I feel like finances is one of those categories that ebb and flow throughout our lives.
Sometimes, we’ve got a plush job and our lifestyle hasn’t yet caught up to our salary so we’ve got lots of financial margin, and then suddenly, a few months later we find ourselves in financial distress, whether we’ve lost that job or just weren't paying enough attention to our growing spending habits.
Because, let’s face it, we’re human, and it’s hard to always be diligent about how much we're spending. This fact may explain why:
Saving money is on the top two list of New Year's resolutions. Only some form of "Lose Weight and Get in Shape" eclipses the number of resolutions made to save money.
So, if your finances are part of your 2020 goals, then you're reading the right post.
We're going to walk through a few of the biggies to help you develop a discipline of tracking your finances.
Don't worry, if you think of tracking finances more like a game of Monopoly or Risk or chess, it stops feeling like a chore and starts feeling more like a game.
So, let's get started.
I feel like so many people have an aversion to this goal because it involves something perceived as a four-letter word: budget.
And, nobody wants to think about living on a budget because it sounds so constrictive.
I may be in a class by myself, but I really think the biggest hurdle for getting finances under control is overcoming the mentality of ‘living on a budget’.
So, instead, I’ve started thinking in terms of ‘creating margin in my finances’.
I'm playing the long game here both personally and with my business finances, and margin is a good thing because, let's face it, none of us have as much control over any aspect of our lives as we like to believe.
There's no way to get around sitting down and figuring out where your money is going.
But, it CAN feel like a game or at the very least less like a chore.
Just find a comfy chair, turn on your favorite non-distracting jams and make yourself a cup of coffee or tea before settling down and pulling the last three months of your expenses into an Excel file or app (this site offers several great options and Trello is another option).
If you’re doing this old school like me and using Excel, you’ll have to manually classify each expense into buckets. For me, that looks something like this:
- Household expenses – include rent/mortgage, all utilities, insurance, and everything to keep up the household from cleaning supplies to sprinkler parts here
- Car expenses - gas, car insurance, car loan (may fall under personal if you're couples budgeting and the car isn't a family car or is much higher priced than the second car)
- Pets – vet bills, daycare, dog food, dog toys, etc.
- Eating out
- Charitable contributions
- Vacation – dog boarding falls into this category since I usually only board my doggies when I’m on vacation
- Personal – this includes clothing, jewelry, knick knacks, salon services, massage/acupuncture visits, the fancy car I thought I had to have that one time, and every other necessary and unnecessary thing I buy for myself
You’ll notice from this list that those are pretty big buckets.
I try not to make too many buckets because I feel like at some point it becomes meaningless to keep splitting up expenses into buckets and doesn’t really help me achieve my goal of reducing expenses. A good target number of buckets is 12 or less (I've got 10 listed above).
If you need more than that, take a look and really evaluate your buckets - remember, these are only expense buckets. We're not tracking investments right now, we just want to know where we're SPENDING our money.
When I lived in a state where I couldn’t buy alcohol at the grocery store, I had one more bucket for my wine habit, but aside from that, I’ve been able to pretty well stick to the buckets above.
If you have kids, you’ll need one more bucket for your kiddos.
And, if you're paying off debt of any sort (student loans, credit card debt, etc.), it's helpful to have a bucket for each type of debt and possibly even a bucket for every credit card you carry debt on (Dave Ramsey style cause you want to pay off that highest interest debt account first).
If you have debt, you may wind up with more than 12 buckets.
After highlighting each expense in my Excel file with the color associated with the bucket, I total up all the expenses for that bucket and compare how much I spent this month vs. last month.
Then I ask a few questions:
- Am I spending more in any category?
- Am I spending less in any category?
- Am I spending more money overall this month than last month?
If the answer to any question 1 thru 3 is Yes, I ask myself ‘Why’?
I know it sounds kind of corny, but it helps to say this out loud AND write it down.
I, honestly, like doing both.
Why should you verbally say why you are spending more or less?
I don't know about you, but for me, saying something in my head sounds one way, but when I'm forced to say it out loud, a lot of times I call myself out - "You know that's not a good enough reason, right?"
Yes, part of this whole process is teaching ourselves to think more logically about what we're spending money on, or rather, to align the emotional side of our brain with the logical side of our brain, and so it helps to talk through the reasons why out loud.
