Hello! Welcome back to my blog! Today’s topic for blogging is the very first step in any personal finance journey and that’s budgeting! This is the bedrock to the foundation of your personal finance mansion (or castle, if you prefer).
As a concept budgeting is fairly simple. You allocate money to your various expenses and savings plans from your income, and then track the expenses to see that you don’t overshoot your allotted amount. And in a eutopian world, you stick to this and all is well in your financial mansion (or castle).
In reality, however, you have unplanned birthday dinners, gifts, doctors trips and shoppings urges to live with. And these would rather that your personal finance mansion be more of a hut (or perhaps a cottage). With the sheer uncertain nature of life, it becomes extremely difficult to make and stick to a budget. In such a case, every time we deviate from it, we feel terrible, lose motivation and deem the practice completely useless which leads to a pledge to never budget again.
I’m going to be discussing with you some of my budgeting practices as someone who is 3 months into a personal finance journey and how I actually stick to my budget.
Why I budget?
My reasons for budgeting are simple and few, but very powerful!
- It’ll relieves my anxiety: I’m someone who has spent the better part of the last three years living pay-check to pay-check and depending on credit cards, as I’ve made amply clear in my old posts. Every month I would plan to save money but I just couldn’t because I was completely clueless about where my money went. Around the 20th of each month, I would open my bank statement and look at it with bewilderment. I’d have a few thousand ruppees left and I’d be left wondering how I was going to survive the rest of the month. But keeping track of my money has alieviated me of that anxiety. It’s not just given me a sense of certainty, but it’s also given me direction about where I want to be.
- It’s my checklist: We have schedules, timetables and checklists for our daily lives. There are all sorts of ninja techniques that I’ve used to stay on top of my quest for productivity and efficiency. I would never do anything which would make my hustle go to waste, so I plan my days meticulously. Yet, with money, I’ve been cavalier. Probably because its an outcome of my hussle and it’s what I’ve worked for. So the mindset was that I deserve to spend it, or otherwise what’s the point of working hard? I treat my budget like a checklist for the productivity of my money. My budget is going to make my money work for me in any shape or form that I want. If I get enough checks and I’ll be a step closer to my goal.
- Its a start point for investing: I have been arbitrarily investing 10ish% of my income (ocassionally) because I was unaware of the my exact investment potential. Tracking and budgeting my expenses is now leading me to realise my true investment potential. I now know exactly how much of my money goes towards clearing off debt and expenses which enables me to know the exact quantum I can invest.
Budgets are jigsaws
Some people believe that budgets are rigid, regressive and all-together terrifying. That’s because they look at their budget like a perfectionist looks at their work. Failure is unacceptable. How do I know this? I was one of those people. I believed in the philosophy of making a budget and rigidly sticking to it. Failure to do so would be catastrophic! Each time I didn’t stick, it would be like an itch in my brain which I couldn’t scratch. And more itches, meant I would ditch the practice sooner.
Another reason why budgets used to give me an anxiety attack is because I tailored it according to expert opinion while not factoring in my own needs. Experts believe that saving 25-30% is key. But at a time when you’re paying off debt that percentage becomes a little arbitary. I could barely afford 10%. The literature was focussed on the number 30 and I being the perfectionist that I was, I never realised that I had to ‘roll with the punches’. While I knew 10 was better than 0, I also knew 10 was worse than 30 and to be the worse was a bigger problem. So I didn’t save at all.
I like to now believe that budgets are like a jigsaw puzzle. My journey with money, is a combination of pieces to fit a complete picture. And this picture is something that I have to decide. I get to decide what my completed puzzle will and should look like. Whether you’re an agressive saver, or like me, you’re looking at reducing your expenses, your budget gives you the pieces to work with and tweak.
Personally I’m not a huge fan of the school of thought that X% of your money should be saving because that X doesn’t factor in my expenses or my other needs with my money. So, to me its about using expert opinion as a guideline and basing it on my needs.
When I start to budget, I ask myself: ‘What do I need my money to do for me this month?’ My money is not just a vessel to fulfil my inner shopaholic, but also a means to achieve my real dreams. This question helped me a lot to arrive at that shift.
My budget accounts for the following four major types of expenses as of now.
- Debt Repayment: I’m in the last couple of months of repaying my oodles of credit card debt and should be debt free by 31st August 2020.
- Living expenses: I live with my parents and could live completely for free. However, I do like chipping for groceries and some of the utilities at home. This category also includes my visits to the therapist and any other medical expenses I may have as well as my subscriptions (which is now a shockingly small amount)
- True expenses: In the book You Need A Budget the author talks about something called True expenses. These are expenses that you may not have monthly but at some point they will come up. Not having prepared for them sends your budget out of whack! For example: car insurance. Now I don’t have a car but I do believe in skilling myself and I also keep money aside for gifts for my family on their occassions. So, instead of having to fret about it in the month of the occassion, I already have a decent chunk set aside which I use. I keep the skilling money to invest in my own growth and someday business ventures for the future.
