How To Budget With Precision in 2018
Learning how to budget has already saved me hundreds of dollars. And believe me, I needed it. Last year, I’ve decided to take back control of my finances. Admittedly, I’ve been on a spending spree for the last few years, taking yearly trips both domestic and international.
I’ve splurged heavily on improving my golf game by spending money a new set of clubs, countless training accessories, and playing a round of golf at least 2 times a month.
In addition, I’ve spent money on all the latest tech gadgets, and enjoyed them all while dining out for lunch and dinner 2-3 times a week.
As you can see, I spared no expense living in the moment. Don’t get me wrong, I’ve enjoyed everything that my spending spree has given me.
I have incredible memories I’ve created with Leny, from all our trips, that will last me a lifetime. Fantastic dinners and shows in New York, weekend getaways at 5-star resorts in Palm Desert, and expensive rounds of golf while traveling to Florida and Puerto Rico.
Unfortunately, this no-budget lifestyle has put me into some credit card debt and urgency has kicked me in the butt to find ways to eliminate them as soon as possible.
Start With A Budget
So what am I going to do about it? For starters, I created a simple budget spreadsheet. And for the last three months, I’ve kept a detailed record of every single dollar I’ve spent.
For sure, this was an eye-opener. This would be similar to tracking calories to lose weight, which I’ve done before to lose 20 pounds. But when I applied this same concept to managing my finances, I was rudely awakened. Awakened to the point of starting this blog, Art of Cents.
Creating a budget and finding ways to save and make money is kind of an art form in itself. Obviously, each person and family is different, each with their own unique set of financial circumstances.
I had to find a way stop the financial bleeding and reverse it so that I could be in profit each month, until I’m debt free and eventually, to be set financially.
I’m proud to say that I’ve accomplished 3 months of positive cash flow since implementing my budget strategy.
Below are the strategies and tips I’ve been doing to turn my finances around. Just like a muscle, in order to get stronger, it must be exercised. Doing some of these things will be hard, and failure is sure to happen. But as long as you’re committed and stick with your plan, progress will happen.
Make A Commitment To Change
Why did I get into debt? Because I value living in the moment more than worrying about the financial windfall of my actions.
I spent money like a sugar addict would devour cake. I had lost my discipline, desire and motivation to get out of debt and save money. I went the other direction and put myself into debt.
I used to smoke 2 packs of cigarettes a day for 10 years. I finally quit cold turkey on March 31, 1994, and never smoked another cigarette again. What did I do to make this life-transforming change? I made a commitment to never smoke again.
I channeled this same determination and vowed to change my spending habits. This all started with a commitment to change. And the first action I took was to create a simple budget sheet.
I used the MyFitnessPal app to track my calories, and in 3 months I was able to lose 20 pounds, by eating sensibly and not crash dieting. I lost the weight safely and never once felt deprived of food.
I wanted my experience of financial improvement to feel the same way. I didn’t want to go on a financial “crash diet” by limiting myself of the things I love to do, only to relapse and go on a 3 week trip to Thailand, Japan, and Australia! Ok, that’s a bit overboard, but you get the point.
By deciding to commit to changing and taking immediate action, I set the foundation for improvement that I can follow and track.
Track All Your Expenses
Being in credit card debt doesn’t mean I’m careless with money. I’ve maintained a FICO score of 700 and above for over 20 years. I pay my credit card bills on time, even if I have to send only the minimum amount due, which is a bad, bad idea and here are some reasons why.
With that said, I’ve always tracked my money. I just do it in my head. I have an idea how much is going out and how much I have left over.
Remember my spending spree years? Yep, those decisions I made to spend above my available resources went straight to my credit card.
By tracking every dollar I spend, I’m able to make micro adjustments to my budget and remain on track to reduce my debt and save cash at the same time.
Tracking my expense has motivated me to find more ways to increase my income. One of the first things I did was sign up for Ebates, which is a website that gives you cash back for shopping.
For example, if you click on the link below, sign up and purchase something, I get a referral commission. I think it’s a win/win situation where you can get cash back for buying things you normally would buy, and I would get a small commission for the referral.
