Making drastic changes in your life is hard. This is very easily evidenced by how terribly most people manage to fill their New Year’s resolutions. Most promises are just too far optimistic and require changes that aren’t sustainable. One of the key pieces of advice in the land of personal finance is emphasizing the need for having a budget. However, it’s not just all that simple to start keeping a budget and even worse, following a budget! What will get you there in the long run is building sustainable habits step by step so that you don’t feel as if you’re being deprived of anything.
1. Keeping track of where your money goes
There are multiple ways of doing this. There are whole programs for it (Quicken and YNAB come to mind). There are also apps that you can use such as Mint, or you can just make a spreadsheet using Excel or Google Docs. Alternatively you can just also write everything down into a notebook manually to keep track of it. The problem with all these is the amount of time/dedication required to keep track of things. Forget just a few things and you’ll be quite hopelessly lost. It is important to know where your money is going, so there are a few habits to build that help you keep track of it without going insane with bookkeeping.
– Pay for everything by card. A lot of banks run an analysis on your expenses, which means you can get an overview without spending time on the tracking yourself. Some people also use an envelope system (set cash aside for certain categories).
– Set an amount of money as a daily/weekly budget. If you know that your weak spot is spending money on food then just plan to use x amount per week. If you find yourself running short then you’ll know that you’re having issues.
– Automate as much as possible. Rent, cable, internet, phone bill, insurance etc. Most of these can be set as automatic payments meaning that you know when they’re planned (1x month, 1x year) and know how much money they take.
– Plan for bigger purchases in advance so you won’t be surprised by them in a way that destroys your budget. (For example save x amount per month for replacing any appliances that may break.)
– Keep track of any expenses that might bring about fines, extra payments or other extra expenses. (Take your car into maintenance before something really breaks and you start bleeding money.)
2. Staying within your budget’s limits
– Pay yourself first. Transfer money into investments the day you get your pay. If the money isn’t just sitting in your account then you won’t be able to spend it!
– For bigger purchases force yourself into a time-out. There are a lot of suggestions about this – one example being taking an extra day to think for every 100€ that something costs.
– Do research before buying things! Often things are cheaper online, or in some obscure shop you wouldn’t think to check. Waiting for summer/winter/other sales might also save you a lot of money. (Clothes are a great example here.)
– Limit your discretionary spending. It’s completely fine to buy things you enjoy – coffee, candy, etc. However, unless you limit yourself even a bit then you’ll likely end up spending way more than you realize.
My financial habits are a general mix of these suggestions. I transfer a part of my planned investments the day I get paid (it’s taken me a while to get to the point where I can do this every month though). I mostly pay for everything by card and let my bank run the expense analysis for that, but I do have a spreadsheet for my home expenses.
I tend to spend a bit of time to find good deals on things, I quite often end up ordering things online since things in Estonia are unreasonably expensive at times. One of my big weaknesses is spending money on food, so I’ll write about that later. I’ve gotten better with impulse purchases, but I sometimes splurge on books but I’ve gotten a bit better at choosing ones I really want to have for a long time. In the end, small steps lead to great habits and after a while you don’t really need to think about them.
What’s your greatest habit that helps your budget?