Ah…I remember my first budget. I was in my early 20s, which is super late to create my first budget because I had been working and was on my own for a few years by that point. The saddest part of this is that someone else told me I needed one and helped me create a very basic spending budget on a yellow legal pad. I had no idea that I even needed to do that.
Well, maybe the real saddest part is that I took that piece of paper and did nothing with it. I think it just went into the trash.
It took me years to figure out why I needed to have a budget and how to create one. I was a total money idiot, and as I look back all I can think about are the problems I could have solved quickly if I just had a plan.
That’s all a budget is, really. It’s a plan for your money. Delegate your little cash employees to do specific jobs. When you do that and stick to it, your financial life will shift from chaos to order. Your money will become a tool you use to make things happen.
After a while, you’ll figure out how to not be broke. Let’s just hope you figure it out faster than I did.
What my first real budget was like…
One day, after getting paid, I decided to plan out all of my expenses until the next paycheck. I opened up Google Sheets and started naming and shaming my bills.
I put it together with my current bank balance at the top, my paycheck amount, and then added that together to give me the working total for the upcoming bills. Then I would skip a line to make it look all pretty, and started putting my bills in, one per line, with a name column and amount column. Then I would use the spreadsheet’s simple arithmetic functionality to make sure I had enough money to pay the bills. Any remainder was just lumped into “miscellaneous leftover” and not tracked at all. That leftover category was dumb, but I’ll get into that later.
With each new paycheck that hit my bank account, I would add a new worksheet and repeat the process. I started paying all my bills on time, and that was a huge stress reliever. I knew what needed to be paid, and how I was going to pay it. At that point in my life, that was huge. It was a big step forward from where my financial planning was previously.
Learning and experimenting
I used this technique for a couple of years, but during that time I kept learning new things and experimenting. I kept reading about how easy and great it was to use Mint for tracking and budgeting, so I gave it a shot.
And I did that exactly twice in my life. I signed up, connected my bank, and started importing transactions. I was super excited and motivated at first, but then I got lazy. And then, despite the laziness, I figured out I just didn’t like it.
Mint’s auto-categorizing wasn’t really accurate, so I had to go back and fix a lot of entries. Then, I had to mess around with the budget feature for a while before determining it wasn’t really a useful feature. It was all after the fact…not proactive and purposeful (I’ll get into that in a minute).
After a while, I stopped using it. The product seemed like a good idea and a lot of people swore by it, but to me, it just wasn’t that great. Back to only using my spreadsheet.
Maybe a year later, I decided that I was doing too much manual work with my spreadsheet and I wanted to keep optimizing as I learned more. I tried Mint again, because of the automation aspect, and used it for maybe three weeks before I determined that it was basically the same useless tool I gave up before.
But why did it seem so useless to me when so many people thought it was so great?
And then I found YNAB
Being proactive and purposeful with your money really matters.
Remember that miscellaneous category I mentioned earlier? I had money that I wasn’t doing anything with. I was saving slightly, but with no plan. I never put anything away on a schedule, I didn’t have anything automated, and I was always running out of money before the next paycheck.
I searched and read everything I could about money and budgeting…and then finally found a web app named YNAB — You Need A Budget. I watched videos and read tutorial articles that very concisely explained what the missing pieces were in my personal finance puzzle.
The premise is simple: Give every dollar a job, as it comes in.
So you hook up your bank account, and when you have income you allocate it across all of your bills until you have $0.00 left to budget. If you still have bills due, tough. You either re-allocate or just leave that budget line item unallocated until you get more income.
You can try, but if you budget more money than you’ve got, it’s not going to work out for you.
This isn’t a YNAB tutorial, so you’ll have to head over there if you want a more in-depth overview of the product.
What I want to communicate to you is the NECESSITY of budgeting your money as you get it. Make it do what you want. Using this tool helped me get all of my methodologies aligned with success.
I was able to pay all my bills on time, AND allocate money to savings/investing. I saw when I was spending too much money and exactly which spending category was regularly going over budget.
Budgets give you freedom
You may be thinking that tracking every penny spent and deliberately allocating every dollar you generate is too much work.
Nope. Being broke is too much work.
I’ve got my money systematized and automated as much as I want right now. It’s less work overall by doing this small amount of work upfront. And it’s a weight off my shoulders to have it done and flowing smoothly.
Budgeting concepts are simple. Allocate your income, account for savings and emergencies, and track your outflow (spending). The hard part is having the discipline to get it done.
You owe it to your future self to put the work in on the front end and develop the habit of budgeting and tracking the ins and outs of your money.
It will make things easier, and it will give you the freedom from monetary stress and confusion that’s plagued you for so long. No more, “Where did my money go? I just got paid!”
You’ll know where it’s going because you put it there. And then your money starts working for you, as it should.
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