Increasing my income would allow me to pay down my credit cards, increase my investment contributions and have an emergency fund. The possibilities are exciting, all because I have a clear picture of what goes out every month.
Identify the Largest Discretionary Expense
I discovered that the largest discretionary monthly expense I incurred was on food. Eating out for lunch and dinner 2-3 times on a weekly basis would sometimes add up to $150 a week! It’s ridiculous, I know. But, on average I would spend around $50 a week just eating out. Not learning how to budget was costing me an extra $2600 a year.
In fact, the Bureau of Labor Statistics reported that in 2016, the average consumer spent $3200 a year dining out. Could you use an extra $266 dollars a month? They also reported that entertainment expenses were $2900 a year.
Speaking of entertainment. My second largest discretionary expense was golf! I typically would play a round of golf a week during the summer, and two times a month from the fall to spring.
With an average cost of $40 for a round of golf, I’d spend $1,400 a year just on green fees. This excludes trips to the driving range, golf balls, and miscellaneous accessories I would buy throughout the year.
Once I clearly identified the discretionary spending that most impacted my finances, I made the necessary changes to curb my spending.
For starter, I immediately starting cooking at home. I grew up cooking, which I learned from my father, who was an incredible cook. But through the years, I grew lazy and settled for eating out for convenience, especially on the weekends.
Once I started meal planning and preparing meals for the weekday and weekends, my finances improved dramatically. Freeing up extra cash means I’m able to put more into paying down my credit card debt.
As for golf, I curbed my addiction to one round a month. I stopped buying premium brand golf balls and practiced my swing at home.
With these changes alone, I’m able to put an extra $100 a month towards credit card debt. If you understand the method of debt snowballing, this is huge.
Dave Ramsey teaches the debt snowball method, and being able to put more money into my smaller credit card debt has accelerated the time to pay it off.
Now it’s your turn. Identify what’s eating into your budget? Make the necessary changes in your lifestyle to limit those high spending activities.
If you have credit card debt, use this calculator to determine when to pay it off. And most importantly, track when all of you money is going. Once you know when it’s going, you can control it.
Set Monthly And Year Goals
It’s super important to set not only monthly financial goals but yearly as well. This is mainly to give you the motivation to keep going and to see if you’re on track.
I admit the first month of tracking my expenses was sheer torture. Not only was I seeing where all my money was going, I had to change my thinking and spending habits at the same time. Change is hard, isn’t it?
But having a goal that I can strive for has kept me motivated. At this time, my primary goal is to be completely free of credit card debt. Next, save 20% or more of my monthly income. And finally, find more ways to make money so I can fully fund my retirement investments.
My simple budget tracker has allowed me to clearly see that this is possible and that I don’t have to be a slave to debt.
Set goals to fit your specific circumstance and develop a plan to accomplish them. First, start with tackling the high expenses that are keeping you from reaching your goals.
Make Constant Tiny Adjustments Along The Way
I had a previous business in the financial industry, and I drafted a business plan to create an agency and legacy that would last generations. Those plans failed the first day I opened business.
It failed because plans are just theory without action. Once you place your budget, spending habits and goals into action, you eventually need to make adjustments along the way to keep you on track.
This is the secret to consistent, measurable progress in your budget. For example, I still love to play golf. But it doesn’t make sense for me to eliminate playing golf until I’m completely debt free.
Denying myself of the things that bring me pleasure would be counterproductive. So instead, I made adjustments to play golf in moderation. Once a month now is my limit. It doesn’t break the bank, and I still get the do the thing I enjoy.
Find the things you love to do that’s costing you money, and do it in moderation. Make tiny adjustments in your budget to accommodate for unplanned events and emergencies because they will happen.
And remember that no budget is perfect. There will be setbacks along the way. But if you continue to track your expenses, focus on your goals, stay committed and be flexible in your plans, success is assured.
If you enjoyed this article, be sure to leave me a comment and share it with your friends. Good luck and have a prosperous 2018.