New Year’s Resolution Reminder!

Today is the (self imposed, entirely made up) deadline for setting up a budget tracking system! This doesn’t mean you have to decide on your whole budget today, this means you are taking the next few months to track where your money goes. Once you have a good idea about how much you spend each month in each category, then it will be a breeze to set up some budget guidelines for yourself.

There are a few ways you can do this. You can set up an account with Mint (my personal favorite. It takes a while to set up, but after that it is basically zero maintenance and they all of your long term tracking for you).

You can make your own spreadsheet (minimal effort to set up, the amount of maintenance depends on how detailed you want to get).

You can even experiment with the cash-only system just by using your best guess and seeing how the money works out. Don’t forget to write down your adjustments so that you can figure out what your trends are.

Pick a tracking system that is easy for you. This is the first step to setting up a budget, and the budget is for you and you alone (or I guess, for you and your partner if you have joint finances). So make it a system that works for you! If setting up a Mint account makes you want to vom, then try another system. Baby steps, I promise it will be worth it in the end!

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New Year’s Budget Revolution Resolution!

The number two resolution for 2014 is to make a budget (right behind weight loss, which I have no advice about other than: stop eating so much ice cream for breakfast).

Hopefully you have already been reading my brilliant blog and are taking all of my amazing advice immediately. Right? Right?!?

If, instead, you have just been reading my brilliant blog and then intending to take my amazing advice at a later date….that’s ok too. But things won’t improve unless you take action, so let’s use New Year’s as an excuse for some action! Yeah! Plus isn’t improving the state of your bank account more appealing than getting up at 5 am in the icy cold tomorrow to run 5 miles? (why the heck do people do that??!)

Here is your New Year’s Budget Revolution Resolution Plan:

1. Set up at least two bank accounts: one for checking and (at least) one for saving. Make sure you aren’t paying any extra fees (because that is NOT a good way to start the New Year). Might I recommend Charles Schwab for checking and Ally or Capital One 360 for savings? Fill out the forms and call the excellent customer service numbers if you need help. This one takes a few days for the paperwork to go through, but it is worth it!

New Year’s Budget Revolution Resolution deadline: January 15. Yeah! Pour yourself a hot toddy, this was the most annoying part of your whole resolution!

2. Set up automatic bill pay for all of your bills. Never pay late fees again! Pat yourself on the back for being a financial whiz kid!

New Year’s Budget Revolution Resolution deadline: January 31.

3. Start tracking your spending. This one is ongoing, but thanks to Mint (or whichever tracking software you use) it should be painless (and if you are like me you will think it is fun to play with the graphs).

New Year’s Budget Revolution Resolution deadline: set up a budget tracking system by February 15.

4. Make your best guess at a budget (based on your spending) and do your best to follow it. Don’t worry if you don’t get it right at first, it is a marathon, not a sprint!

New Year’s Budget Revolution Resolution deadline: make a budget by March 15 (beware the Ides of March!)

5. Start paying off your credit card balance and use automatic bill pay to pay off more than the minimum each month. This will feel awesome! Make a plan and stick to it, and you can beat the system!

New Year’s Budget Revolution Resolution deadline: April 1.

6. Start an emergency fund. Again- marathon, not a sprint. You won’t suddenly wake up with a rainy day fund of savings- this may take a year or two to accomplish. When you start it, have money automatically transfer into your savings and then poof! You have completed step 6 of your Budget Revolution Resolution!

New Year’s Budget Revolution Resolution deadline: April 15 (tax day, boo!)

7. Start investing to earn some sexy compound interest! More information coming soon on where you actually are putting your money when you invest it.

New Year’s Budget Revolution Resolution deadline: May 15.

8. Review your budget and tweak it. In the red? Try slenderizing your spending (stopping eating ice cream for breakfast works here too, your ice cream bill will go down).

New Year’s Budget Revolution Resolution deadline: June 1.

What is this? Just halfway through the year and you are already done with your New Year’s Resolution?!?! You didn’t even have to get up at 5 am in the icy cold to go running? YOU ARE AMAZING!

Obviously some of these items will need updating or monitoring as your finances change in the future, but the hardest part is getting a system set up. Six months of baby steps to set up a system that will lead you on the path to long-term financial confidence- that is an awesome resolution!

Here’s to a financially savvy 2014!

Be Fiscally Flexible Like A Yogi

Probably my number one financial rule in life is that I do NOT like to spend my money on managing money. This means I don’t want to pay for my bank services, I don’t want to pay for my credit card services, and I don’t ever, ever, ever want to pay interest on my credit card.

As you know, I am a fanatic about paying off my credit card because compound interest works both ways, baby. I have never carried a balance.

But this year, I have a fellowship that comes with a significant amount of professional development/travel funding. I get to go on awesome trips (New Orleans, St. Pete, Canary Islands!) but I have to front the money and then I have to wait 6-10 weeks to be reimbursed.

I just can’t afford to front the money, pay off my credit cards and still make rent. So, for this year only, I broke my cardinal rule (sort of).

I signed up for a credit card that allows me to pay no interest on a balance for 14 months. I carry a balance on this credit card, and as soon as I am reimbursed for my travels I pay it right off. I don’t include this credit card in my Mint reporting, because it’s money that is outside of my budget and it is money that I would not be spending if not for this fellowship.

I normally would NEVER advocate for this sort of financial planning, but in this situation I needed more cash flow flexibility. I could really get myself in trouble if I forgot that the money that I am getting reimbursed for has already been spent..so I am very strict with myself, and it has saved me a lot of worry and money-transferring.

