Creating Your Own Budget Style
Now I like this idea of creating your own hybrid style as well. I kind of teased a little bit earlier that I have my own method, and I like to call it the 'No Budget Budget' because who likes the B-word. It's very easy. What I do is I run my cash flow, I then know how much money I have to spend after I have paid all of my bills, put my money away into savings, put money into investments, and then I have a surplus at the end of the month. Again, I'm actually now paying myself a salary which is very helpful. I don't put set restrictions on my money. I don't say this amount goes to groceries, this amount goes to my Metro card in order to get around, I just kind of spend in a way that aligns with my values and how I might be particularly feeling that month, but I do a weekly check-in to make sure that I'm not overspending my money too because, I'll be honest, there have definitely been times early on when I was piloting this kind of program where I would make a purchase the first week of t...
he month, kind of forget about it on my credit card, and then realizing at the end of the month like, "Oh, I overspent what's in my checking account" because I kept seeing this great number forgetting what I had actually spent on my credit card. It's also a time when you can be maybe paying off your credit cards weekly so that your checking account accurately reflects the money that you have left to spend if that's something that's helpful for you. The point is, I don't put really set restrictions into place other than, this is all you have to spend in the month, and if you blow it in the first three weeks and there's nothing left in the final week of the month, it sucks to be you. You just have to deal with it. You can't go out and do anything fun. So, I like this idea of getting to a point where you have that level of flexibility, but I would argue, it's still a budget because you still have cashflow. You still know where your money's going. You still have that kind of understanding happening. Finally, just recognizing that your budgets evolve as life changes. So I got married a couple of months ago and my husband had a very different, not only has a very different relationship with money than I do, but he had a different budgeting style and we're starting to merge our money together and now it's really changing how my budgeting system works because we're now looking at it as a couple. That's why I do come back to this idea that your budget's going to change. I used the envelope system my very first year living in New York and it was awesome. It was so effective for me. It kept me out of debt. It even allowed me to save a little bit of money when I was making only $23, and I felt incredibly in control. That is not a style I would want to be using today especially as I'm combining my life with another person. We have different goals, different needs, and I like having a little bit of flexibility 'cause I'm just financially in a bit of a different place now. So, I do want you to keep evaluating this idea of what you're using right now, might not be the best fit for you and that could be part of the reason it feels restrictive and almost oppressive. So, finding another style, creating a method that works, talking to other people. It could be apps, it could be software. There are so many options out there. Again, personal finance is personal, so find something that is compatible for you and keep pivoting until you do 'cause it really is out there. Now some of you may feel that you're not really sure where to start or that you just want to take back control somehow. So I would challenge you, for the month of, whatever month is coming up, try cash diet and couple it with tracking every penny. See how it feels. See how you react. See where your money is going. Go back and audit and see if you can track any mindless spending that you can then reallocate that money to other goals that you might have 'cause I do want you to kind of analyze that psychological relationship that you have for money, and for some of us using cash really helps. Others it might not, but you gotta give it a whirl in order to find out. Definitely tracking every penny and knowing exactly how and where you're spending your money is one of the best ways to start taking back control. You have questions? Yes.
So if you're trying to get a sense of your money every month, what are the most important numbers to be tracking monthly? Especially for freelance people, too.
Well, for freelancers especially, because you likely have money that you're reinvesting into your business, you need to also have that as a tally and we'll talk a little bit in savings too, but it's nice to have a buffer for your business in addition to your real life. I would say first is just calculating that bare essentials and, if you're a freelancer, I would recommend doing it for both your life and your work. What is it that you need to be paying in order to in your life feed yourself, keep the lights on, pay rent, make sure that all of your debts are paid, all of those very basic needs that we have. Childcare being another one for a lot of people. Then for your business, do you have employees? You need to make sure you're able to pay them. Do you have contractors you're working with? Websites that you might be paying for? Vendors that you have to pay? And what is that bare minimum number. Some of it might be flexible month to month, you might be able to pare down every once in a while if you're having a lean month, but it could be that other people are depending on you as well which is part of the cycle of making sure that you always have enough. So, I would have two different bare minimum monthly numbers and then you can start to build off of that. I think once you have that bare minimum it helps encourage you to be like, "All I need is this, here's the goal" and always be pushing for that goal, and then excess always be keeping into that business account so you can be paying yourself a salary to try to start to stabilize it 'cause I know we're all different, but for me the hardest part of the transition was the volatility. It can be so mentally and emotionally draining and you don't have a backup. In the sense even benefits, you are the boss of everything. You're handling everything yourself. So if you can take that off your mental plate it really helps kind of stabilize everything else in your freelance life. Yes.
