I've been having a lot of money conversations with my friends lately. It seems that the older we get the more we feel haunted by past money mistakes and worry about funding our futures. When you get your first job out of college, you're less concerned about paying off your student loans and credit card debt as you are with enjoying the new lifestyle your job affords you. But I've learned that living debt free is a lot nicer than buying nice things and I've definitely had to learn that the hard way.
Growing up, we never had a lot of money. So naturally when I grew up and started making my own money, I hadn't properly learned how to budget, save, and invest and I just wanted to buy nice things. I've been living paycheck to paycheck for years because I graduated college with over 40k in student loans and over 10k in credit card debt. I also may have a slight shopping addiction. While it's fine to buy new things, it's not fine to continually put things on your credit card that you can't afford especially when you’re already carrying a really high balance. This debt will quickly catch up to you and try to drown you. Especially if you're also paying off student loans and paying rent, and trying to buy groceries etc. But aside from being able to pay your all of your bills and get rid of debt, you have to be thinking about your future. Do you want to be able to retire early, or retire at all? Well then it's not enough to be putting money into a savings account for you every month. You have to make your money work for you by investing as well.
I know all of this is scary and overwhelming, because I'm right there with you learning about all of this. But the fact is if you don't pay attention to your money now in your twenties you will carry those bad money habits and debt into your 30's and who wants that?
I have made tons of money mistakes in the past that I am now working to correct. I always want my blog to be a place of complete transparency, so I am going to start sharing with you my debt annihillation process and all the personal finance mumbo-jumbo I learn along the way, starting with building (and sticking to) a monthly budget.
So let's start with the scary stuff. This is the "where is my money going" stuff. In order to create a budget, you have to know where you’re money is going first. For the past few months I have been tracking my income and expenditures in a google doc and as you can see below a disproportionate amount of my income is going to paying off debts. Like more of my money goes to paying off debt than to my rent. That is insane, and also money that I could be investing....and lets be real, shopping with, traveling with etc.
Once you know where your money is going, you can create a monthly budget. It took me a while to learn how to budget, and a whole lot of trial and error with various budgeting methods. There are plenty of tools out there do this for you digitally, but I've found that I don't pay attention to it after I've set the budgets and linked my accounts (specifically in Mint). So for me, the best method was similar to the old checkbook balancing method.
I set aside time on Saturday mornings to go through my expenses from the week, and categorize them. I log them as the day they came out of my account, not necessarily the day I actually spend the money (pending vs confirmed expense). Ideally I would do this daily but let’s be real I’m not superwoman, so once a week is fine for me but I do check in a few times week in case I forgot about an auto debiting bill.
Once you see where your money is going, you can decide where you could stop spending so much and add that money to your debt snowball. Then you create your categories for spending. The real key is sticking to those budgets.
So if you're ready to start creating your own budget, I’ve put together a template for you here.
Instructions for use:
1. Make a copy of the google doc for your google drive.
2. Hide any sheets you don’t need (I.e. months already passed)
3. Fill out your expenses section first.
4. Then set budgets for all recurring expenses that stay generally the same (I.e. Rent, utilities, phone bill, student loans)
5. Organize your expenses categories alphabetically so you can get the sum of each category easily.
6. Find out how much you’re spending per category and set budgets for next month where you can cut back on expenses such as eating out, shopping, entertainment, etc. and reallocate that money to paying down debt.
Next week we will talk about budgeting for groceries so you're not spending your whole paycheck eating out. Do you have any budgeting tips? Tell me your best tips in the comment below.