costs (10% – 20%), e.g. wages, utilities, stationery, transport, medical and other professional services (e.g. lawyers) and miscellaneous
• Advancement/Higher Life (25%), e.g. church, charity, education, amusements, savings and investments, gifts

As the cash came in (always assuming your husband didn’t drink it before he brought his pay home), you’d put it in a bunch of envelopes in a drawer. Or like my mother, jars in the cupboard. And if you were fortunate enough to get a bit of cash in the envelopes, you might open a savings account at the bank. Many people kept account books to record their income and expenditure so they could see how much money they had set aside to cover their costs (which is where all the interesting data comes from).

They thought it was important to leave uncommitted funds in your accounts (the expenditure categories) for things that you hadn’t identified yet, and so if you needed to, you could swap the money around a bit by putting IOUs in he envelopes.

And if you didn’t have enough money, then you should go out and make more. Perhaps you could sell your eggs, teach sewing, hold classes in the parlour or take in a lodger.

Now I freely admit it’s a little harder to overspend if there’s no money in the drawer, and that as modern life can be quite complicated, the proportions might not make sense right now. So I took a stab at working out what we spend, and it looks like this:

• Food: 19% (v 25% of income)
• Housing 17% (15% – 25%)
• Clothes 4% (10% – 20%)
• Operating Costs 33% (10% – 20%)
• Advancement/Higher Life 19% (25%)

It’s not a full or accurate attempt to categorise all our expenses, but with a little adjustment of proportions to cover things like transport costs, it works. And it’s easy. I’m quite chuffed about that.

Does a proportional budget feel more comfortable to you? Would you be more likely to follow a loosey-goosey budget approach like this?

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