First, let me say my wife and I make very good money (low 6 figures). I invest 18% into retirement, as well as a good amount into savings (emergency fund) every week. None of my bills are late, we both have good credit scores, and in general dont have issues paying our bills. We dont live extravagantly (although we DO spend way to much eating out lol).
That said, I just absolutely SUCK at budgeting. I mean like, S U C K. I know I could be saving more, and know I could be paying off stuff faster. I just dont know how. HEPL.
I started last year with Mint to get an idea of where our money is going, and that is helpful; however, Id like to find something that basically tells me every payday pay these bills and put this money here. Yes I want my hand held. At least until I get the hang of it.
Ive Googled it, and theres a thousand budgeting softwares/sites out there. Ive also considered making an appointment with a money manager or something.
Again, to reiterate, we arent doing bad financially, and have been very fortunate. But I want to do better. So tell me your tricks/tips/ideas!
A few thoughts:
1. I'd recommend starting small & basic, then growing from there. That way it never gets overwhelming. There is a LOT to learn & do in the world of finance!
2. I'd suggest setting up a basic system that includes identification & tracking. More on that in a minute.
3. If you have debt, Dave Ramsey's "snowball" approach has worked for many people I know.
4. As you get more advanced, look into stuff like FI/ER
5. Get a handle on your expenses as desired, especially food
6. Setup a his & hers allowance system, separate from your bank account
7. Setup savings plans for different things like vacations & expensive toys
To begin with, you don't need anything other than a spreadsheet. Just use Google Sheets, it's free! Let's keep it easy to begin with. Create two tabs in one spreadsheet:
1. Fixed recurring expenses
2. Variable recurring expenses
Fixed recurring expenses are anything that is due on a certain day. Annual car taxes, monthly Netflix bill, etc. This will take some homework. When you're finished, you should have captured a complete list of what is due, when, how much it is, how to login & pay it, etc. For example:
Due Date | Amount | Name | Type | Link | Username | Password | Notes
1st | $10 | Netflix | Service |
www.netflix.com | johndoe | password123 | Auto-pay
5th | $12 | Spotify | Service |
www.spotify.com | johndoe | password123 | Auto-pay
10th | $250 | Car payment | Loan |
www.bankofamerica.com | | johndoe | password123 | Auto-pay
etc.
Some tips:
1. Setup everything you can on auto-pay. Many banks these days offer auto-pay for bills that don't offer that service natively.
2. Set things up to pay early, to account for shifts in calendar, processing time for the payment, etc.
3. Setup a calendar entry to review your list of fixed recurring expenses on the first of the month, to see if anything needs to be added, removed, or modified
4. Keep a $2k buffer in your checking account, which you set to "$0" in your spreadsheet. This is for emergencies & to save you from overdrafts, etc. I have a very simple emergency/rainy-day system: $1k in cash in my bugout bag at home (I've had to evacuate hurricanes & stuff before...it's nice to have cash available for a hotel when the power goes out & card systems are unavailable or something equally crazy happens...it's just insurance), $1k in my savings account, $2k in my checking, $60 cash in each car for emergency gas money, and $20 in my wallet for emergency money (I rarely use cash these days, but sometimes you need it!).
40% of Americans can't cover a $400 expense (which is doable, if you save just $8 a week from your paycheck a week, for a year, instead of going to McDonalds). Just think of all of the government workers who have no paycheck right now & are struggling...you never know what's going to happen. Hopefully nothing, ever, but it pays to be prepared, even if you have to slowly save up to do so!
Variable recurring expenses are a little more difficult. Things like gas, food, and clothing can change dramatically from month to month. You may not drive much this month and save $150 in gas, but maybe you ate out a lot and spent $500 extra over what you normally do. There are a few keys here:
1. Identify your standard variable recurring expenses
2. Setup a target budget (ex. $100 a week on groceries for 2 people)
3. Track your finances for a few weeks to see where your money is going & how much you are spending
There's often a lot of stuff you don't realize is associated with owning & maintaining something. For example, when people hear "car expenses", they say "yeah yeah, car payment & gas". Nope, how about this instead:
