I have been snooping around in the lives of my lady friends, doing actual research, and experimenting a lot with my own life – a harrowing experience for my dude – to nail down the best methods and mindsets for getting your budget set, functional, and happy.
I’ve long believed – through times when I was dirt poor and times when I’ve had actual free cash – that money is a form of energy that we can build up, save, or burn as needed. Learning how to harness that energy is a special form of empowerment that women are often not granted by the general wisdom at large. I was surprised by just how much the general fear and worry pervaded the comments last week when I brought up budgeting. Debt, sure, I get it. That shit makes my spine tingle. But budgets? Why are we so afraid of budgets?
I see it in my own home, too; it’s not just a “women and money” thing. My fiancÃ© hates budgeting, because the word itself makes him think of being poor, and that is one of his great, paralyzing fears in life. (I think it’s scarier to people who’ve never really been there, you know?) The more I thought about the fear that surrounds budgeting, the more I realized that much of our fear comes from fear of the unknown. What if we screw up our budgets? What if they don’t work? What about emergencies? What about contingency plans? What if the budget makes me feel constricted or constrained? What if no matter how hard I’m working I can’t make my budget reconcile with my needs?
Frankly, with all that buzzing around in our heads, no wonder we’re so nervous about this stuff. And if you’re anything like me, that’s exactly what money questions immediately do: fill your head with a droning noise so pervasive you can’t think straight about the fairly straightforward items right in front of you.
So, first things first. My friendly DailyWorth guide to money-savvy gives some basic pointers for beginning to start your budget:
- Your budget already exists; you just have to manage it better. (I would add “and get to know it better,” too.)
- Life is random, so you must plan for that randomness.
I think it’s important that we pay attention there: all a budget is, really, is cash in and cash out. What you earn and what you spend. When we talk about budgeting, of course, we’re talking about approaching that cashflow with mindfulness. And I think we’re all pretty smart birds. I think we can be mindful about our money.
First, the positive: Some of the commenters in last week’s introduction to this series mentioned some really great tools. Mint.com is a completely free site that allows you to import bank accounts, loan debt, credit cards, and list your other major regular expenses (bills, housing, accounts of all kinds, retirement funds, etc.). You can set your budgets manually or let them evolve naturally from your regular spending, which Mint will analyze and break into reasonable budgets based on your average account balance. Um, yes, they do all that for free. For the win.
Starting from the positive (ie: before we run into problems), we can look at some hard numbers: you probably have a good idea of what your general income is right now, and what your general regular expenses are. If your regular expenses exceed your regular income, we can work on that – here and in the weeks to come – too. But let’s proceed with the basic idea that things are about even. If you don’t want to use a service like Mint, you can set up your own spreadsheet in Excel – feel free to email me at persephone [at] parliament-books [dot] com if you would like a basic template – to keep track of your expenses and income.
Depending on the size of your income and how much elbow room you have, you might need to get very detailed with your budget. Generally, the greater positive distance you have between your expenses and your total income, the less strict you need to be with your budget. But let’s face it; between the cost of education, the cost of living (which Selena has been doing an amazeballs job of tracking here at Persephone), and the crappy way employers pay folks these days, most of us don’t have a lot of elbow room in our budget.
Now, most of us know how to set rules for ourselves. It’s as easy as making a New Year’s resolution. But… how many of us are able to stick faithfully to those rules? That’s where DailyWorth’s next idea comes in handy: know your four fundamental financial truths. That’s how much you make, how much you spend, how much you owe, and how much your total assets are worth. If you can keep this information memorized and in the forefront of your mind – by regularly checking your bank account, by checking your pay stubs, by keeping records, balancing your checkbook, updating that spreadsheet, and getting regular updates from your new Mint account – you can make informed decisions about your spending. That’s some power right there.
Next, housing: do not spend more than 25% of your gross income (or, probably with taxes considered, about 1/3 of your net income) on housing. Does this sound impossible? This is where you need to start making some tough decisions. Do you need the spare bedroom? The dining room space? An extra storage unit? Can you handle living with roommates? Moving to a slightly less trendy neighborhood? If you’re exceeding this estimate, try to think ahead to the end of your lease and see what you can change. It’s important to be in a home you’re comfortable in. Don’t sacrifice safety. But try to find a deal you can be happy with.
A good rule of thumb for dividing up your budget is to save 30%, spend 60% on necessities/bills/debt, and blow 10%. Yep, I said blow some money. You make it for a reason and deserve to have fun. Are these numbers realistic for everyone? No. Of course not. But it’s a good ballpark to aim for, and the closer you can get to this division of resources, the more elbow room you’re going to feel like you have. There is flexibility here; this is just a guideline.
So. How do we trick ourselves into sticking to this fancy budget once we’ve set it? Some people swear by envelopes. Yep, cash in envelopes. Obviously you probably can’t pay all of your bills with cash, but once you clear out things like utilities, rent, and student loan and credit card payments with the plastic, put that debit card somewhere secure, and put the rest of your discretionary funds in separated envelopes, by budget area. You can have one for groceries, one for other necessities (toiletries, cleaning supplies, new underwear, whatever), and one for fun, for instance. Pro tip? Don’t borrow from groceries to pay for fun. It doesn’t pay off.
Other people swear by tracking their spending in minute detail, so they can look back over it and make changes where they need to. I’ve heard of people swearing by saving receipts, eyeing their bank statements, keeping those spreadsheets, or just writing every. single. expense. down somewhere. Set a timeline of review and stick to your changes as you make them.
However you decide to do it, don’t spend money that isn’t in your budget. This seems obvious, but so many people – myself included – do or have done it. It’s so easy just not to think about your budget, and that’s the real hurdle you need to leap over in order to start managing your budget effectively.
Now, the negative: Sometimes your income isn’t enough to cover your expenses, and that’s when your budget management has to become kind of militant. Do you need a home phone? Do you need a car? How about name-brand food? Are you still paying for cable? Can you maybe get your entertainment cheaper on the Internet or via Netflix? Speaking of Netflix, how many DVDs do you really need at once at home? Can you entertain yourself for free with exercising, using the parks, the library, and other government services specifically designed to make you have fun? Speaking of exercise, you can do that for free, too, you know. The gym can go. And if you’re not splurging on things like this, then it’s time to take a different look at it.
Which brings us to next week’s topic: earning. There are ways you can affect your income positively, and we’re going to explore it in greater depth.
So, your homework, if you choose to accept it, is to take a look at the various records you have of your spending (or start keeping one if you haven’t already and your bank doesn’t track things like that for you). Set up a Mint account or something else that works better for you. Set your budget, and keep tweaking it to get it as close to where you want it as possible. The truth is, whether your budget ends up giving you a relieving sense that you actually have more than you thought, or serves as a somewhat depressing wakeup call, knowledge is power, and you can use this information to your benefit.
What about you? Are there ways of managing and tracking your budget that you’ve found work brilliantly for you that I didn’t cover here? What are they? And if you’re still struggling with this step, let’s talk about it in the comments, or feel free to email me. I’d love to help you work through some of the sticky parts.