It’s the end of the year which means many of us are doing our reflections and goal setting for the new decade. One area I will be focusing on is finances! I’m determined to pay down my student debt and get our household back into savings mode! Unfortunately, I’m not good at a “no spend” and if you’re not either, this is the blog for you!
Today I’ll show you how to budget your finances so you’re actually saving money rather than wondering where it all went! Plus, we’ll look at the science behind financial goal setting, how writing down expenses can really curb your spending and why your brain tells you to spend instead of save!
Curbing the Impulse
Let’s start with a true-but-very-click-batey statistic: Did you know that nearly half of Americans can’t come up with $400 to cover an emergency expense, 𝘸𝘪𝘵𝘩𝘰𝘶𝘵 selling something or borrowing money [according to a study by the Federal Reserve].
YIKES. Why are we SO bad at managing money? The most common problem is that we tend to prioritize current desires over long-term goals. What scientists call “present bias,” often leads us to give into the temptation to spend our money on exciting purchases that provide instant gratification, rather than setting funds aside for a rainy day. Or a trip to the emergency room.⠀⠀⠀⠀⠀⠀⠀⠀⠀
How can you combat that impulse? There are lots of ways, but since we're here to talk planners, you KNOW I'm going to tell you that writing goals down makes you 42% more likely to achieve them. And if you were writing down and tracking your progress on a savings goal, wouldn't you be less likely to make that impulse purchase? Especially if you knew it meant you'd be that much further away from your savings goal?
Of course you would! Now, I'm not suggesting you'll be perfect, we all slip from time to time. But we're less likely to splurge when we are 𝘢𝘤𝘵𝘪𝘷𝘦𝘭𝘺 𝘴𝘢𝘷𝘪𝘯𝘨 for something else.
So whether you write that savings goal down in your Financial Planner, on a page in your bujo, or on a post-it, I encourage you to take some time and write down some savings goals. If you're in the position where you can't cover the $400 medical expense, start there. If you've got that covered already, start thinking bigger. ⠀⠀⠀⠀⠀⠀⠀⠀⠀
Budgeting to Save
It can be hard to consider saving money if you’re not doing a good job of budgeting it. Simply put, if you don’t have any money left over at the end of the month, it’s impossible to save, right? So lets now look at the simple way to balance a budget so you HAVE money leftover at the end of the month to set aside for your savings goals.
If you’ve never budgeted before, I recommend starting with your previous month as a chance to review how you’ve been spending and highlight areas you may be able to better budget for in your next month.
First, add in all forms of income. This may be from a business, your job, bonuses, heck even alimony! It’s good to document all the sources of income you’ve received in the month.
Next, add all your recurring or fixed expenses to the monthly budget page. Think about all the expenses you pay on a monthly basis: electric, rent, loans, phone bills, etc. These are bills you can anticipate, even if the value may change from month to month.
Finally, go through and add all random expenses. Any dinners, gifts, shopping trips, sticker splurges, groceries and coffee runs can be added to your other expense section.
Once you’ve got all these line items written down you can subtotal each section and add it to your final calculations boxes. To find out how much money you do or don’t have leftover, simply subtract all expenses from your income.
If you have more expenses than income, you know you need to make some changes to the way your spending your money. If you have leftover income after your expenses, great job! Go buy some stickers! JUST KIDDING! Save that for your rainy day fund OR use it to knock down some debt!
What if I’m spending more than I’m making?
Deep breaths. I’ve been there too. Heck, that opening statistic tells you that nearly half of America is with you. But the good news is you can make small changes to reduce your spending.
Start by going through your expenses and categorizing what your spending money on. Bust out your multicolored highlighters and highlight each type of expense with a different color! You’ll quickly have a powerful visual of where the money goes each month. Take it a step further and add together the total value of each category.
If you see you’re spending too much on dinners with friends or family, start offering to host pot luck game nights and save some cash that way. If it’s planner supplies, start going through your stash BEFORE you buy something new. I almost always can talk myself out of a new sticker kit if I look through the kits I already have on hand!
Just knowing where you’re spending the bulk of your money can be so powerful in helping you to say no the next time something sparkly comes across your Instagram feed!
Final Financial Thoughts
Budgeting isn’t fun, but it doesn’t have to be painful. I find that using a financial planner on a weekly basis, really keeps my spending in check as I see the progress I’m making towards my savings goals. Of course you can do all the same calculations using a blank sheet of paper or even an excel spreadsheet if you prefer to let a computer do the math for you!
So let 2020 be our year to get our budgets in check! I know in this community we treasure spending and finding cute things to buy, but if you could save just a little bit of that planner money (or maybe you pull it from your coffee budget instead!) what could that do for your life?