I used to cringe when I heard the word budget. It was a reminder that meant I didn’t have as much money as I want, or that I couldn’t afford the shopping spree I always wanted. The truth is those wealthy people always have some type of budget. It may not be a formal spreadsheet or app but they generally have a good sense of how much money is coming in, where it is going each month, and how much is staying with them.
I, on the other hand, sucked at managing my personal finances. I never had a budget or goal I worked towards and didn’t really have any mentors. So I started doing my own research and starting reading personal finance books like most people. If you are reading this article, you may already be disciplined with a budget or need a quick budget hack to get back on track. Regardless of your reasoning for being here, take a comfortable seat, grab a cup of coffee and read on.
What Is A Budget Anyway?
It’s really just a spending list of what’s most important to you financially. If you look at where you spend most of your discretionary money, you will probably have a good sense of where your priorities in life lie. If you don’t like where you are financially, you gotta first decide what your priority needs to be and reassess where you are spending your money. A mental shift needs to happen first before your finances follow. A budget doesn’t have to be a process where you keep all your receipts each day and itemize your spending on a spreadsheet. That’s no fun and I wouldn’t even want to do that.
The reality is, you just got to pick some marker or direction you want to hit, and then make sure you get closer to that goal each month. If this is your first time considering a budget or you have never been the budgeting type, here are a few ways I have budgeted to get out of debt and save. Feel free to use one of these methods or blend them, and make sure to use a method that makes sense for you. As I have started this blog, my methods have shifted between these types depending on what makes sense for me during that time.
Zero-Based Budget
This is the option I used most when I first started budgeting. I started graduate school and knew I needed a plan quickly. I ended up leaving a full-time job as a relationship manager at a bank in order to make a career change into higher education. Eventually, I was able to find two part-time student positions on campus to make the same amount of money as my old job. But having a student position on campus was not guaranteed long-term and I had to reapply each year hoping my departments still had a budget for student workers.
I ended up using what I later found out is called the “Zero-Based” budget. The focus of this budget is to put away a set amount each month from your paycheck and live off the rest. You can decide if you want to spend the money using your debit card or cash. Do what makes sense for your situation. During that time, I was getting paid $20 an hour and worked two 20-hour jobs on campus. I put away $400 each paycheck and lived on the remaining $1,200 for the next two weeks. That way, I knew that whatever cash I had on hand was alright for me to spend.
- Decide on a set amount and put that money aside at the beginning of each paycheck before you start spending money (similar to paying yourself first)
- Live off what is left over until your next paycheck
- If you end up with any money left over by the time you get your next paycheck, put that remaining amount in the same place you put your initial savings
- Repeat with the next paycheck
I ended up using cash instead of the debit card to make sure I didn’t overspend. I found out you spend less when you use cash as your preferred method of payment. When I was using cash, there was something about handing my money over for purchases that made me spend less. Since I could physically see my money leave my hand, it hurt spending it on things I honestly didn’t need.
If you don’t want to pay yourself first or follow this method, you can try this process backward. Spend money without really budgeting for anything and set aside the remaining amount into a savings account when you get your next payday. This usually works if you have an excess of money and already have a good handle on your spending habits. I have never been the type to have money left over so it’s always best for me to pay myself at the beginning of the paycheck cycle rather than waiting for the end.
Multiple Account Budget
This is when you write out a few specific goals and determine how much money you want to designate to this goal each month. This method worked for me for a while when I was working at the bank. As an employee, I was able to open up multiple savings accounts without having to worry about any monthly fees or minimum balances. If you don’t want to have additional checking or savings accounts, another option would be to have an envelope for each goal. Each time you get paid, you can add a small amount of case into each envelope until you reach the amount you need.
I had different savings accounts for each goal or upcoming event. This approach helped since I was saving for multiple events or trips at the same time. It’s a slow and steady approach but always works so long as you stay the course. The only challenge to this approach is time. The sooner I began saving, the less money I had to put aside each month. If I started late, I had to put aside more each month to reach a particular goal minimizing the amount of cash I had for those two weeks.
