Welcome to the first post in the new series. The purpose of this series is to help people gain confidence with their personal finances. It is aimed at the person who is working full-time and does not have the time to read a full book or watch an hour long YouTube video. I want to provide easy step-by-step plans that anyone can use to start getting a handle on their finances.
My ultimate goal is to not overwhelm anyone, it is to show them that getting confidence with your finances can be simple. Keeping it simple is the best way to make changes that last your lifetime.
How To Get The Full Benefit From This Series
I plan to create each of these posts in a way that does not require you to go back and read the entire series to figure out what is going on. With that said, each post will build on each other and mention previous posts, but each individual post should contain enough information to be standalone articles. I hope this series helps others become confident with their finances who do not have the time to do their own research.
Budgeting
Budgeting is such a funny word to me. Not because it has a funny definition or it sounds goofy, but because so many people let out an audible "yuck" when the word is even mentioned!
Most people automatically assume one of two things when they hear the word "budget" or "budgeting". First, there is no way they have the time for that. Or two, they do not need to budget because they already know how they are spending their money due to watching their bank account.
For the first type of people, the "do not have time" folks, I am here to tell you that you may not be giving yourself enough credit. Budgeting takes work up front, but once you get a grasp on your spending, you would be surprised at how little time it takes to keep up with it. Just see the steps below on how I have found is the most effective and simplest way to budget that should not leave anyone overwhelmed.
For the second type of people, the "I do not need to budget" peeps, you actually may be correct. There is a select group of people who are naturally able to track their spending second nature. These are the type of people who seldom go out to eat but still tend to have as much fun in life as most. Most people do not fall into this category where tracking every dollar spent is second nature. We can strive to get to this point, but it is a lifestyle choice that takes a lot of discipline.
Why Everyone Should Do A Budget
I am going to keep this short and sweet because I am confident that my point will come across. Once you know your budget and where each dollar is being spent, it forces you to go forward making conscious purchasing decisions. The subtle change of making unconscious purchases become conscious purchases starts to create a psychological change within yourself. Even if this is the only thing you do with your finances, it will make a substantial change in your life moving forward.
I am passionate about budgeting because I am certain that a person needs to have an emotional relationship with their finances. Kumiko Love did an excellent job on giving tips on how to stick to a budget and giving reasons why you need to have an emotional attachment to your finances in her interview by Andy Hill (the awesome Marriage Kids and Money guy). If you want additional reasons why you should become a budgeter, definitely check out her interview.
As I promised, here is the simplest way to create a budget and stick to it in some capacity for the rest of your life:
The Four Steps To Budgeting
First step: Write down every way you make purchases. This includes debit cards, credit cards, PayPal, Venmo, and any other ways you make day to day purchases. Most day to day purchases will be credit and debit cards.
Second step: Track down the login information for your above account's online portals, so you are able to pull up prior statements on a laptop. If you do not have an online portal set up for your debit or credit card spending, doing so will make budgeting a lot simpler.
Third step: Figure out how much money you spend in specific categories. This will require the most legwork, but it is a one-time step. It could take a good hour to sift through everything. Starting with three months ago (if you are ambitious, you can go back further), add up how much money you spent in the following categories each month by using those online portals you gathered up in step two (I highly suggest using a laptop to do this instead of a phone):
Car payment
Mortgage
Other debts (such as student loans)
Car insurance
Utilities and other reoccurring house expenses (such as gas for heat)
Gas for vehicle
Automatic investments being pulled from bank account
Grocery store spending
Eating out (include all random fast food purchases, coffee purchases, takeout and delivery too)
Monthly subscriptions (You may be shocked on how this adds up. We are currently paying $139 for monthly subscriptions to Spotify, Prime, Twitch, Hulu, Netflix, and YouTube)
All amazon purchases
Clothes
Other miscellaneous nonfood purchases
Once you have the monthly totals for each category, add the categories together and divide by three. That is your average monthly spending in that category.
Fourth Step: Identify categories with higher dollar amounts that you can start saving money in (besides your investment category). Time for a confessional - when my wife and I did this for the first time, tears were shed. It is alarming when you see these numbers for the first time. Everything will start to click on why your bank account has been steadily decreasing month-to-month.
I have found that a categorical approach with saving is the best way to make lasting changes. In other words, if you notice that your overall food spending is way too high (grocery store plus eating out category), then start by putting a monthly limit on that category. Based on your past behavior of untracked spending, calculate a new number that you feel you and your family can stick too.
After doing this for two or three months and being comfortable with meeting your food spending budget, add a second category to start tracking and budgeting. However, if you were unable to meet your budget, determine whether you set an unrealistic goal or whether you were not disciplined with sticking to the plan. Either way, both issues are very fixable, and you should be able to identify the issue before it gets out of hand.
Then, keep repeating this process until you are happy with your spending and lifestyle choices.
Painless, right? The upfront work seems overwhelming, but you would be surprised at how quickly you can go through your accounts and calculate each category. And after you do the annoying part, all you have to do is track one category for the first two or three months, then just two categories the next few months, and so on. You may find after tracking just three categories you are very happy with where you are at financially.
Hopefully you can see how simple budgeting can be such a powerful weapon at your disposal. If all you do is keep track of your budget and make your automatic monthly investments, your older self will love you.
Please let me know in the comments if you have any additional budgeting tips or if there are any specific topics you would like to see covered in this series.
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