The Per Diem Method for the Simple Household Budget

Years ago, my method of budgeting was to get paid, pay the bills and hope whatever was left would last until the following paycheck. Not surprisingly, as the time for the next paycheck drew near, we found ourselves out of money and cautioning each other not to spend anything until payday.

Often payday would arrive, and we would already be down anywhere from $25 to $100 before we even put the check in the bank. It was very frustrating and never seemed to get any better.

Finally, and I cannot tell you when this actually happened but one day, frustrated by the shortfall, I paid all bills designated for that pay period and then took what was left and divided it by how many days were left until payday. Belatedly Brilliant! At last the mystery was solved—I knew how much money we could spend and make it to payday without going in the hole. We no longer had to guess. I didn’t run to the fabric store or the hardware store, buy what I wanted, then be surprised at the end of the pay period because we were short. Now I would know that if I spent a few dollars it was within my daily budget—or not.

It is a simple formula. Deposit your check, pay all bills due, purchase the other items in your “set” budget, groceries, allowances etc. Then take the remaining bank balance and divide it by the number of days left until your next deposit or paycheck. That is your per diem amount—meaning that on any given day you cannot spend more than that amount if you want to make your paycheck last until you get paid again.

Let me give you an example – and please note I am just choosing figures, not to say this is a good or bad amount as a salary. I am using a very tight budget for illustration purposes. I understand budgets can be more complex if people are budgeting for all of their personal needs, clothing, schooling, etc. But for the purpose of making this article simple, I am using a very basic and simple budget.

Let’s say that I get paid twice a month, on the 15^th and on the last day of the month. On the 1^st, I will pay the house payment, phone bill and electric bill. The rest of our bills fall due around the 15^th so they wait until the next paycheck.

After I pay the bills, I will buy groceries and anything else needed on a day-to-day basis with my food budget, and distribute the other payments, allowances, etc. allotted for in what I call the “set” budget. The set budget is the budgeted amount for the things that change very little from pay period to pay period. They are generally fixed amounts, payments that don’t change, or vary a little like the power bill or food prices.

Paycheck: $1200.00

House payment -$500 (I wish)

Phone bill -$50.00 usually this does not change

Electric bill -$100.00 this will drop for us in the summer

Groceries, sundries etc. -$200 (yes, it could be more)

Weekly allowance -$50

NOTE: I will make a savings deposit on the 15^th when my expenses are less, or I could lessen the allowance amount to get a small deposit made to savings.

After deducting all my outgoing payments from the paycheck, that leaves 300.00. So in order to make this money last until the 15^th when I get paid again, I have to know how much money I can spend on any given day to make my money last. I count the number of days left until the next paycheck. I start at the 1st and count the days including the 14^th – not the 15^th because that is the day I will have money again.

It isn’t much but it leaves $21.00 per day or a $21.00 per diem to make my money last until payday again. Groceries are purchased, allowance in the pocket, bills paid. But you might ask, what about on Tuesday when I had to pay for snow removal. These things happen – and so you now know that if you spent more than the per diem on Tuesday, you have to be careful on Wed. etc. And with making a monthly savings deposit, if you run into an emergency that you could not plan for – there it is waiting in the saving account for you.

I have used this method for about 17 years and once I started doing it, I rarely had more month at the end of the money because I was aware on a day-to-day basis what I could or should spend. I had no excuses and it caused me to make wiser decisions and turn down spur of the moment purchases.

Give it a try, it can’t hurt and you might be surprised at the results. Once you get the hang of it you can always modify it. You may even find that you have money left on the next payday. Here’s to Savings!

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Copyright 2012, All Rights Reserved.

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