Everything I Know About: Budgeting and Saving
Budgeting is about what matters to you.
It starts with goals, short term and long terms. Here are the steps I follow to get started on the budgeting game:
1. Get organized. — What are your current spending patterns? What is fixed and what is variable? Get it down on paper and monitor yourself over the next few months. See if you can identify opportunities to cut down on spending as well as challenges you may need to address.
A lot of people make the mistake of ballin’ out too early. Yes you have a new job, yes you have way more money than ever before in life. Don’t let that blind you.
So you’re fresh out of school or a few years into your career and someone finally wants to pay you for all of the time you’ve spent in (or out) of the library. In the U.S., the average income for a college graduate one year out of school is ~$50,000.
How much money do you really have?
GROSS INCOME (starting line)
– Taxes
– Witholdings (health insurance, 401k, dental)
= What hits your bank account. (If you don’t know what this number is, go and look it up!)
But we don’t stop there.
– Fixed expenses (student loans, rent, gas, parking permits)
– Savings? Maybe?
= Whatever is left.
Figure out what this number is for you and get some data. (My favorite tool for this is Mint. It often doesn’t sync properly but is still one of the best tools in the market. Other options that I recommend are Tiller and YouNeedABudget).
Once you have data on your spending patterns, go through and highlight your expenses over the past few months in red, green and yellow. Green are the things that you know was money well spent, red are the things that you really didn’t need that maybe you’re embarrassed that you spent money on and yellow are the potential opportunities where you may be able to do a bit better.
2. Prioritize and set a timeline. — Determine your priorities and rank them in order. Do you want to get rid of debt? Buy a home? Save for retirement? Want to build an emergency savings safety net? Want to go on that big trip next year?
Your budget can include anything as long as it’s something you want to be a part of your life. Determine how much each goal will cost. After your fixed expenses like rent and gas, set aside the monthly cost of your primary goal, determined by the full cost divided by the time you have before you want to reach this goal, and add it to your expenses prior to determining how much you have left to spend.
Establish what you value and find the cheapest way to live within those guidelines.
3. Implement and Commit — Stay consistent. Set rules that make sense for you and Stick. To. Them. The more automated you can make this, the easier it is.
4. Visualize and Measure — I tend to stick to programs where I can actually see the progress. Because money is often hidden away from us, motivation can quickly be lost. Tools like Personal Capital and Status Money take this lack of visualization out of the equation. By seeing your assets and net worth grow over time, the little buzz of excitement you get from buying something can also come from seeing that graph grow by saving or investing.
5. Review and Adjust — Life can be a lot. The one thing that’s constant is change. As life changes, financial plans should change, too. Review your financial strategy on a regular basis, I suggest at least quarterly, and make sure that it continues to align with your views about your present and your future.
Budgeting is an iterative process. You might do it once, realize it’s terrible, and reset your priorities. But the more time you think reflecting on your finances, the more clarity you get. It’s incredible how much you progress you make by taking the time to sit and think about what matters to you.
I am not a certified financial planner. But but this is what has worked for me and a lot of my friends and family. So let’s pass on what we know and share the wealth!
