I Like Big Budgets & I Cannot Lie

BUDGET:

That 6 letter word that is fairly difficult to converse about with your friends, family, and co-workers. The reality is that it should not be such a taboo topic. Yes, we have trial & error processes that we take on ourselves, but when we collectively learn from others we may gain knowledge of what is positively working. Why not learn different approaches to increase the discretionary income in your pocket each month? Budgeting can be a difficult process because oftentimes we take it all on independently. We choose not to discuss our personal finances in fear that we are dealing with them incorrectly or improperly. But the truth is there is no right, or wrong approach. There are immense amounts of possibilities to deal with your personal finances. The trick is finding which method works best & most comfortably for you. Even better, modifications to your budget can always be made at any time! So how about considering making a financial game plan?

I like to view a budget as a positive experience, not a binding negative one (say what?!). Creating a plan for yourself to recognize how you can save and spend, and not just making yourself feel guilty for making purchases. The idea is to create a financial game plan that allows you flexibility and the room to face unexpected life happenings without flushing out all of your cash. Kind of think of a budget like the infamous course Syllabus: you’ve got your outline of what to expect for the course from start to finish (your expenses & financial goals). You have readily available resources of what to prepare for (save for). From time to time you may experience that unexpected pop quiz (out of nowhere life occurrences). But since you have that syllabus (budget), you can utilize it as a reference guide to aid you in dominating that class (your awesome life)!

I do have to bring up the realistic side that one of the toughest issues that may come forward with tackling a budget is making the choice to only hold yourself accountable, or allowing people to support you in the process. In times of stress and high emotions, we may make financial choices that could have been redirected if we took ownership of our finances (versus neglecting them), or allowed someone to support us through the process. With the encouragement of others, we could have rerouted a potential financial devastation. Through your personal finance journey you are going to have points where you want to jump & and down and maybe scream that iconic phase from Jerry McGuire: ‘SHOW ME THE MONEY!’ (excuse some of the language in this clip). At other points in time you may want to cringe and feel like crawling underneath the covers of your bed for months. Each financial path will not be alike from person to person. The basis of this entry is to encourage you to create a plan that will lead you to the successes & goals you want to accomplish.

A key thing I’ve learned through creating a budget is: you do not want to put yourself in financial misery simply to satisfy all those around you, or for short term gain. You have ownership of your personal finances and you get to decide how healthy you want them to be. If you want to make sure you are not missing out (vacations, lifestyle expenses), prepare to save enough in advanced so that you aren’t scrambling to make ends meet in the longterm frame of mind. Ensure that you evaluate options that will allow you to obtain your financial goals in the future. After all, more responsibility is taken on after we leave college (bills, rent, student loan payments, car payments, insurance, cell phone, etc.). Preparation to dominate these bills and have residual income will allow you to breathe & rest easy each night. So get that beauty sleep you deserve.

So how do I go about creating a (real) budget?

That was my initial staggering question. Okay, so maybe I kept some tabs in college – but let’s face it, I was more concerned about studying for my next midterm, writing papers & working internships than studying my personal finances. It may seem like a daunting & time consuming process, but it does not have to be! Allowing yourself about 20 minutes to an hour will create a strong foundation for your financial present and future. You do not have to sit and tackle your budget all at once, remember you can take a break and revisit (hopefully in a short time frame so you do not put it off). Through this post I am going to approach different strategies for budgeting. You can try each one for size, modify, or maybe it will be a springboard for how you can create your own budget tailored to you. I am also going to provide you with online resources and mobile apps that are tools used to generate your budget. Let’s get the complicated & messy notion out of your mind for budgeting by utilizing seamless & easy to use budgeting apps (because who wouldn’t want pop up notifications now and again that congratulate you for your savings?!). If you do not want someone physically holding you accountable for your personal finances, leave it to the advancement of technology to keep you on track.

So without further ado, in no particular order let me introduce some budgeting strategies:


 

The first strategy is a breakdown: how much do you spend, creating goals and spending habits to match, keep consistent track of your spending to fit the perimeters.

According to CNN Money – there are 3 steps to creating a budget (if you haven’t yet, check out CNN Money – it is a great source of each question you probably ever had about personal finance):

  1. Identify how your money is currently being spent.
  2. Evaluate the spending to see if it meets your financial priorities.
  3. Track your ongoing spending to make sure it stays within those guidelines (or understand how your budget needs to be revised).