Writing serves the same purpose. You can type or write, either is fine. And, seriously, this is just another way to get your brain to realize a problem on an emotional level.
Saying it out loud and writing it down means that I hear my reasoning for WHY I'm spending more (or less) money and I also see my reasoning for WHY I'm spending more (or less) money.
4. Can I afford to keep spending this amount in each category?
5. Do I want to keep spending this amount in each category?
6. If the answer to question 4 or 5 is No, then I take a look at where I can cut my expenses.
Of course, the easiest buckets to cut are usually eating out, vacation, and personal.
But, it’s usually pretty easy to cut expenses across all categories with the possible exception of household expenses (unless you move or decide to get a roommate).
Switching up WHERE we buy from
Yeah, I want to be more socially responsible and wear eco-friendly brands that practice ethical sourcing, but those brands usually cost more than other brands.
Buy Second Hand
Enter Poshmark. I haven’t bought a new pair of pants or shorts in the past 3 years. All my pants and shorts come from Poshmark.
Shirts are a different story mostly because I don’t have any favorite shirt brands and cut and fit differences make it nearly impossible to buy without trying first.
Fortunately, I have a sister who is about my size, and she gives me first dibs at the shirts she’s tired of.
If you don’t have a sibling who’s your same size or wears your same style clothing, you can still shop your girlfriends’ closet, and I love having a twice-yearly clothing exchange party to freshen up my wardrobe.
I implemented quite a few of these practices back when I didn’t have much "disposable income", and those practices have stuck.
The beauty of these tactics are, you ARE being eco-friendly because you are not buying new. You're also saving money by participating in a clothing swap or by buying second hand.
Pay with Cash
Pay with cash when you go shopping for clothes, shoes, or accessories.
Rearranging your income
This concept is widely lauded among financial advisors, and it’s based on the principle of “If you don’t see it, you won’t spend it.”
Before we launch into this, there are a few things you need to know.
1. How much money you have to spend in a month/year to make ends meet.
This is the sum total of:
- all utilities
- debt (student loans and credit cards)
- medical expenses
- personal upkeep (limited to necessities to keep a job and some semblance of hygiene - razors, contact lens solution, hair cuts are included, but hair color is NOT included)
2. How much money you currently spend per month/year
This includes ALL expenses, the sum total of ALL buckets (eating out, vacation fund, personal expenses are included here in addition to the other "necessity" buckets).
3. How much taxes you’ll owe
4. How much money is withheld from your paycheck to cover social security, insurance, etc. – excluding all voluntary deductions like retirement
Then, IF your paycheck allows it, max out every savings account you can starting with these two.
- Max out your company match retirement.
- Max out your savings.
How do you know if your paycheck allows you to save?
When you add 2+3+4 above, that number is less than your gross pay per month (amount you earn before taxes, social security, etc. is subtracted from your paycheck).
If 2+3+4 is more than your paycheck, then add 1+3+4.
If 1+3+4 is still more than your gross pay per month, then either you need to reduce your monthly expenses or you need to get a better paying (or a second) job.
Assuming you don’t need to make a career change and you’re spending less than you earn, then max out your retirement (if possible, put in at least as much as your company will match) AND also start having money deposited into savings accounts every time you get paid.
What if I don't currently have a savings or retirement account?
The easiest way to figure out how much you can afford to save is to start diverting money into savings every time you get paid.
The absolute easiest way to do this is through auto-deposit at your work.
That way, if you aren't paid on a set day, you don't risk having overdrawing from your checking account.
Choose a percentage of your net pay and set up an auto-deposit into your savings account.
Your net pay is the amount you "bring home" each paycheck, which equals your gross pay after taxes, Social Security, Medicare, etc. are withheld.
You can choose any percentage you want.
Let's say you bring home $1000 per paycheck and you get paid every other week. You choose to have 1% auto-deposited into a savings account.
That's $10 per paycheck diverted directly to a savings account.
If you're doing okay with less money in your checking account, increase the amount that's being auto-deposited by 1% of your net pay.
So, now you are depositing 2% of your net pay ($20 per paycheck) directly to a savings account.
