The pocket method of budgeting

This guest post comes from J. Money at Budgets are Sexy.

Here's Rule No. 27 on the J. Money "List of Money Rules": I'm allowed to spend any money in my pocket however I please.

It's probably one of my favorite rules. It sounds wasteful -- and maybe it is if not done correctly -- but it's the one area in my finances where I allow myself to be more willy-nilly and not count it down to every last penny.

That's something I used to obsess about as a kid growing up, and not in the way that's productive either (i.e., I'd hoard every single dollar and never want to use up any of it, even if I was allowed to or was required to do so). It's something I'm still haunted about to this day, when I hear the echoes of my mother calling me "stingy" and "an old man with his money." (Post continues below.)

I know a lot of you like to track your money down to every last nickel and dime, and that's totally cool. I respect that. But what I've realized over the years is that if I personally try and do that in every single aspect of my financial life, I tend to veer off toward Wackoville. My brain just doesn't have the energy to track everything at all times, so I budget in a little "gray area" to allow myself to decompress a bit.

Of course you DO need to know where all your money's going in general, but it doesn't mean you can't siphon off a little and throw it into a newer, more relaxed environment. Let's call Rule No. 27 the "whatever's needed at the time" fund, sprinkled with some "spontaneous packs of gum or a beautiful bag of marbles."

And Rule No. 27 also states that this money will be limited in size, and will also help out Rule No 13: Always have cash on hand.

Here is how the rules are implemented: Every pay period I take out $200 in cash from the ATM (my "pay periods" are once a month now that I'm self-employed, revised from the $100-a-paycheck schedule every two weeks). That money is to be used for anything it's needed for throughout the month -- no questions asked. And it's very much intended to be vague.

Most months I run through it, especially if I'm traveling or hanging out a lot with friends (why does that always happen?). Either way, once I'm flat out, I'm out. The pockets will have to wait until the next pay period again in order to be refilled.

But there are plenty of times the money carries into the following months too -- which means I get to save a little bit more unexpectedly because I take out the appropriate amount less the next time around.

I don't know if any of you have portions of money sectioned off like this too, but if you don't, it may be something to consider -- IF you are good with managing your money, of course. If you don't trust yourself, keep on tracking every last penny!

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This hasn't resolved all my obsessing problems, or my plans for being less of a money freak for that matter, but it has helped me relax a little more and pay attention to the bigger stuff at hand. I think the key is mastering all sides of the equation.

Do you have any similar rules to your own budgeting or day-to-day spending? I'm curious to see if I'm alone in this one. I'm going to guess no.

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