Today is the first day to jump in to the nuts and bolts of life skills as laid out last week. We’ll be starting with money. Please understand that what I am about to write is simply my approach to managing money. I am not a financial planner or otherwise particularly gifted at managing money. But I have been practicing for a bit now and I have learned some things that I wish I had grasped a while ago. I hope this is helpful to you.
Final disclaimer: this is written from my perspective and from my experience. Some of it may be useful to you, but it is in no way an attempt to say “if I can do it, you can do it” or “this will work for all people in all circumstances” or any such nonsense.
Disclaimers out of the way, here are three things I wish I had really grasped about budgeting and personal money management years ago.
Know your fixed expenses
Figure out what your fixed expenses are, and then budget from there. This includes knowing what bills you pay every month, how much they cost, and when you pay them as well as knowing expenses that come out more irregularly, like car insurance or memberships.
For items that come out once or twice a year but that are predictable, I have had a lot of success with figuring out the per-month cost of these items and setting up automated savings to come out as soon as I get paid. Then when they are due, I have the money to cover the expenses.
Once you have figured out how much your fixed expenses are, you can see what money is left over. Then, you can look into how much you have for more flexible categories – everything from groceries and medical expenses to entertainment – and budget that money accordingly.
Knowing your fixed expenses can also help you to know if you are spending too much on those fixed expenses and could find ways to lower them, or if your income is too low to cover your expenses and you need to find a way to make more money.
When you are setting up your budget, be realistic. Actually count costs. Do you spend about $50 on groceries a week? How often do you get paid?
For example, I get paid monthly, and have made myself a weekly spending budget on groceries. However, until recently I was budgeting the same amount each month regardless of how many weeks were actually between checks. Upping my grocery budget by $50 for months that have 5 weeks before I will get paid again has made it so I’m not stressfully trying to grocery shop on $10 for the last week of the month.
If you are constantly overspending in a budget category, look at the actual costs of things, add them up. This will give you an idea of a realistic goal for individual budget categories. Don’t fudge, and round up rather than down. If you need more money in a category, you can add that, but you may have to take it away from another category.
Take out savings (and giving) upfront
A great way to help you be realistic about your finances and to save more effectively, in my experience, is to take the money you want to save every week or month out when you get paid.
It’s very easy to simply spend the money you planned to save because it is still in your account, so I automatically debit the money I am planning to put aside for regular expenses like car insurance, and I manually take out about 10% of my income for personal savings when I get paid.
This way, the money is gone, I don’t feel like I have it, and I have a much easier time not spending it when it is not there. I do the same thing for giving – I take the money I am planning to give (usually to my church) out right as soon as I get paid so I don’t get in to the mindset of thinking it’s mine to spend this month.
These three items have been my big takeaway from years of practice with budgeting. I will get in to some more details about how I budget soon. What strategies have helped you be most successful with budgeting?