It's the beginning of the month and that means I get to take a look at my budget. I love love love my budget! The first time I made a real budget of my own was back in 2005 when I first met with
Chris Allmand, my financial adviser. Even though I didn't so much follow that budget, he taught me a lot about thinking things through. He was the first to teach me that budgets have to be realistic, flexible, and that it's more about knowing where your money goes than anything. Over the past 5 years, he's continued to encourage me to think about long term goals even though I'm usually thinking more about getting to the end of the month. Since getting serious about the whole personal finance thing in the few years, my budget has gone from boring to frickin' awesome! Some days I freak out about my money. I'm a grad student. It's only natural to freak out about making an unnaturally small amount of money. Lots of the time it's kind of fun though. I like making lists, and a budget is pretty much the ultimate list. It's encouraging to have a list that includes savings goals, coffee, clothes, travel. It's all in there and it all works.
A handful of friends have asked me how I budget, so sharing my thoughts seems like the thing to do. I'm not planning to tell you how much money I spend on anything. That's a little too private of a matter for me right now. That said, I admire all the bloggers who are willing to share their detailed personal finance information. Here are the concepts that really got me going.
1. First try to figure out what you spend money on. Don't judge yourself. Just take a look. This is super easy if you are keen on using swipey cards like debit cards and credit cards. You can link all your accounts using a program like
Mint and then use their fancy features to see where all your moola is going.
2. Now think about your financial goals. I am of the opinion that at the very least you should have and/or be saving for an emergency fund and paying off debt at a rapid pace. There's a lot of information out there about how much to save, the best ways to pay off debt, blah blah blah. We're not going there right now. If you're just starting this whole budget gig, then don't worry about what other people think. My savings goals don't stretch past December 2011. Talk about short term! Maybe your goals are to max out your Roth IRA this year, to buy a new car, to pay off debt. Doesn't matter how big or how small. Think about what you can do without freaking out too much.
3. Figure out what you need to do to meet those goals. What are you going to cut? You've probably heard of the latte factor. Basically the concept that spending a little bit a lot of times adds up to a lot of money. Look through your current spending patterns and figure out what you think is reasonable for cutting back. Depending on your savings goals or your current debt situation, you may have to make some rather serious changes in your spending patterns. If you are free of credit card debt and have no expectation of needing something expensive like a car in the near future, then maybe you can be more flexible. I believe that if your financial goals are really priorities, then making those sacrifices won't be so tough. Your other option is to get another job.
4. Go cash only for 2-3 months. You're not going to lose out on THAT many credit card rewards in a couple of months. If you don't have your spending under control, the credit card rewards aren't worth the interest you're paying on a credit card you can't pay off anyway. Get a box of envelopes and write the name of every spending category on one. I think it's better to start with detailed categories. Maybe you can go to broader categories later. Then, put the designated amount of cash in each designated envelope. Find yourself a big ol' wallet (easier for girls than guys!) and put all the envelopes in there. Maybe you only need a few envelopes a day. At one point I basically carried around an envelope for coffee, eating out, and misc cash. That's all I really needed on a day to day basis. If I knew I was going to the grocery, I took the grocery envelope.
5. See how you're doing. At the end of the month review your spending. How much money is left in each envelope? Did you run out early in any category? Where did you save? Was your designated amount completely unreasonable for certain categories? Make little adjustments for next month.
6. Expect big things. My budget has to change a wee bit here and there every month to accommodate larger purchases. Having a budget planned out for an entire year allows me to plan for such things. For example, I know that in September my car registration is due. Last year is was $130, so this year I budgeted in a little mini savings plan so that, come September, I'll have $130 ready to go.
7. Switch to swipey cards. I still stick to debit for everything possible. It's just easier for me to deal with. A lot of folks are all about racking up credit card reward points whenever possible. I like those rewards too, but only if I'm getting 5% cash back. Simple is good. Either the money is in the bank or it isn't. Luckily my bank has a decent rewards program. About the same as my credit cards. I really like tracking my spending with
Mint.com. You might want to give that a try.
8. Lastly, don't beat yourself up. Every little bit helps. You're not going to stay completely on track every single month. Especially if you are seriously pinching pennies like most grad students. Just like any other goal, your financial goals need to be reasonable and achievable. Maybe you are a super logical person and everything about your budget will be black and white. Great! If you're like me, the budget is going to have to have some give. No category is set in stone and pretty much every category changes from month to month depending on what's going on. My life is too crazy to do it any other way.
I have to give credit to all the other bloggers out there that have made budgeting cool. There are several budgeting posts that I really like, but I've decided to save those for tomorrow!