I had some questions online. This is from Cat and it goes back to when we were talking about the envelope system. The question is I found that when applying for an apartment, a line of credit, that lenders don't necessarily, and creditors don't like it, when they see low balances on your checking account. So, the question was if you're ending up pulling out money to put them in the envelopes, or just consistently therefore having a lower balance in your checking account, is that something to be concerned about? She says is there any way to meet in the middle if that is the system that works for you?
If that's the system that works for you, I would try to do it digitally because then you can show them the different accounts if a balance is important. A lot of them are also willing to look at savings accounts in addition. So I would consider that as well. Do you have a healthy savings account that you could show as proof of money? They also like to look at pay stubs for proof of income. There are, I think, other ways to navigate that part of your experience. Truthfully, I usually have a low balance on my checking account because I don't like to keep a lot of money in my checking account because there's barely any interest there. So I keep a lot in savings and I guess that would be the other part is then they can also look at savings and other metrics that you're using to prove that you're reliable, and your credit history often plays a role as well.
Another question, how often should do you recommend that people reevaluate the budgeting method that they're using?
As soon as the style that you're using feels like it isn't compatible with you anymore and that could be just a lifestyle shift that's happening, it could be that you are constantly blowing your budget or something is going wrong with your budget every single month it's just doesn't feel like it's actually proving effective, that's when a really good time to reevaluate and see well, maybe I need to try a different style because I can't actually keep to this budget that I keep outlining for myself, so clearly it's not working for me.
Just personally, how much time 'cause I know you said you spend 15 minutes a week just continuing to keep track of things, how much time do you find that it takes people to kind of sit down okay, I'm gonna do this, I'm gonna do this and evaluate their budgets and gather all the information to really start implementing it?
That's a great question. I like the idea of taking a day year to evaluate everything. Even insurance policies, everything that you're paying for, to have this kind of one day reset where you evaluate every single financial product that you're using and your goals and everything you're doing. If that just sounds too overwhelming, split it up into a couple hours over a period of maybe a week. January is often a great time to do this. We almost instinctively feel excited to move forward and be a better version of ourselves. I actually really like and I'll share one of my sister's traditions. She actually writes goals on her birthday as opposed to New Years 'cause it's her start of her New Year, so I actually think that that's also really nice psychological thing to do as well. So maybe tie it to your birthday, maybe tie it to January where everyone else is feeling very motivated for a couple of weeks, but it is good to take one day to really deep dive on everything. Now if you're just focusing on budgeting, some of that depends. I've been spending a lot more than 15 minutes a week in the past couple of months as I start to join my financial life with another person. That's been a lot of us talking back and forth, sitting down and having meetings, I kind of tweak things. We try it for a month, see how it's working, and then recalibrate to keep adjusting. We are not in a flawless system yet, because we're still getting used to what works best for us as a couple. So I feel like you just kind of have to keep touching base. I don't think there is one set amount of time. I will just say that 15 minutes when it was just me by myself doing the 'No Budget Budget' was just a really easy check in. 'Cause I just went, I had a grid, that was every single credit card I owned and all of my bank accounts, and I just went in and I would tally all the amounts owed on my credit cards, auto sum it right there in Excel, and then I would look at the balance on my checking account, subtract, make sure I was still on the right path. So that worked really well for me, but that doesn't necessarily mean that it's the right fit for you.
Kind of referring back to you mentioned your grid on Excel and what not, as we've been speaking I'm wondering, personally myself, I have trouble keeping track both physically and digitally of all my money properties. Whatever that be, statements, past statements, tax documents. I have digital files, I have physical files. Seems like every year in April I revisit them around the middle of the month. What is your strategy for keeping your financial life organized? Is it Excel, maybe some product you found?
