Learning To Love Your Budget
By: Alecia Kennedy
Tags: Money, Women And Money, Money Management, Budgeting, Financial Independence

Photo by Sandy Millar on Unsplash

When I was nine or ten years old, I started keeping track of the change in my piggy bank. First, I counted all of the money and wrote the balance on a slip of paper. I placed the slip of paper in the top of the bank (it was not an actual pig but rather a cylinder-shaped bank). Every time I added money, I adjusted the balance. Every time I used money, I adjusted the balance. That way I knew how much money I had at any given time and could decide how much I wanted to spend or not spend. I would allow myself a certain amount per week to blow if I wanted. But I usually didn’t.

In short, I had taught myself how to balance a checkbook and keep a budget unprompted by anyone. It is an understatement to say that I heart budgets.

However, I personally know many adults who do not heart budgets. In fact they fear budgets, they loathe budgets, they avoid budgets like the plague. They have nightmares about spreadsheets and never being able to buy anything they want again.

If you are one of those people, please bear with me. I think I can help you flip the mental switch on your ideas about budgets.

If you, on the other hand, are like me and have always used a budget, also keep reading. I am going to share some of my tried and true ideas for budgeting that you may find useful.

What Is A Budget?

A budget is nothing more than a plan for allocating money. That’s it. Typically, people keep a budget so that they do not overspend on non-essentials and have plenty of money to pay for necessities like the rent, electricity, and food.

Why Do People Resist Using A Budget?

I think most people who avoid budgeting do so for the following reasons:

They associate budgets with restrictions. They do not like spreadsheets and assume that is the only way to keep a budget. They are afraid of what they might learn about their spending habits. They are afraid of what they might learn about their income. They think it will take too much time and effort.

Why I Love A Good Budget

I make better decisions when I know exactly how much money I have. It gives me the freedom to spend freely without fear of running out of money for necessities. A good budget is flexible and can adjust to fluctuations in expenses and income. Knowledge is power. Plus, I do like spreadsheets — Sorry, but it’s true.

Basic Tips For Making Any Type of Budget Work

I will get into various examples of how to “do” budgeting in a moment. But first, I want to cover some tips that will help you budget successfully no matter which method you use.

Focus on freedom, not restrictions. Your mindset is key to being able to live within the budget you set for yourself. Budgets help you spend without guilt or fear while allowing you to pay for basic needs. They also free you from constant decision-making. Once you have made your decision on how to spend your money for the month, you can quit thinking about it. Build in a buffer. Every month, I have a six hundred dollar buffer built into my budget. If I need it for an unexpected expense (new tires, friend’s birthday, job interview dress) it’s there. If I don’t need it, I can choose to apply it to the next month’s budget, put it in my savings, or blow it. If that’s not freedom from worry, I don’t know what is. Be flexible. Many years ago, I used to have dozens of lines in my budget thinking that if I could think of every possible expense scenario I would have more control over my money. I was wrong. The categories were cumbersome and restrictive. I felt horrible about myself if I used all the money for eating out in two weeks and I would borrow from other categories. Then I decided to just lump all my personal expenses into one big category and give myself a thousand dollars a month to spend. I have never gone over budget and usually have plenty left over at the end of the month for next month’s expenses. This might be obvious, but the first thing you need to do is make sure that you have enough income to pay all of your expenses on a weekly or monthly basis. All of them. Even the ones you don’t think about like running to Starbucks twice a week. Without taking this first step, you will end up relying on credit cards to make ends meet and ultimately any budget will be doomed to fail as the credit card expenses and fees multiply. If you don’t have adequate income, a second job or major life change (move in with mom and dad?) is in order.

Different Ways To Budget

There are as many different ways to plan for spending your money as there are ways to make it. If you have been turned off by budgets in the past, it may just be because you haven’t found a way that works for you. Here are some ideas that I or people I know have tried:

Old-fashioned Money Jar/Envelope Method

This is a classic and a favorite with teens, young adults, or those individuals who make most of their money in tips or get paid in cash. It requires no daily tracking. No spreadsheets. The downside is that keeping your money laying around in cash is risky.

Make individual envelopes/jars labeled with “Expense Type” and “Dollar Amount”. For example you may have an envelope labeled “Rent $500.00”. You could have 10 envelopes or 2. Your choice. Decide on whether you will budget weekly or monthly. Fill up each envelope with the specified amount as you make it and then set aside. When you have an expense in a given expense category, go to the envelope with that label and pay your expense. Done.

