I feel like there is a lot of information about how to start a budget out there in cyberspace, but many times people gloss over the foundation of a solid budget: good spending habits. You can follow all the rules, and make the best budget in the world. Sadly, if you don't understand your own spending habits and consciously make the effort toward making good choices, you'll be falling off that budget bandwagon real quick! So, I'm sharing with you some tools and techniques that I used to understand our spending habits, and how we started making better ones.
Track Your Monthly Expenses
This is absolutely key to understanding your spending habits. You need to know what you're doing right now, so you can make changes. When I did this a couple years ago, I downloaded the Mint app by Intuit. This thing is super nifty! First, you log into it and authenticate your banking accounts (checking, saving, credit cards, loans, retirement accounts, etc.). It then looks at your accounts' activities, and suggests budget buckets for you to use. Plus, it will even remind you if you have a bill coming up that you haven't paid yet (YES PLEASE!).
So, once you have the app all set, check it a couple times a week to make sure everything is being placed in the correct bucket. You can add and remove buckets, or change what bucket specific charges are in. Give yourself a little bit of time before you move on to the next step. I would recommend tracking your expenses for at least a month (two would be even better) to ensure you have enough data.
Determine Where You Overspend
So you've spent a month or two tracking your expenses. Did anything strike you as surprising? Maybe you spent more money than you thought you were on groceries, because those "small" trips every week added up to more than you expected. That's okay. We've all been there. Just set aside some time for you (and anyone who is apart of your budgeting process) to really look at what you've been spending, and find places to cut costs.
I would recommend looking at your "non-essential" bills like TV, internet, Starbucks and cell phones first to see if you really need everything that you're paying for. For example, when we lived in a larger city, my husband and I would only pay for TV services in the winter so we could watch Football games. We had a contract-free internet provider, and would add the cheapest TV channel bundle we needed to watch those games for only a few months. Then, when spring rolled around, we were spending more time outside and less time watching TV. So, would cancel the TV portion and use that money for summer travel expenses.
Next look at your "essential" bills like water, gas, electricity, food and mortgage/rent payments. Are you really being the most economical? Maybe you're someone who leaves the sink running while you brush your teeth. Well, turning off the faucet can save you quite a few pennies over time. Maybe you're an empty nester with too much house on your hands. Paying all those extra bills to heat/cool your home, along with having a higher mortgage payment could be cut dramatically if you downsize.
Deciding where you "overspend" is a very personal processes. Just be honest with yourself about what you really need.
Set Some Goals (and write them down!)
This seems like a very easy thing to do, but be prepared for it to be pretty difficult. I believe if you're being honest with yourself about your spending pitfalls, as well as setting attainable yet lofty goals, it's not going to be easy. I would recommend setting some weekly goals, a couple monthly goals, and at least one yearly goal. Here's a few ideas to get you started:
- Stick to my grocery list
- Don't eat out for one month
- No new debt for a whole year
- Only one coffee-shop coffee per week
- Create a $1,000 Emergency Fund in the next year (download a free printable worksheet from one of my 4 Ways to Save $1,000 In A Year post here!)
- Find another source of income (check out this blog post for ideas :) )
- Pack a lunch every day
Make a Monthly Budget
If you're new at budgeting, this is another place where the Mint app will come in handy. Since you should already have a month or two of data and your goals, you can use those to help set your monthly budgets. This app is great because it will notify you when you're close to, or over your budget for each spending category. I used this app for a little over a year before I was comfortable with my budget and spending habits. Then, switched to writing it in a notebook with a black pen (yes, the color is important #typeA).
Now, I write down how much I make from each paycheck after taxes. Then, under it I list all the bills I need to pay with that check, my grocery and gas budget, as well as what I'm putting into savings. Typically, I have a couple months worth of paycheck budgets written out at a time. When I pay the bill, I take an orange pen and check it off my list. If something changes, I use a different-color pen (pink, lime green, teal, purple, whatever) to cross out the original number and replace it with my new budget number. Why all the different colors? Is there some kind of color coding you use? Nope. I do it because I can. Plus, who says a budget has to be boring?! :)
I shared some tips/tricks to starting your monthly budgets here.
Check Back on Your Progress
Don't just walk away, and forget about everything you just did. You need to set a specific time frame to check back on how you're holding up. Personally, I check back very two weeks (AKA payday). During my check-ins, I pull out my handy-dandy notebook and assess anywhere I may have overspent or saved money in the past two weeks. Then, I bust out my fun-colored pens to adjust my budget for the next two weeks accordingly.
And don't use this time to only look at everything you did poorly and need to improve. Look at what you did well, too. Maybe you were able to cut an extra $50 from last month's bills, and put it toward paying off debt a little quicker or starting an Emergency Fund. That deserves a gold star and pat on the back in my book!
BONUS TIP! Give Your Credit Cards a Break
Something you can do from day one, is stop using your credit cards. A lot of people use their credit cards without thinking about having to pay the money back. Like, you know you have to pay it back, but you'd rather use your credit card than the hard-earned cash in your account. I'm definitely guilty of doing this. For the longest time, I'd carry mine in my wallet "in case of emergency". Then, I'd use it because I really wanted (not needed) something I didn't have the money for, or felt guilty spending my money on. Yet another example of one of my not-so-finest moments... But hey! I changed my ways, and we stopped using credit cards for daily/monthly expenses. I definitely couldn't trust myself with them at first, so those suckers got locked in our safe. At first it was very difficult. I became very aware of how much I really used those cards as a crutch. In the end, it's been a very freeing experience and I wish I would have done it sooner.