Month 5, 7, and 9:
As long as you're managing to make ends meet, then every two months, boost the amount you're putting into savings by 1% of your net pay until you hit 5% of your net pay per paycheck ($50 per paycheck).
Time to start that retirement account through your work.
Instead of depositing that 5% per paycheck to your savings account, you're going to deposit it directly to your retirement account.
AND, you're going to reduce the amount that you're depositing to your savings account to 1%. What does this mean?
It means you've got 5% ($50) per paycheck headed to a retirement fund and 1% ($10) per paycheck headed to a savings account.
Even if you don't make any changes in the second year and just maintain a savings rate of $50 per paycheck to your retirement fund and $10 per paycheck to your savings account, that's $1300 per year in retirement and $260 per year into a savings account.
If your company offers a retirement match, that's even more money into your retirement plan.
While I'm not a financial planner, accountant, or financial advisor, I'd say 5% net retirement and 1% net savings is a good goal until you get all your credit card debts (and any other high interest debts) paid off completely.
If you're there already, you can keep on increasing the percent you're saving as long as you're making ends meet financially. You can choose whatever goal you like, and I'm going to throw one out there for you to target:
10% of your GROSS paycheck (before FICA and other deductions are made) to a retirement plan and 2.5% to 10% of your GROSS paycheck to a savings account (may be split across several savings accounts that you earmark for different purposes such as "Home Repairs or Home Purchase Fund", "Wedding Fund", "Vacation Fund", "Other").
The Joint Account
Alright, this can be a touchy subject. My husband and I have always, yes ALWAYS had our own separate checking accounts and a single joint account.
We’ve been married for 11 years and have never once had an argument over money. That doesn’t mean we haven’t talked about money. That doesn’t mean we haven’t sat down together to build out a budget.
It does mean I have never once heard him say “I can’t believe you spend so much money on that.”
It also means he can buy whatever toy he wants whenever he wants it without checking in.
How do we determine what expenses are paid from the joint account vs. our personal accounts?
Personal expenses are paid from our personal accounts, and everything else is paid from our joint account.
Personal expenses include new vehicles. Joint expenses include the family car (aka the dog hauler).
Personal expenses include my massage and acupuncture habits. Joint expenses include medically necessary surgeries.
How do we decide how much money we each contribute to the joint account?
We’ve always done this as a percentage of our income. That percentage is determined on the idea that we should both have equally the same amount of money going to our personal accounts each month regardless of which one of us gets paid more.
Here's the breakdown:
Early in our marriage, I was the breadwinner, so I paid a higher percentage of my earnings into the joint account than my husband did so that we each had a comparable amount of money left over for our personal accounts.
So, if I had $150 left over each month in my personal account, he also had $150 left over each month in his personal account.
Nowadays, he’s the breadwinner, so he pays a higher percentage of his earnings into the joint account than I pay, but we both have about the same amount left over in our personal accounts.
We've also been able to set up a joint savings account with the money we don't need each month for expenses. We have two joint savings accounts:
one is earmarked for home repairs (new roof, broken water pipes, and other unforeseen OS events) and the second is earmarked for everything else (vacation fund, unexpected extended family related expenses, unexpected vet bills, etc.)
What I’ve found in 11 years of marriage is that this removes any jealous tendencies towards the other person as it relates to money. There are none of the common excuses:
“You should pay the bills because you make more than I do.”
“I feel like I’m paying more than my fair share to keep us afloat around here.”
“I feel like you’re free loading.”
Also, by maintaining our own personal accounts, we are free to spend that money frivolously if we so desire.
Yep, mad money helps keep us sane.
If there’s one thing we’ve done right... or maybe more right than anything else in our marriage, I REALLY think handling our finances in this way is it.
But, what if I'm really struggling with my expenses
Struggling to maintain a budget when you don't have a lot of margin is tough, but it's NOT impossible. If you want more pointers, sign up for our newsletter below and receive our Curbing Spending Habits E-Guide.
About the Author
Brandy Searcy is an outdoor girl who loves hiking, gardening, bird-watching, and body boarding. Her innate curiosity means she's constantly researching something, and she's likely sharing what she's learned here on the blog.
Nearly obsessive about her skincare, she started developing products to pack with her on day hikes and soon realized her backpacking friends were searching for a portable skincare routine as well, and that's how Rain Organica started.
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