Budgeting Part 3 of 3: The Squeeze
BUDGETING 101: for people who hate budgeting PART 3/3:
In Budgeting Part 1: Do you need a budget, you decided you were jumping on the bandwagon, getting your act together, and starting to budget like an adult. Then in Budgeting Part 2: How to start a budget, you learned, by limiting the amount of money in your spending account, and prioritizing your goals. But now, you can’t seem to make ends meet, and you just are not sure where all of that discretionary money goes.
Your Next Steps
Recognize why you are budgeting.
Your goals are important and you need to be intentional if you want to achieve them.
This budgeting system works If you put in the work and sacrifice.
There’s no way around it: progress requires efforts outside our comfort zones. But you can do it. The key to being successful with budgeting is being clear on your priorities and making progress towards your short-term goals to keep you motivated. Without a budget, we spend money without intention. Twenty dollars here, eating out often, buying whatever strikes our fancy… robs you of your goals.
Budgeting Tools
You need some visibility into your spending, so that you can understand where you cash is going. The best way to do this is with technology. There are lots of tools available. Don’t get too caught up on the decision, there are pros and cons to them all. Check them out quickly, and pick one. The only way to determine if you will really like it is to try it for a month or two.
What do I use? Tiller.
Tiller offers a free 30 day trial and then it is $59/year.
Setting yourself up for success
After selecting your tool, be prepared to spend some time getting things set up. This is where the work comes in. If things go well, it will take an hour, but it could take as long as 3 to get things “just so”. You will need to link up your spending accounts. And then set up categories, to assign to expenditures, that suit you. Typically there will be a set of standard categories, but if they do not all speak to you, create your own. And delete those that you will not need. After you have the accounts linked, and the categories make sense, go take a break. Great job! You are super close.
Then spend 2-4 hours, and categorize the last month or 2 worth of expenses. Get everything categorized. You will need to be thoughtful of the categories otherwise, you’ll have a Goldilocks problem: If you have too many categories, it will be hard to see major trends in the data. And if you have too few categories, it will be hard to see trends in the data.
analyze your spending trends
Once you are satisfied with the data and categories, it is time to start analyzing the data. Are there obvious areas that you are spending too much on? Typically a nice starting point is on:
Eating out
Groceries
Entertainment
Credit cards
Toys
Technology
slowly squeeze your spending
Once you see a category that seems out of whack, or takes too high a % of the your overall discretionary spending, give yourself a goal. Start by limiting that category to 90% of last months bill.
Eg: you spent $1000 last month on eating out. That constitutes 20% of your discretionary budget and is also equal to the amount you spend on groceries! Start your next month will a goal of $900 ( $225/week).
Repeat that process for each major category that “needs some attention”. Also, shoot for a total goal for how much you need to trim? Perhaps your overall goal is to trim $500. Take off $100 from 5 categories, and you are there.
monitor your progress
The last step is monitoring. Block out a dedicated time each week 15 - 30 minutes, where you spend the time categorizing everything. If you set up the time to create the best categories for your spending, then this will be automated and just require a few adjustments. Each month it would get easier and take less time.
Then acknowledge where you are for the month. If you are over: tighten your belt for the following weeks. If you are on track … Great job.
If you survived the first month, but have not yet reached your savings goal, DON’T FRET!!! You are doing great. Just trim more in categories that are out of whack.
Continue to squeeze until your goals are allocated, and your spending is “under control”. With a little work, some dedication and grit, you will get there. You should start to see good results by month 3 or 4.
Q. IS THERE A PARTICULAR TIME BEST SUITED FOR THE WEEKLY WORK?
A. I suggest some time in the morning, when you are fresh. A perfect time is over coffee on Sunday morning. You also want to allocate your weekly discretionary money on Monday, not Friday.
Q. I AM HAVING TROUBLE SITTING DOWN AND DOING THE WEEKLY WORK. SUGGESTIONS?
A. An accountability partner is always a good idea. Let a friend, mentor, family member know that you are working on this. And you need to have your partner involved in the results. It takes both partners to succeed at this.
Q. By SATURDAY, I’m LOW ON DISCRETIONARY MONEY, And … MY FRIENDS ARE GOING OUT, I DON’T FEEL LIKE MAKING DINNER and I want to go shopping!
A. Yup, budgeting is about prioritizing, which means you will have to sacrifice some. Stop trying to keep up with the Jones’!!
Q. I HAVE BUDGETED DOWN TO THE NUB, AND NOW I HATE MY LIFE BECAUSE I CAN’T HAVE ANY FUN.
A. This is not what you want to happen, because it ultimately leads to you falling off the wagon. You have several options:
1. Get rid of some of your expensive bills, like a brand new German car. Maybe cutting the cord on your cable bill, will help.
2. Cut out some of your monthly subscription services for entertainment (apple music, Netflix, Spotify, Audible, the gym you never use, etc).
3. Is your home too expensive?
4. Were you too fast or ambitious with your expense squeeze?