Bank Account App

This is basically the electronic version of the money envelope method. It requires no daily tracking but can be easily accessed multiple times a day with your phone. It is especially useful for people with a limited number of categories of expenses. For these reasons, it is a favorite of my sixteen-year-old daughter who only has to worry about car expenses, food, and savings.

Open a bank account that allows for a package of separate but linked accounts. Virtual Wallet by PNC Bank is an example that both my daughter and I use. Virtual Wallet provides three separate accounts in one, a main checking account, a reserve checking account, and a savings account. Rename the accounts according to your expense categories. The main checking account is the default account where your paycheck or other deposits will start. From there you can allocate the amount you would like in each of your other accounts. For example, when my daughter gets paid, she immediately determines how much she will need to pay necessary car expenses and transfers that money into a separate account in her Virtual Wallet. Then she determines how much she needs for personal spending and leaves that in the main account. The remainder goes into her savings. There are limits to how many times per month you can withdraw your money from the reserve and savings accounts so ensure that you name the accounts accordingly. In other words, make sure that the most frequent expense is paid out of your main checking account.

Handwritten Budget

Some people find that writing out their budget by hand is more useful on a daily basis than using a spreadsheet. The notebook and pencil can just be sitting on the desk whenever you need to jot down an expense. I actually use a combination of spreadsheet and handwritten budgets. My spreadsheet is for planning on a monthly basis and the handwritten budgets helps me keep track of spending my “extra” money. (More on that under Spreadsheet Budget). A handwritten budget requires that you keep up with receipts or debit card expenditures on a daily or near daily basis.

Decide on the time frame for your expenses. While a monthly budget is most common because many expenses like electricity, water, and mortgages are paid on a monthly basis, many people find it more practical to track by the paycheck. The first line of your budget should be your income for the designated time period. Each subsequent line will be an expense. List your fixed payments first then proceed to variable expenses like food, gas money, eating out, clothing, etc. These will be estimates of what you believe you generally spend in a month. You will be doing yourself a favor if you overestimate. I also strongly suggest adding a line for “extra” money. This is your buffer. In good months, you won’t need it and can either save it for bad months or spend it guilt free. In bad months, you’ll be glad you have it. Subtract the expenses from your income. Do you have anything left at the end of the month? Are you able to pay all of your fixed expenses? The budget will reveal where you need to cut back and where you can afford to spend more if desired. This is the reason most people don’t budget. They are scared of what they might find. But trust me, knowledge is the first step in fixing the problem. At this point, you may either need to think about how you could either earn more money or cut down on expenses. Or you may be within budget and ready to go. This next step is the hardest to maintain. You must manually track your expenses to ensure you are not overspending in any one area. I find it helpful to sit down at the end of each day, pull up my account on my phone and subtract my expenses. Some people like my husband keep a stack of receipts in their wallet and do this weekly. I don’t because I can easily overspend in a week’s time. Do what works for your personality.

Spreadsheet Budget

The spreadsheet budget is simply an electronic version of the handwritten budget except that the spreadsheet will do the math for you using some simple spreadsheet formulas. You still start with your income, proceed to fixed expenses, and end with variable expenses and your buffer.

Not only will you be able to run a vertical total of your expenses, you can track how much you are spending in each category with the use of horizontal totals. Personally, I got annoyed with going into my spreadsheet each day and tracking the non-fixed expenses so I started using a handwritten budget specifically for those expenses. Here is an example.

Photo Courtesy of Author

The Credit Card Limit Budget

I used this method of budgeting for convenience for many years and it can work if you follow two important rules: you use your income to pay the balance in full every month and you acquire a credit card with a limit that is at or below your monthly income level. Risky for those with low levels of spending discipline or unreliable income streams.

Acquire a credit card with a points system that has a limit matching or below your monthly budget. Pay for all of your expenses with the card. This provides extreme convenience and does not require remembering to document expenditures. Some expenses, like rent, may not be suitable for credit card payment. At the end of the month, use your income to pay the card in full. Cash in points and get free money for just paying your regular bills.

A budget can be a great planning tool for your financial life. It can help you identify how you use your money and harness the power of that knowledge to get the most out of your income and your life. Budgeting can help you identify unnecessary expenses and allow you to save for important events.

I just love the feeling of deleting a line in my budget as I eliminate expenses and pay off credit cards. Deleting the student loan line in my budget was a thrill for me a few months ago. What used to be a student loan is transformed into savings or a house fund. It’s a visual validation of progress.

I’d love to hear from anyone with a great budget hack or tool.