Moral of the story: it is ok to break your own rules, as long as they make sense. Be flexible. Try financial yoga!

Budgeting when you use ca$h

I am not a big ca$h user. I like to use Mint to track my spending, so I put almost everything on my credit card and then I pay it off in full every month. I watch Mint like a hawk, so I’m never surprised when my bill comes in because I have been watching my spending and not blindly swiping my credit card.
You might not be like me. You might LOVE carrying ca$h around and you might hate using your credit card. You might have tons of ca$h lying around from that time you robbed a bank, so obviously you should spend that instead of using your credit card. That’s totally smart! But you still need to follow a budget, even if you are a cash user.

Here is one method I have heard suggested for budgeting using cash.

You start each month by taking the amount of money in your budget out in cash. Is your budget $800? Take out exactly $800. Then, divide it up based on your budget categories. I have heard this called “the envelope method” because one way to keep it organized is to carry around a pile of envelopes full of cash with each budget category written on them. You can also buy one of those coupon sorters. Or, you can use paperclips and post-its. Whatever. You pick how to keep it sorted! The point is- if you have spent all of the money in your envelope for groceries, that’s it. You can either borrow from another envelope, or you can put some groceries back on the shelf. You’re breaking the rules if you  use your credit card or take out any more cash (and you’re kind of breaking the rules if you move money from one envelope category to another, but whatever. You are your own boss, here).

I have also heard that this is very effective if you find that you go overboard Christmas shopping. Decide before you shop how much money you are going to spend on Christmas, total, and then how much you are going to spend on each person, and then use the envelope method. This is especially useful at Christmas time because gifts for other people (that you have to pay for all at the same time) are a budget abnormality, and even a budgeting rock star can lose track. This way you have planned ahead, and you won’t have any fiscal regrets in the New Year!

This is also very effective because when you pay with ca$h, you are more aware of how much actual money is leaving your account. When you break a $50, that $50 is never coming back to you. If you have a problem with overspending in general, it is often advised that you switch from swiping credit cards to a ca$h only scheme.

Convinced that budgeting is for everyone, yet?

Budget like a Rock Star

So you are convinced that it is a good idea to make a budget, right? Right!

But how do you start?

Let’s start with the easy part- income. Most people have a fairly steady income and should know how much money is coming in. If you have a variable income, you need to treat it like you treat your spending- use your best guess based on history/upcoming income that you know about, and be conservative. Update it as you learn more.

After you know how much money hits your bank each month, start by getting an idea of where your money is going now. A baseline, if you will. It will probably take a few months for you to get a full picture of your expenses, but don’t let perfection get in the way of planning. Estimate now and then you can adjust as you go. When I got my first job out of grad school, for the first four months my clothes spending was triple what it is now because I needed a full professional wardrobe. Now that I have the staples, I’ve adjusted my budget to reflect my lowered spending and my lowered need for clothes (did I really just say that?! There is no such thing as a lowered need for clothes!)

There are a few ways to go about tracking your spending. While working on this part of your finances, I would recommend relying on debit or credit cards (but don’t use this as an excuse to overspend!) just so that you don’t make yourself crazy trying to figure out where your cash went (or, if you are a diehard cash user….save those receipts!) When it comes to actually following a budget once the amounts have been set there are ways to use cash only and still stay on track- I’ll cover that later.

Method 1: The Worksheet Method

Make your own spreadsheet and fill in your expenses. Pros: You can adjust it to fit your lifestyle. This is good if you have complicated finances or if you mainly use cash, because you will have to manually enter your expenses anyway. Also, you can keep it supersecure by saving it only to your computer. Cons: Pain in the butt. High maintenance, and you really have to be committed. If you suspect this will be too much work for you, don’t do it. Make it easy on yourself to stick to a budget!

Method 2: The Automated Method

Use a personal finance tracking software. I use Mint.com, which is very secure (and pretty awesome), but there are other options out there. Mint works by linking all of your accounts into one website so you can look at your spending, your budgets, your savings goals and your investments all in one place. NICE. Mint automatically uploads your spending and files each purchase into your budget tracker, so you can see how you are doing for each category. Mint also tracks long term trends in spending. It’s pretty great. And there’s an app.

Worried about security? Mint is just as secure as online banking. But more awesome because everything you need is in one place.

Ok, now you know where your money is going. Next, set your budget!

First you need to make a list of the main expenses that come up regularly in your life. Here are examples from my own budget:

  • Rent
  • Utilities
  • Cable/Internet
  • Phone
  • Public Transportation
  • Taxis
  • Emergency fund
  • Restaurants
  • Savings
  • Gym/Fitness
  • Alcohol/Bars
  • Retirement investments
  • Groceries
  • Clothes
  • Charities
  • Haircuts
  • Travel

Next, set target amounts of what you want to spend in each category based on how much you normally spend. Be realistic-  don’t worry about “trimming the fat” just yet. If you usually spend $250 on groceries, don’t suddenly expect your spending to drop to $100 just because you wrote it in the budget. Some items won’t come up every month- I don’t travel every month, but I plan to fly every three to four months, and that is in my budget.

Now, add it up. Is your budget less than your income? Awesome! Book your flight to Vegas, baby! (Or, keep reading this blog so you can learn about some good long term plans for that spare ca$h).

Is your budget more than your income? Still awesome, because now you know where your money is going, and you can make a plan to tweak your spending so that you are living within your means. You are becoming empowered to take charge of your financial life, and that is something to be proud of.

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