I've Spent How Much On Food!?
Have you ever looked at your bank account near the end of the month and had an “oh crap!” moment? Me too. Unfortunately, this has happened more times than I care to admit. I’ve never been the type to be extremely careless with the money in my bank account, but instead have adopted a rather “laissez-faire” attitude – I know how much income I bring in, about how much my monthly bills will total, and allow myself to spend freely with the remainder. I never wanted to set strict limits on myself because “hey, I’m in my 20’s and just want to live as freely as possible!” The problem with this – as mentioned above – is that I often find myself with an uncomfortably small amount left over with days (or several days) until the next paycheck.
Upon finding myself quitting my stable, decently-paying non-profit job to join an early-stage startup, I knew I would need to begin being more cognizant about my money choices. I’ve shied away from the “b-word” for years, mostly because I abhor feeling uncomfortable and I knew that sitting down and taking a hard look at all of the financial numbers in my life would not be the easiest pill for me to swallow. At 27, I realize this is not the smartest way to live my life, especially as I get closer to taking major life steps and the dream of goals like purchasing a home or starting a family loom in the not-too-distant future.
So on a random Tuesday morning, I sat down with the intention of starting a budget, immediately wishing I could crawl back into my cocoon of ignorance. My first step was to educate myself on the various methods used to create a personal budget. After extensive research and a sense of confidence that can only come from the internet, I was ready to get started.
The basic steps for creating a budget (summarized from multiple budgeting blogs, financial experts on TV, and advice from my dad) are as follows:
Simple right? Begrudgingly, I started to go through each of the steps and while figuring out my monthly income was pretty cut and dry, the process of putting together each of my recurring monthly expenses was a bit more taxing. I took some time to look at every single one of my expenses over the last six months, separated out by category. Let’s just say the phrase “I’ve spent how much on ____ over the last few months?!” crossed my mind more than once.
After separating my necessary fixed expenses from my indulgences, I calculated the amount left over to save or spend as I wish. If it’s not normal to feel as though you’ve been punched in the gut after making this calculation, I may have done something wrong. Or rather, have been doing something wrong. Completing this simple exercise allowed me to take an honest look at how much money I have been wasting, mostly on impulse clothing purchases and dining out simply because I was feeling too lazy to cook for myself. Neither of these are trends I would like to continue.
I knew that to get the most out of my “spending money” (income minus fixed expenses), I would need to set some goals for where my money would be going. In order, these are the goals I set:
- Pay off all previous debts from irresponsible purchases in my early 20’s
- Build up my emergency fund to at least $5,000
- Save towards various vacations that I have been dreaming of for years, but could never seem to find the money for
There are other things that I would like to save for and will start to set goals for them as I am able to decrease my monthly fixed expenses or complete my first three financial goals. Additionally, I set some limits for myself in certain expense categories (here’s looking at you ‘restaurant budget’.) In the days after creating my budget, I also set up Money Clouds for each of my financial goals and have found it more gratifying to watch my progress increase for each individual goal rather than my previous saving method of sticking everything into my single savings account. The lesson I took from all of this -
I need to start paying closer attention to my money each month
Self-awareness is a crucial step towards progress in so many aspects of life and financial success is no different. It may not have initially felt great to confront the poor spending habits I’ve allowed to continue for far too long, but I feel infinitely better knowing that I now have a plan in place to reach the goals I have set.
What tips or tricks do you use to create (and stick to) a budget?