Personal Finance

The mix of technology and personal finance. Tips, news, tools, and more to help people become more “account”able to their finances.

Budget Badass

Why budget?

How many times a month do you think about your money supply?

And how many times do you go online to check your balance, or how many times do you decide not to out of fear?

It’s time to get organized with your spending. You may not think of it as a worthwhile effort, but ask anyone who tracks their expenses diligently, and they’ll tell you how much money they saved by doing it.

It’s not hard either. We’ve all heard of Mint¬†and it’s myriad of flexible features. I’m all for technology, but call me old school on this one – I use my own custom excel sheet, and manually type in each one of my expenses.

If that manual effort turned you off, and you’ve already tried ‘budgetting’ yourself using Mint, then you’re already up crap creek.

I’m a fan of the manual inputs because I get a better feel for my spending patterns and habits. I feel genuine joy when I’m done typing and realize I have a savings surplus; and additional motivation when I realize I’ve gone over my limits.

When I see the same numbers on my mobile Mint app, it’s more like a corporate CEO receiving a green and red expense report – it’s good or bad for just a second and then it’s onward and upward to other things. You can still reach the same conclusion, but the effect it has it far greater when you’ve invested just 10 minutes a week into the data you’re trying to understand and conquer.

How to do it:

1. Use mint to find all of your transactions. This should give you an idea for how much you spend on groceries, utilities or gas each month. You can use their pre-determined categories or create your own to analyze your spend data. Or you can start off with an approximation and rely on fine-tuning your limits later.

2. Create 2 lists of spending categories.

One is for static spends, those which do not change month to month.

Example: rent, health insurance and car insurance premiums, car payments, phone bills and loan payments

The other is for dynamic spends, those that vary month to month and that you have relative control over.

Example: gas, groceries, pet food, going-out funds

3. Assign a limit to each of your categories. Static spend should be easy. Estimate your dynamic limits. Total up each list, and what you have is your monthly spend. For some people it may be helpful to have a weekly spend as well.

4. Calculate your monthly or weekly income, and then all of the sudden you can see if

a. You spend more than you make

b. How much you can potentially save per month

c. How long it will take you to reach a certain savings goal; for instance, if you want to swim in a cage with great white sharks, how long do I need to stick to my budget before I have the necessary $1,000?

At this point you can go hog wild over tickers and breakdowns and graphs that dissect your data. I like to calculate the plan versus actual spend for each of my individual categories to see if I spent too much on going out at the bars or buying concert tickets.

I also have a timeline going about 6 months into the future. And every week I track where my bank account balance is versus what is should be. It’s a motivating glimpse into what kind of money I can potentially have in just 6 months – and it makes it a whole lot easier to not stress about the funds when I can see myself acquiring them every week.

The one catch is that you must input all of your expenses in order to actually reap the benefits of successful budgeting. But doing so has a multi-tiered effect, with the outcome looking something like this:

 

Totally worth it, right?

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