The First Step to Budgeting: Track Your Spending
In my last post, I discussed how I rely upon zero-sum budgeting to arrange how my dollars will be spent. Over time I have honed my budget with precision, but when I first started out, I didn’t know what to budget for, because I didn’t know how much I spent.
Sure I knew how much rent was, and I had an idea of other fixed bills (like my cell phone, auto insurance, etc.), but how was I supposed to budget for gas, or spending money, if I wasn’t sure how much I spent on those things? I couldn’t very well predict what to put down for groceries, if I had no idea how much it cost to feed me, and if I was using a zero-sum budget, every other dollar was supposed to be spent/allocated elsewhere. What if I didn’t budget enough grocery money? Would a different bill not get paid so I could use the money for groceries instead? Or would I starve?
Fear not, my friends! I began my budgeting adventure by tracking my spending. There are fantastic websites/apps that can do this for you (Mint, Personal Capital), or you can use an old fashioned spreadsheet. I do all three because I’m weird like that (and people…I really do love budgeting).
I began with Mint. Its free (so is Personal Capital), super user-friendly, and uses different methods of displaying your spending habits (whether it’s graphs, transaction listing, or my favorite: pie charts). You can sync all of your accounts to a single Mint profile, and see your spending across all accounts. For example, I have a few credit cards (that I use responsibly and pay off in full each month!), my checking account, my savings accounts, a joint account with my spouse, some retirement accounts, and some taxable investment accounts. I am able to view the balances and transaction history for all accounts, in one platform. I will note that Personal Capital is more conducive for viewing any of my investment accounts, which is why I added a PC account as I got out of debt and began to amass some savings, however, it is strictly personal preference. Both are free and secure and can help put all of your spending data in one place.
When I initially began tracking my budget, this allowed me to see that I was spending a whopping $600/month on gifts/donations (I really loved to shop for my nephew), about $250/month on shopping for myself and for household items, and $200/month on personal care products/services. I could go on and on about other embarrassingly hefty spending categories, but no need! Already that was about $1000/month on things that I couldn’t remember buying! Things I thought I needed at the time, that I couldn’t do without, but quickly realizing the exhilaration I got out of making those purchases was long gone.
Instead of trying to cut out all extraneous spending cold-turkey, I tapered it down. I initially allocated $250/month on gifts/donations, $100/month on general shopping, and $100/month on personal care. Over time I dropped these numbers to smaller and smaller dollar amounts, and during that process I was really able to ask myself what was a priority to me? If I only had $100 for personal care, do I buy the expensive new face cleanser that swears it will “fix” my skin? Or do I spring for a massage instead? Or do I take a hot bath to pamper myself and instead use the money for some quality make-up? Having to make these choices forced me to be creative, so I could still get what I wanted (in the case of personal care: to be pampered), and through my creativity and substitution methods, I was able to reduce it from a monthly budget item, to a quarterly budget item.
You might find yourself saying “But I don’t spend money on personal care like that. I don’t even wear makeup!” No problem. Maybe your spending is for books. Or entertainment. Or dining out. If you are trying to curb your spending, or pay off some debt, there might be an area that is hogging all your hard-earned money that you aren’t aware of. This is why tracking your spending is so important! Once you have a couple of months of data you can narrow in on what you truly spend, ask yourself if it aligns with your values, if it truly is worth the dollar amount on your monthly bank statement (or Mint profile if you so choose), and if it is, great! Throw it on the budget. If it is not, then great! You now have freed up some of your income to go toward more long-lasting freedoms, like your freedom from debt, or saving up for your future.
By no means am I suggesting you ignore any budget attempts until you have the necessary spending data. Do your best to practice a zero-sum budget with the best information you have offhand. Once you accrue the true, cold, hard, facts from whatever method you use to track your spending, then you can fine-tune your budget to reflect more of what you really value, and you can sprinkle in some long-term goals as budget line items when you are ready.
Of course I understand that everyone is coming from a different place. Some of this may be right up your alley, or this may sound like the worst thing in the world. I am not saying you have to give up everything except basic necessities (unless you want to, of course) and I am not implying I have all the answers. When I started budgeting, I never would have considered not spending my money on most of the things I had been. I just wanted to rein it in a little. Wherever you are in your process, while I strongly advocate for this opportunity to be an eye-opening and mind-opening experience, I also hope this is an opportunity for you to be as gentle with yourself as you can be. There is no wrong way to learn, and there is no such thing as too late.