Here are the measures & steps I’ve taken to accomplish these steps:

  1. I’m pretty old school sometimes, so I like writing things down to see them visually with pen & paper. I also enjoy tracking my bills through an Excel spreadsheet (bill name, payment date, cost and whether they have been paid for that month or not). Break down your bills and general (or specific) expenses. How much do you allot for groceries per month? Do you want to allocate any money for eating out & coffee? How about any general health & wellness expenses? There are several categories you can generate, so get creative because each person has their own hobbies & spending agendas.
  2. One of my main financial priorities by becoming financially sound after college is simple as this, am I spending less than I am making per month? It is important to understand what your net pay per month is (click here – or refer to your earnings statement to see the breakdown, and how much Net Pay you receive each pay period).
  3. Here comes the tricky part, ensuring that you’re tracking your spending and not letting it go ablaze. Fortunately, there are several banks that offer website platforms and mobile apps where you can track your spending online, or through your phone. If you opt not to go this route, I would suggest physically writing down your purchases & gains in a day. This may seem tedious, but it will allow you to pinpoint your strengths, weaknesses & patterns (kinda like a food or exercise log).

 

Here is a quick example of how to determine your take home pay per month less your fixed expenses (these are hypothetical ball park numbers, make sure to utilize your figures to determine your proper net pay per month)-

Say you make $40,000 per year. You are likely to have a net pay per month in the $1,000 to $1,200 range (this number is after federal taxes, state taxes, withholdings, how much you elect for your 401(k), etc. are taken out).

Next, you take that figure (let’s go with $1,200) and multiply it by the number of pay periods you have with your current employer. If you get paid bi-weekly, that is 26 pay periods per year. So we now have $1,200 x 26 = $31,200.

Now, to break it down by month, divide this number by 12 (for each month in the year). You now have $31,200 / 12 = $2,600.

Voila! You will have $2,600 per month in pocket. To go further to determine your budget, subtract your obligated expenses to reveal your amount of discretionary income. So say your combined total of bills & fixed expenses totals to be $1,500. We take $2,600 – $1,500 = $1,100.

That’s $1,100 per month that you can allocate to spending (or saving) any way you like! Now that seems pretty realistic doesn’t it?

 

The second strategy is the 50/30/20 rule:

For this, it is simple as no more than 50% of your take home income goes towards necessities, 30% allotted to lifestyle, and 20% towards driving down debt and/or saving.

Building off the example as listed above with a take home of $2,600 per month. With this budget structure you would only want to spend $1,300 on necessities (2600 x .50), $780 on lifestyle (2600 x .20), and $520 (2600 x .20) on savings & driving down debt.

 

The third strategy I like to think of as reverse method:

Why I like to think of this as reverse, is because the emphasis is on setting money aside for the vacations, fun events, etc. and essentially money that is intended to be spent. First, determine what your fixed expenses are, and after you have done so utilize an account (or as some people prefer, setting physical cash aside in envelopes) that can and only will be used on rewarding yourself. This creates the concept of budgeting to not be such a strict endeavor. The money that you have left over can then be divvied up among savings & goals. Now, this may seem like similar as the other mentioned strategies – but it psychologically gives you room to know that the process of budgeting does not need to be a scary & cumbersome task. There are benefits to recognizing what your money is being allocated to (hello more visits to Cuthbert, Roseland, Crystal Ballroom, Edgefield – it’s nice to see so many live artists in your wonderful venues). 

 

The fourth strategy is a list of Needs vs. Wants:

It is as simplistic as that. Create a list with only two columns. In the Needs column list items such as housing, food, transportation, or any additional item that is a necessity to carry out your every day life and activities with the dollar amount. In the Wants column, list anything that relates to lifestyle, hobbies, new technology, entertainment, and anything you feel will fit this category with the dollar amount (this is just generic, sometimes a hobby is a Need in order to keep you sane)! If you feel you want to allocate more money to satisfy Needs, find ways you may be able to reduce the Wants category and vice versa. Now this a method to get a great overall picture of your finances in no time!


 

Okay, so we’ve now got a hold of some different budgeting methods to do ourselves. But what if we ‘re feeling just a teensie bit lazy & want someone or something else to do it for us? Well we’re in absolute luck, because there are several ways that technology can monitor our budgeting and track spending with minimal effort.

 

Let’s venture into the world of budgeting mobile apps/websites that can make this a seamless process:

Lately I have been dabbling with apps like Mint, Level & LearnVest. There are several apps you can download in order to help with your budgeting, tracking & saving. Some may have their limitations, so find the one that works best for you – or, use a few!

Mint/Mint.com – To me this is one of the most expansive & in-depth budgeting sources to utilize. Once you sign up for Mint (for free!), through your login you link which accounts & investments of yours you choose (no need to worry – they are backed by encryption & high security). You then can set up budgets and goals according to your lifestyle. It is visually appealing and breaks down your finances in a clear and crisp manner. There are a vast amount of options to get involved with that Mint will actually make budgeting & spending fun (yes, I said it)!