1. Car payment (monthly)
2. Car registration (every 2 years)
3. Car emissions testing (every 2 years)
4. Driver's license (every 5 years)
5. Oil changes (as needed)
6. Tire rotations (as needed)
7. Car detailing (as needed; wash, wax, vacuuming, interior detailing, exterior detailing)
8. Gas fuel-ups (as needed)
9. Miscellaneous maintenance expenses (air filter, windshield wipers, windshield fluid, etc.)
10. Miscellaneous unplanned expenses (repair jobs like a flat tire or damaged radiator)
11. Car insurance (monthly)
12. Modifications (typically one-time fees; tint, dashcam, etc.)
13. Town property tax (annually, where I live)
So I don't just have the usual stuff (payment + gas + insurance), but also regular maintenance (oil changes + tire rotations + car washes) & state-specific stuff ($500 proper tax annually + $80 registration every two years + $20 emissions testing every 2 years). Now throw in whatever services you have in your life for other stuff (Hulu, Netflix, Sling, Amazon Prime, etc.), variable expenses (food, A/C & heating for your house, etc.), and everything starts to pile up pretty quickly if left unchecked.
As far as tracking goes, Mint & other tools can help you track, but I found it more effective to just track where my dollars were going manually using another spreadsheet. Nothing difficult...just some column headers for the date, the expense, and the amount, plus a running total formula for the amount tab. As you buy stuff & pay bills, log everything you spent on a daily basis. Every month, you'll see a total of what you spent & have a complete history of what you spent it on. Then you can start splitting out your fixed & variable expenses into your main spreadsheet & start calculating what you typically buy & how much you typically spend. Most people are shocked at how much they really,
actually spend on things, especially stuff like food & fuel. For example, I spend a minimum of $200 a month just in gas for my car, which is ridiculous because that's another car payment for a Honda Civic or something similar, haha. But, I drive a lot, and that's not even a bad month for fuel costs, nor does it include my wife's fuel costs.
Long story short, I have a
system setup to help me manage my finances. It includes a few tools like my Fixed & Variable Expenses spreadsheet, as well as some calendar reminders (review all accounts for anomalies, pay manual bills as required, change passwords on a monthly basis & ensure that 2FA is setup when available, etc.). For a few minute's worth of easy work every night before bed, I can easily stay 100% on top of my finances. I setup my system to prohibit over-spending, so I never get in trouble. A quick blurb on that:
1. I have a bank account for checkings & savings
2. I have a his & hers AMEX Serve card, which is basically an allowance card that can be auto-refilled on a weekly basis. This comes out as a Fixed Expense & is "mad money" that we can use for stuff like going out to lunch, buying toys, getting a haircut, whatever. I don't have to check with my wife if I want to use my mad money to buy a stupid tech toy or whatever, and I can buy her a birthday gift without her knowing, which is nice.
3. I have a credit card for all meatspace & Internet purchases, which gets paid off monthly. Nothing goes on my debit card, so that my bank account is as protected as possible.
I save up for as much stuff as possible using a personal layaway system, using Smartypig, which is an online bank account that can do auto-withdrawls from your checking account on a scheduled basis. I do this for vacations, expensive toys, large fees (ex. my $500/yr car property tax = $10 per week recurring withdrawl in my Fixed Expenses spreadsheet tab), etc. One such system I use is the "new every 2" concept, where I save up $2k every two years to spend on a hot new computer setup. $20 a week for two years = $2,080, plus 1.75% APY at the moment. Normally I'd balk at dropping two g's on a computer setup, but with this approach, I only ever miss pizza money from my paycheck on a weekly basis, no biggie at this point in my life. I never have to think about this system & I get a new computer every two years, win/win!
I don't care if I suddenly got a windfall & became a millionaire, I'd still track & manage my finances like this because I like the control, I like the results, and I like the personal accountability. Because I take the approach of using checklists via calendar reminders & automating my system as much as possible, and also doing my best to live below my means outside of "allowed" debt (i.e. reasonable house/car/education/medical expenses), I have fairly low self-induced financial stress in my life. I know where my money is going, I know
exactly what I'm spending it on, I can instantly see all of my bills & budget "buckets" for different expenses...it's just a non-issue. Granted, I am fortunate to have a decent-paying job & also
extremely fortunate that I haven't gotten whacked with something like crazy medical expenses, but at the end of the day, all I can really do is manage my income to the best of my abilities by living below my means & setting up a system to support that. The one defining rule of personal finance is "you can buy anything you can responsibly afford", so if you're a multi-millionaire & can afford a $300k Ferrari, more power to you, as long as you're not putting yourself in debt & your family in the hurt locker by doing so!
