Building good financial habits: budgeting

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.

Building habits

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?

15 thoughts on “Building good financial habits: budgeting

  1. My greatest habit is that I started to write everything down that I purchase. This is my little tip for the beginners as well. Writing everything down made me think the purchase through – do I really need this thing and If I buy it, I have to write it down. Now, I also plan my income beforehand and write everything down in right category while purchasing. :)

  2. Good post!

    I’m tracking my expenses and writing them down to Google Drive file (continuously doing that since the very first day of this year). At the beginning of each month I evaluate how I was doing last month and try to make things better the next one.

    Unfortunately doesn’t work in Estonia and also I’m using Danske as my homebank. SEB seems to have some advantages (Digikassa?) and maybe I will some day substitute Danske with SEB.

    Also I’m using the ‘pay yourself first’ rule (but I would call it something like ‘Postpone my consuming method’). :)

  3. Hey!

    When it comes to (the science of) envelope budgeting, you could give a go at Goodbudget (formerly EEBA – the Easy Envelope Budgeting Assistan) at

    For me, it makes more sense to use the envelope ideology, since it tells where you financially are b e f o r e making a purchase.

    Noting expenses down, bank analytics tools (that they use for individual customer analysis and market segmentation) are for post purchase analysis.

    What I mean by that is, learning that you overspent 300€ last month hurts bad, and you can’t fix it. Being able to see that your envelopes only allow for a maximum expense of 40€, can help make better decisions.

    (Especially when it comes to “should I get this awesome offer for these fabulous shoes (also)!” or “I should take my partner out for a splendid dinner in Balthasar (again)!” etc.)

    The most important, though, is to try both approaches and stick to what works the best!

    As far as banks go, when I turned 26, all the banks I used (Swed, SEB and Danske) struck me with an abundance of funky fees.

    LHV, on the other hand, has a bank transfer fee on 0€, which is kind-of cool, and they also don’t charge for a stock portfolio account (or however it is said in English :) ). The latter one could prove useful when investing …

    And changing a bank isn’t actually as hard as one might think …!

    1. I do think that the envelope system is great for people who lack discipline. On the months that I do overspend it isn’t a huge amount so I don’t have to regret my expenses. For people who do manage to overspend and end up with a balance on their credit cards at least the envelope system is a must.
      Thanks for reminding me though, I turn 26 next year! I should look over the fees that I’m likely to be hit with! My stock portfolio is in LHV for the exact reason that you mentioned, low fees.

  4. Here’s one post that I strongly relate to!
    This is my first year for budgeting, but I’ve kept track of our family expences for couple of years now. I collect the checks and put them to Google Spreadsheet (so can share the stats with my husband). Over the years I’ve developed a template that works for us and divide the expences into different categories (gardening, clothing, food etc) and food classes (beverages, meat etc). So with reviewing my expences, I can review my food habbits.
    This is one reason I don’t like SEB’s Rahapäevik – splitting the check into different categories took too much time or ended with an error message.
    I don’t like automated bill deduction, because paying by myself forces me to review the bill. For example, we learned that Mobiil-ID works over SMS-s abroad. Next time we saved this SMS cost. Have cut down mobile parking, too.
    In addition, I like to keep the money on a deposit, until bill’s due date.

    When it comes to buying books, this was one of my weaknesses, too. Then I developed a habbit that works for me – first I lend the book from library and if I still find it necessary after first read, I try to purchase an epub.

    1. I am impressed! Several years of information gives great data to make future plans! Great work on that!

      I’ve kind of decided that I’m OK with SEB rahapäevik throwing household expenses and food together. I’m just happy it splits up eating out since that’s my main overspending problem.

      I’m confused about the automatic deduction – on most transfers you can set the date, meaning you don’t make the payments too early.

      I do hope to get better with books, sadly a lot of Estonian libraries are very slow in getting new books and once they do then they’re loaned out all the time :(.

  5. Nowadays i just do rough budgeting. Keeping a buffer of 2 months salary on an easy accessible interest free account. If I behave resonsible and don’t waste too much the account generally grows over time. If it doesn’t grow I have done something wrong and have too look closer at the spending but that’s very rare nowadays. A few times a year the buffer may have grown big enough it’s fime for fun :) That is selecting some promising stock to buy. Then I’m back on the 2 months salary level and start the whole thing over again. Of course it’s kind of a waste to have money on an interest free account because inflation is eating it, but it’s very good for the peace of mind to have a buffer. And of course I always have to be careful with what I buy. A latte is ok but then I may look at the beer and the yummy herring sandwiches. At that point I start drooling and the inner fight begins 😮 Most times I win but sometimes I give in :p

    1. How did you come up with the decision to keep a 2 month emergency fund? I sometimes think of increasing mine, but it just hurts my soul to see money just sitting there!

      1. I used to have a three months emergency fund but over time that turned out to be excessive. It really never varied that much. So I decreased it to just two months. One month would probably be optimal but it’s nice to have a little extra just in case something happens. As you say it kind of hurts to see the money sitting there at zero interest but on the other hand it would hurt even more to see the account empty :p

        1. Kudos for safety buffer!
          Man must have it. You never know what can happen. If all your money is tied up in investments, then in case of emergency you will need to liquidate your positions and not always the bid price will be in your favor. He who has a patience and is not flinching because ‘’My fridge yesterday broke down, now I need fast 300 EUR’’ gains the most. In the long run your emergency fund will even bring you ‘’profit’’ as you will be able to stick to your investing game plan.

    1. I hadn’t heard about that! I like that it shows graphs based on the data, most people need to see good visuals to understand what’s happening.

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