I personally really do like spreadsheets. I like having that level of control. There are plenty of people who like online resources. Mint is one a lot of people talk about. Now if you use cash that's not necessarily the best option 'cause you have to still get in there and automate, but that can be really encouraging for some people. YNAB is software for zero sum budgeting, some people find that very helpful for budgeting. Mvelopes, it's just with an 'M', it's just an envelope system method for digital options. There are so many technological solutions. Now when it comes to things like taxes and everything else, all of your forms. Phew, I wish I had a simple solution to that as well. I do keep things backed up on hard drives and I do love a Google doc, and I do love a Google spreadsheet, as well as Excel I have my net-worth tracker that I actually do a net worth update every month. This idea of, you know, total assets minus total liabilities equal your net-worth. I do check in on that monthly because I don't find it discouraging because I like checking in on my investments even if we're not going through a great market at the moment I still find it interesting to track that and it doesn't upset my balance, but that's also because I geek out over this stuff. So, I find that having everything in a grid like that is very, very helpful for me and then I have just kind of separate digital folders for things like my taxes and all of that. Especially with quarterly estimated taxes. I always screen shot and print the confirmation and have a folder that just houses all of that information, but if someone has one seamless solution I would love to hear it because it also is tailoring to how you think and how you work, so that's why I don't feel like necessarily what works best for me is automatically translated to what's gonna be best for everyone else.
I have a question. So with budgeting, I think, when I was listening to you speak, part of it is that not only are there annual expenses, but it's like I don't buy dog food every month, it's like every month and a half maybe and I go to Costco for toilet paper and paper towels or whatever and it's like every three months for some things and four months for others, so when I start thinking about budgeting it becomes a little bit more like challenging in just that I'm like dish soap is every two months but toilet paper id every four months and trying to figure all that out and trying to budget accordingly for it if that makes sense. Do you have any thoughts or suggestions? When you have expenses that are not, if they were monthly I feel like it would be easier, but there just kind of all over the place.
Well, that's one thing I like about the idea of every dollar a job with zero sum budget because, for example, things like household items, cleaning items, something you might go to Costco for. Yeah, that might be a one $300 run that you take once a quarter essentially, but if you're putting $50 aside into that part of the budget every month, you're building a little surplus, so when it does happen you're ready to go. So when I say you zero out your dollars, I'm not saying you spend every single dollar in your account, it's just that every dollar coming in has a job and it's gonna go somewhere. So that way when you're ready, you know, like hey, household items, I'm going to Costco this month, but I know I've got my surplus 'cause every month I've been putting $50 aside. Same with the dog. My dog pretty much had his own banking system, to be totally honest. I like to like separate him from us, so he had his own account. I called it Mosby's savings account so every single time I got paid some of my dollars got assigned to going into his account, so when something came up, if I had to pay for medicine, if I had to take him to the vet, if I had to pay for food, which he is a very spoiled dog with very bougie food that he went through very quickly, it's all there. So, to me, that was an easy way to just have a separate amount pot of money, so when something came up because you're right, it was never consistent. So that was an easy way for me to not feel like it was blowing up my own personal budget. And that's the idea I like of having little buffers. Do you wanna have a checking account just called Costco run? Probably not, that's probably gonna get you into like 20 different checking account land, but it could be lumped into your monthly bills. For instance, in my bills account, every time that we put money to the side, every month I put about I did the annual expenses, and then I tacked on an extra $ to account for medical issues. So if we have to go to the doctors and it was an unexpected visit, or if we have to get blood work done or anything lik that that maybe health insurance won't necessarily cover or we're gonna have to pay some of, I've got a little it of a buffer right there. And it's not necessarily an emergency, but its something $150 can really upset your budget if you're so focused on every single dollar doing this exact thing and I have no wiggle room at all. So that's some of the ways that I account for changes every single month.
And then if you're not sure, like I'm just even like I'm not even sure how much I would put in that for Costco, you know? As far as like so with the every dollar has a job like put it in savings and then be like, oh I put that in savings but then I didn't realize that its actually $25 more than that than I'm spending consistently on these bare essentials. What does that look like I guess?
Well and that's just part of the fact that you have to be flexible as you're learning. I think if you can go back especially if you charged it on your credit card just go back at your last three trips and see how much you tended to spend and average that out, and put that amount of money away every month. I would put it into a general bills account and you can just think, alright this is for rent, utilities, cell phone, insurance, and when I have to go get household items and I'm putting an extra 25, dollars a month, whatever it needs to be into there or for your dog, whatever it needs to be, so you have that level of flexibility.