This week we will take the time to review our expenditures. So far we have set up budget categories and reviewed our software options, took note of our bills paid monthly and we planned for irregular expenses. I’m not going to tell you that the last step is to review your expenditures – because the budget is an ongoing process that is never really done. But the more you do it, the more automatic it will become, and the less you will need to stress on it over time.
The first couple of months that you write out your budget, you will mostly just be tracking your expenses. You don’t know how much you are spending in each category until you track it, and you may be shocked by how much you are spending in some categories, and other categories are going to be more fixed – like your rent or mortgage.
Don’t get me wrong, I don’t enjoy tracking the budget so that I can penny pinch every ounce of enjoyment out of my life – and that’s not what I want for you either. My goal is to make sure that the amounts that I spend match what I have outlined as my priority for my life.
My husband and I have determined that our number one priority is security. Financial security that will ultimately lead to financial freedom comes before all else in our ‘want’ list. First and foremost, this was food, utilities, and basic shelter, clothing, and transportation. This also includes saving for retirement, paying our insurance premiums – home owners’ auto insurance, health insurance, life insurance and disability insurance. This includes our rainy day fund and our emergency fund, our cushion in our checking account, as well as paying our monthly bills on time.
Our next priority is our kids. Kids come first before all of our own wants and desires. This included their daily needs, their safety and security, their clothing, their extracurricular activities, and future needs – such as planning ahead for their orthodontic care, educational needs all the way down to their next birthdays. Anything that was centered around our kids came immediately after the safety and security of our family unit as a whole. We brought them into this world, they didn’t ask to be here – we were wholly and totally responsible for giving them all that they need to survive and then thrive.
When it comes to kids, there is an endless array of what you can provide for them. I’m not talking about all of their wants – but I am talking all of their needs and then all of the things that we determined that we want to be able to provide for them. For us, we wanted to offer them each orthodontic care if they wanted/needed it, a 50/50 match on their first vehicle up to $2,000, whatever extracurricular activities that they chose to pursue limited to one or two at a time, and the educational opportunities of their choosing, and the opportunity to travel in school – from the Washington D.C. trip in eight grade, the field trips to the nearest big city, the group trip for their clubs in high school, and study abroad in college. We decided early on that we value these things over anything materialistic that we could by for ourselves, and so a large sliver of our income was cordoned off to be available for these purposes.
After the safety and security of our family’s well being, and the care and providing of our kids came everything else – lifestyle. Dinners out. Vacations. Cars.
Your car, shelter, clothing, etc is at the most basic level in the bottom segments of the pyramid. When you work your way up to the top portions, you can splurge on more expensive items – after you have fulfilled all the values that are most important to you, security, long term savings, education, and self development. When you have more left over after those important items are covered, you can splurge on upgrades.
In America, we tend to keep up with the Jones’.
“We buy shit we don’t need, with money we don’t have, to impress people we don’t even like.” — George Carlin”
I’m not at all suggesting that you don’t have nice things, I’m just proposing that you fill in your budget based on your own personal values. So, sit down and really determine what should come first and foremost to you. Please don’t complain you don’t have money for health insurance while you are driving an SUV bigger than my house.
Trickle down to the smallest things. The smallest things are the easiest to cut from your budget. The trick is to then immediately apply the savings to the most important thing. If you are working on paying down debt, when you cut a $9 Netflix account because you use Hulu most of the time – put that $9 in the debt snowball immediately. If you are working on building an emergency savings account, put that $9 to your automatic savings draft.
I’m not suggesting that you should penny pinch, I’m only asking you to review the expenditures. Do you care about this thing that you are spending money on? If yes, do you care about it more than these other things that aren’t getting funding? If no, reallocate your budget to reflect your own personal aspirations.
While we are on this subject, I am a fan of Ramit Sethi’s – Big Wins Manifesto.
But for today, we are balancing the money that we make right now with the way that we spend the money right now. Get in alignment with that and then you can set about increasing your income so that you can fund more of that pyramid.
So, back to the small wins.
Review Your Monthly Bills. Take the time to make sure that you are getting the best service for the best price. Then set that bill to Auto-pay.
Review subscriptions. Keep the ones that bring you the most joy, cancel the rest. Do this annually.
Set up auto shipment for your favorite essentials. I have my coffee set up on auto ship, as well as our dog food. You can also set up your favorite essentials to ship to your house – toothpaste, paper products, cleaning products. Free shipping and buying in larger quantities at the best available price. No fuss, no stress, no extra impulses at Target. I have a wire shelf rack in our basement that I keep all of the paper products and cleaning supply overflows. I love the convenience of bringing up more dish soap or a box of Kleenex instead of running out to the store.
If you are still short on money in the budget, cut a small percentage from each category – say 5% from your out-to-eat budget, and your clothing budget, and your miscellaneous budget.
Your goal is to do a Zero-based budget. All the money that comes in month by month gets allocated for how YOU chose to allocate your spending based on your priorities, your values. Until the amount that you Earn minus the amount budgeted to specific categories is equal to zero.
Amount Earned – Amount Allocated = 0
If what is left over is paltry and doesn’t meet your expectations for the good life – we’ll be looking to increase income soon. In the meantime, get the finances you do have under control.
Every month is different, and will include some tweaking and adjustment, this is because your life is fluid, and so too should be your money. I think Ramit Sethi has a point when he says budgets don’t work. I don’t think that the point of making money is to determine how little of it you should be able to spend. I don’t think most of us stick to budget tracking for long. It’s why I am a big fan of reverse budgeting, and discovering your why and YNAB software.
It may be time to downsize if you are still helplessly short. Think about cutting your living expenses, selling your vehicle, selling extra technology cluttering up your home office and nightstands.
I don’t know, it’s not up to ME what you do with YOUR money. The whole point is – it’s up to you!
How do you want to spend your money? And are you spending it that way right now, or do you need to reallocate?
ACTIONABLE STEP: Determine your values. Create a pyramid. Review your budget categories and be sure that they are in alignment with your values. Find ways to tweak the budget categories to help you reach your goals.