Here are a few ideas for different checking accounts or envelopes to save for:
- Signature events: an upcoming wedding, along with the expenses for the bachelor party for the groom (personal example from my savings goal)
- Holiday spending every December: I put a small amount aside each month to prepare $1,000 by the beginning of December for holiday gifts
- Short-term major purchase: if you plan on buying a car soon, select how much you want to have saved as a down payment. Same if you wanted to buy a used car. Just calculate the cost of the car and decide how much money to set aside each month. The more you put aside, the faster you can get your car
- Vacation: if you know you want to travel somewhere each year, start putting money aside now each month. You can let it keep growing each month for a really expensive trip or go on multiple small weekend getaways. The longer you save, the better the trip
- Long-term major purchases: if you are planning a wedding or a down payment on a house, just open an account now and start putting money aside. Start with a small amount now just to build momentum
You can have as many or as few accounts/goals as you want. Just make sure to minimize any monthly maintenance fees if you decide to open multiple savings accounts.
The Percentage Budget
Another option is to have a fixed amount or percentage of your income for specific things each month. Think of this as having buckets of money for different things. You can decide what your buckets are and what percentage of your income each one deserves. Here are a few options you can use to help guide you along the way:
- Entertainment bucket: streaming services, eating out, or doing any other leisure activities
- Fixed expenses: things like rent, gym memberships, and other non-negotiable expenses that don’t change each month
- Savings bucket: can be a percentage of the money you want to save to hit a short or long-term goal
I struggled with this method because I wouldn’t spend money in the appropriate buckets each month. I had too much money in one bucket while another bucket of money was always running dry. After that happened to me a few times, I ended up pooling the buckets together and tried to find another type of budget.
Put Everything On Your Credit Card And Pay Your Card In Full Each Month
If you already have credit card debt, this option may not be the best for you. But if you control your spending well and want to take advantage of any potential rewards. Here is one method I used in addition to paying myself first to help hit my financial goals sooner.
Rather than using my debit card or cash for everyday transactions, I used one cash rewards credit card for all my monthly purchases and then paid the balance in full each month. As long as I didn’t carry a balance over to the next month, I received cashback and didn’t pay any interest. There were two benefits to using this method that I love.
Benefit #1
My purchases didn’t pull money out of my checking around right away. This helped when I came across any suspicious charges on my account I didn’t recognize. There have been a few times where I saw an unauthorized charge on my credit card or a vendor accidentally swiped my card twice by mistake. Whatever the reason was, the money in my checking account was always safe since my credit card balance is not directly tied to the cash in my checking account. It doesn’t pull the money out of my account right away as a debit card does. When the charge was on my credit card, I had time to connect with my card company to make sure any issues or charges were corrected before I made a payment.
Benefit #2
Credit cards also provide certain rewards you don’t get when you purchase items using cash or debit cards. Whatever the rewards are, it just makes sense to get rewards from your everyday purchases. Think of all the everyday purchases you are going to make each month. Most people have to drive or get to work some way, pay for food or gas, and probably have to pay a few bills each month. You might as well use a rewards credit card to get some benefits as opposed to using cash or debit cards and getting nothing.
Credit cards have gotten competitive and offer rewards more now than ever before. Some cards offer cashback or miles for flights while others help pay down the principal amount after you hit a certain mark. Whatever the reward is, find one that you like and make sure to pay off that balance each month.
Conclusion
Budgeting doesn’t have to be boring and doesn’t always require a spreadsheet. Sometimes it’s just having priorities on spending with a specific financial goal in mind. It’s that simple. If the extra spending takes away from your goal, don’t spend your money. you can use credit cards, cash, or even a spreadsheet so long as it makes sense for you. It makes no difference so long as you stay disciplined. Try one of these methods, or any combination of the four, so that you can save money and hit your goals without having to skip your morning coffee each day cause skipping your latte each morning will only get you so far.
Do you have any recommendations or budgeting methods you want to share with people? Please share one method you used to get yourself back on track financially.
Helpful Links
- Going Shopping? How You Pay Can Affect How Much You Spend: https://www.consumerreports.org/shopping-retail/how-you-pay-can-affect-how-much-you-spend/
- Cash vs. Credit Card: Which Should I Use?: https://www.ramseysolutions.com/debt/cash-vs-credit-card#:~:text=You%20spend%20less%20when%20you,money%2C%20rather%20than%20present%20money.
- How to Budget Like a Millionaire: https://www.ramseysolutions.com/budgeting/surprising-money-habits-of-millionaires
- What is Zero-Based Budgeting: https://www.nerdwallet.com/article/finance/zero-based-budgeting-explained
- Should You Pay in Cash?: https://www.investopedia.com/articles/pf/08/pay-in-cash.asp