The challenge with sticking to a budget and making it work usually lies in having a system of organization to help you track and see:
1) what your money plan/strategy is
2) How well you are sticking to that strategy in real time at a glance.
Like most things, simpler is better. With that being said, here are three tips I’ve used in my quest to stop dropping dollars and cents on the ground due to crappy financial organization.
1) Writing it down
This may seem like an obvious step, yet so many people fail to take the time to write down how much money they have to spend in a given category. For example, if I have never written down a monthly budget for groceries, how can I really tell if I spent too much money on groceries this month?
It’s a fairly simple task; just take 30 minutes, sit down and figure out how much you make in a month, then figure out how much you spend in each category.
You’ll find that most of your money goes to fixed debts every month (the amount does not vary): Mortgage, car payment, student loans, credit card debt, etc.
Most people get sloppy in the other categories and this is where you’ll want to focus the majority of your effort. Things like entertainment, which includes drinks with friends, eating out, movies, road trips, etc., and groceries bought at a grocery store. Be honest here and don’t try to sneak in things like alcohol for parties, housewares, cigarettes, electronics. This is just for actual food, paper towels, etc.
Every month, as hard as I try to budget there are always a few surprises that pop up. A car needs to be fixed, something needs to be repaired around the house, or a birthday for a niece or nephew has slipped my mind. That’s why I created a catch-all category for things like this. Every month I have a $75 budget for things like this. Yours may vary but don’t cheat yourself by just cramming unimportant items into this category.
Do the Math
Now that you’ve written everything down you’ll have a good starting point for seeing where your money is actually going. You may be a little high in some categories or a little low in others. That’s OK for now. The point is to get visibility on what’s going on with your finances so you’re not going off of intuition or guestimations. As time goes by you’ll be able to dial in all of your categories with laser like precision. Are you consistently over or under on your entertainment budget? Then this is a great place to take a closer look for creative solutions? Can you buy entertainment items with a coupon? Maybe you can steer toward activities that you like but don’t cost money such as hikes, games, social gatherings, road trips, playing tourist in your own city (local landmarks, mountains and streams are great for this).
Use Real Cash
At some point you may find that it’s extremely challenging to keep track of where you are for each budget, even with programs such as mint or personal capitol. If you find that this is the case, try switching to the envelope system. You don’t have to do this for every category, just your trouble categories. It’s not like you’re going to go over on your mortgage budget or student loan payment. I personally just use the envelope system for my entertainment and miscellaneous categories because they are my problem areas.
The envelope system will also get you back in touch with the cause and effect of spending money that is lost when you just swipe a card. Human beings simply can’t keep track of the math over long periods of time. When you see actual money leave your envelope you’ll start to also do a visual check of how much you have left. This will engage your planning and forecasting skills and you’ll start to be more intentional about the money you spend. In the beginning you’ll have some mis-calculations and surprises. You’ll spend your fund too quickly. This is normal and it’s the whole point of spending real money; so you can see what you’re doing to your budget either consciously or sub consciously and be honest with yourself about what you’re really doing financially.
2) Break out your monthly budget into a weekly amount.
It makes it a lot easier to see how you’re doing on a weekly basis, instead of getting a big surprise three weeks into the month. Try it out and see what you think. Remember, it’s a process, not an event. The longer you practice being real with yourself about your money the more financial discipline you’ll develop.
3) If the idea of carrying around envelopes of money turns you off for whatever reason, there is another option.
I started out with the envelope system and it was just what I needed at the time to get me on track with my spending and challenge me to be more creative in my problem categories. Since then, I’ve upgraded to doing it all on my phone with a list app. Any list app from the google play store will do. The concept is the same, you simply make a list for each of your problem categories. Then within that list, I simply place one note with the budget amount for the month.
Let’s use gasoline as an example. Each and every time I spend money on gas, out comes my phone and I subtract what I spent from my budget. Then I just save that same note and keep updating it all month long until my next budget starts. If I over-spend, I start making negative entries, such as -$16. If you’re not great at doing math in your head, just use the calculator on your phone. Rounding off the change is fine to make it simpler.
Try these tactics out for 1 month and see what you can learn about your spending habits. I know I learned a ton about the ways I try to lie and rationalize spending in certain categories. Be honest and don’t shy away from calling yourself out when you’re making poor spending choices. The simple word “no” goes a long way toward galvanizing your financial fitness.