- Un-budgeted items: I keep a small chunk of money for any such small expenses that I may incur because of impulse shopping. So like money for kindle books or maybe a bottle of nail paint. Money that’s enough for small pleasures and not large impulse purchases.
My Budget Principles
I have some rudimentary principles which guide my budget and should guide it until I’m debt free and ready for investing. That’s when I’ll re-tweak my whole process again. That’s the thing about the budget: you need to keep re-inveting it to fit your circumstances!
- Debt is the first priority: Paying off my debt as quickly as possible is pay first priority so I siphon off as much as I humanly can, while living a decent life. Any extra money coming in, just immediately goes into debt repayment.
- Always pay yourself first: I never truly understood the meaning of this line until a few months back. My definition of this line is probably a little different from that of others’ as well. I believe that I first need to put in money where I need it most to go. So whether debt repayment, investments or even upskilling because these are the ways I pay myself.
- Keep expenses low: When you’re as aggressive about debt repayment as I am, you have to keep your expenses low so that you can put every penny to rid yourself of it. Thankfully, owing to the fact that I live at home I don’t really have to cut any necessities out of my life. Its my discretionary spending that I needed to tackle.
- My expenses have to help improve my quality of life: I firmly believe that what I do spend money on, needs to add value to my life and its quality. I currently have two true expenses which is gifting money and upskilling money. Since I’m working from home right now, it seemed like the best time to enrol in a writing mentorship program. So I went ahead and enrolled for it. And that is something I won’t guilt myself for because I want to pursue my life long dream of writing. So I am comfortable not using that money for debt repayment right now, because I’m investing it in myself to pursue a passion. It’s a conscious decision I’ve made. But that doesn’t mean that I can keep money aside for jewellery hauls. That’s not an investment in me unless I plan on starting a jewellery blog.
The first month when I had started out on this journey my estimates were very rough and approximate. Infact I had inflated my expense estimate a bit just so that I had a buffer and I didn’t end up incurring more debt. However, when I came in under budget the first couple of months, I siphoned off the difference towards debt repayment. Now, I have far more clarity with regards to exactly how much money I spend so my budgets are much more accurate and I’m able to make a much better plan with it now.
This is where the jigsaw piece of budgeting comes into play and the real fun begins. You tweak, move money across categories and see the thrill of your decisions bearing results.
What my budget looks like?
So now that I’ve taken you past everything, I’m going to show you what my budget looks like. Now since I can’t show you my income because rules and regulations at work. But I am going to show you my budget by highlighting my expenses interms of percentages of my income.
You’ll notice that currently I save nothing and am essentially still living pay check to pay check. But I feel like at least now, it’s for a constructive purpose. Eventually once I’m debt free on 31st August 2020, I would want my debt repayment portion to become my savings. I’m hoping to re-jig the jigsaw like that.
How I stay on track
Back in January 2020, I tried all sorts of half hearted attempts at institutionalising a budget. It was only when I got really serious about becoming debt free, did I realise the need to find ways to make my budget stick.
- Tracking: This is the most crucial step to managing a budget and staying on top of it. I use the You Need A Budget app to categorise my money and keep track of my expenses. You can also use a spreadsheet. Personally, I had started with a spreadsheet and it didn’t work for me, so I moved to apps. Another good app for budgeting and tracking is Spendee.
- Adapting: I’m not going to lie. Barring the money I siphon off for debt, the rest of my money is fairly fluid. There are times when I fall short of money on one category and so I divert money from another and cut down on the latter category. This is why ‘paying yourself’ is important because that’s money you do not touch unless neccessary and you’re forced to adapt with what you have. Its honestly, incredibly useful life experience.
- Control: For a sometime I have rid my phone of all possible temptations in terms of shopping apps. I got rid of shopping apps and even Facebook and Instagram to avoid any targetted apps. It was a lot of fun honestly. Felt like deleting pictures after a break up. I definitely feel like this is something I could now do in the long run, because I’m just used to it. If I do need something, I can always download the app, buy it and delete again. It feels quite liberating.
Budgeting for you
Now I understand that not everyone can live at home with their parents and keep their expenses low, but my purpose with this post is to show you the magic of managing your money. Treating my budget like a jigsaw puzzle is a mindset that’s helped me come on a sustainable track of financial independence. You have to find your expenses, guiding principles, cues to stay on track and start making your budget. Trust me when I say this. I have had anxiety for a couple of years now and tailoring my budget to fill in my picture has been the most calming way of managing my money. It’s helped me gain discipline in some other facets of my life too.
If you do have the time, I would recommend two books for you to read on this subject which completely changed everything I believed in. First would be my regular recommendation of You Need A Budget by Jesse Mecham and The Total Money Makeover by Dave Ramsey (this book is especially helpful for debt repayment)
Just remember this: you don’t have to be rigid with what people say. You have to be rigid with what you need your money to do. The latter is far more sustainable, motivating and easy to do. Experts and friends can be a great guideline to start with but don’t feel disheartened if you cannot follow them to the T. Merge them with your needs and follow a middle path. You’ll fit your pieces in your jigsaw soon!
Thanks for reading. I hope you go some value from it! Hope to see you on the next one!