Level money – Dubbed as the ‘mobile money meter,’ this nifty app creates a more simplistic approach to your spending. What’s nice is that after you connect your accounts & input your monthly plan of income/expenses, it breaks down the amount of money you have available per day, week and month. For each dollar you do not spend in a day, it rolls over to spend in the weeks to come/entire month. Level also provides you with pop up notifications such as, “Whoa, back-to-back days spending below your daily budget. We’ll roll over that $99.71 into your savings. Keep it up.” Talk about positive reinforcement & encouragement for taking accountability of your personal finances!

LearnVest – I have a many great things to say about this gem of a site and app. Once you sign up for a free account, you receive multiple financial tools and a powerful platform (also for free!). Not to mention a daily newsletter that I enjoy delving into each morning. If you are feeling like this site is something for you, there are also several financial planners you can get connected with. Alexa von Tobel the Founder of CEO of LearnVest holds the mentality that financial planning should be available to everyone, not an expensive out of reach endeavor.


 

Quite honestly, there’s a plethora of ways to create a budget. I have only touched on just a few ways to give that initial push. The first step is always starting. So consider this a virtual high five from me for the beginning of something beautiful! Look at creating almost a game from taking on this new personal finance journey. For me, I like to challenge myself. If I find I have a certain number of transactions between each pay period, how can I get creative enough to find a way to NOT have that many transactions. The reward? More dollars to get even more creative with in the months to come. Or maybe if you overspend in one category (we all know from month to month life isn’t always the same), then find ways to spend less in another category. It’s all about keeping everything in equilibrium that you create for yourself. Once you come to terms with your finances and realize you are responsible, you know what you want in your life (or at least a great general direction), you can & will conquer your budget.

 

So get going on that financial game plan, you’ve got what it takes!

  All my best,

Alyssa

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11 thoughts on “I Like Big Budgets & I Cannot Lie

  1. I personally like the Needs vs Wants budget. My wife and I found that to be the most effective. Advisors will tell us save 10-20% of your money but to be honest it would be hard for us to spend 80-90% of what we take home with the lifestyle we live. We’re definitely not rich (especially compared to our neighbors)! But it would just require us to buy new cars, eat out all the time and buy lots of new gadgets that we don’t really want.

    Instead we have our needs budget (rent, food, car insurance, gas, phone, internet, etc.) and then give ourselves a few hundred dollars wiggle room for non-essentials (Netflix, eating out, occasional clothing and travel). After that we just save as much as we possibly can.

    When new grads are starting off 10-20% is great but they need to reduce their lifestyle inflation when they get raises! Live poor as long as they can and save as much as possible. No reason generously paid young professionals can’t save 40-75%+ of their pay under the right conditions (especially if they are DINKS).

    Love your energy on your posts BTW, just read about a dozen of them!

    Liked by 1 person

    1. Hi Steve,

      Thank you for your comment! I am particularly a fan of the Needs vs. Wants budget aspect too. By determining which expenses are which really allows me to evaluate which things are of importance (of course the importance factor will vary from person to person). It’s great to hear that you and your wife have created a system that works best for you two! That’s the glorious thing about budgeting, finding one that works best for you and modifying according to your current lifestyle and choices. There is definitely not a one size fits all approach.

      I agree about new grads reducing their lifestyle and/or keeping it level once they receive raises! It allows you to have additional income that you can apply to different savings (whether retirement, emergency, or short term goals) without just watching the money fly out the door. I also like to take any bonuses I receive & deposit them straight to my IRA. Out of sight, out of mind!

      Thank you so much for taking the time to read my posts, I truly appreciate it! Hope you have a great weekend.

      -Alyssa

      Like

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  3. Thanks for putting a positive spin on budgets! Everytime I try to talk budgets with most people their eyes glaze over. Personally, I find budgeting liberating as I feel it allows you to buy whatever you want – as long as it’s in the budget 🙂 I find I don’t need that much to keep me happy.

    The budgeting app I use is YNAB. I swear by it. It has completely changed the way I use money. I thought Mint was much too automated for me – it didn’t change my behavior. YNAB is almost completely manual which to me creates hyper awareness of my spending to keep me in check.

    Liked by 1 person

    1. Vic,

      You bet! Oh I know what you mean, it’s mostly deemed as one of those dull topics. I think budgeting allows you that flexibility too! With the awareness, say one month one category is exceeding more than you typically budget for, it’s feasible to find a way to lower spending in another category! I think I’m going to check out YNAB, thanks for letting me know about your experience! I use Mint but I like to use other programs because they all have such different features. Thanks for stopping by!

      Liked by 1 person

      1. Rule #3 of YNAB is “Roll with the Punches” which basically means that you adjust your budget as you go, so your budget doesn’t feel too restricting. The program is built so you can move money easily from one category to compensate for overspending in another. My inner budget nerd geeks out at the end of the month because I use any money leftover in my categories towards savings!

        I too wrote a post a while back about my love for budgets. If you get a chance, check it out!
        http://dadischeap.com/2015/03/15/for-the-love-of-budgets/

        Liked by 1 person

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