Hello again. When we last left off I was lamenting my inability to stay off DoorDash and since then I’ve learnt an important lesson or two about budgeting. So let’s get into the next stage of becoming better with your money, shall we?
Choosing a Budgeting Plan
Tip 1: Determine your goals.
Once you are able to decide on the reasons why you want to do something, it is far easier to stick with it. In your goal-setting process, make sure that your goals are S.M.A.R.T.
“I want to save money”
Your goal could be:
“I want to save $10 every month while in my Work Learn position.”
This is a S.M.A.R.T. goal.
- It is Specific about what you want to do (save money).
- It is Measurable (by the end of a certain period, you will have X amount of money saved).
- It is Attainable ($10 is less than an hour’s work in many WL positions).
- It is Relevant to your broader goal of learning to be better about tracking your money.
- And it is Time-Bound (you can check in with this goal every month and after you’re done with WorkLearn position).
Additionally, try to write down your goals somewhere so you can refer back to them at any time.
Tip 2: Choose a Budgeting Plan and/or Technique
After you set your goals, you are ready to choose a budgeting plan. This month I tried a budgeting plan and a technique. The distinction (at least in my mind) is that a plan is how you allocate money and a technique is how you track spending. The line is not always clear between the two ideas but you’ll see below that they are best used together especially when your goal is long-term understanding of personal finance.
1. The X-Category Budget Plan
Even if you don’t know this budget plan by name, it’s probably what you think about when you hear the word budget. You select a certain number of key categories that you spend money in – e.g. food, savings, etc.… and then allocate an amount of money to that category. Ideally, you would use the baseline you had established previously to inform the decisions you make here. The most popular of these, is a 5-category budget which is simple but covers your bases. The categories being food, housing, transportation, savings, and debt payoff. Obviously you can modify the categories according to your needs.
This is a great starting point for budgeting because of its simplicity. It works if you track everything with another technique or spreadsheet. I have created a downloadable spreadsheet with a few pages that you can use to track your spending and income.
Overall, I would say the beauty of simplicity earns this planning method a solid 7 out of 10 in my book.
2. The Envelope System Technique
This is a pretty popular budget planning technique. The idea is to get different envelopes for your different needs, say housing, food, savings, debts, etc. After determining how much you’re going to spend on utilities for example, you put that amount of cash in the appropriate envelope. When you want to pay for something, you use money from the envelope e.g. water bill money from the utilities envelope.
This plan is great for so many reasons. It allows you to see exactly how much money you have left for a particular thing so you can course adjust as needed. For me, this system works best with actual cash. While there are apps that simulate the use of envelopes, seeing an empty envelope feels more real than getting a phone alert. However, in the age of COVID-19, not many places are accepting physical money and this was ultimately what made this technique unsatisfactory.
If you would prefer to use a phone app, Mvelopes (paid app) is the most well-reviewed but I used BudgetBadger (free app) and that was adequate for my needs. PearBudget is a for-profit website that works on a similar principle and doesn’t connect to your bank account. These apps (and website) may be convenient resources but be aware that they often collect your personal information.
I would give this budget planning technique 8 out of 10. Theoretically great but the world has kind of been on fire for the last year so… not perfect.
Reflecting on My Spending: My February Conclusions
One of the most difficult things about becoming a person who budgets is shifting from retroactive planning to proactive planning. All the advice about creating a budget suggest that you try to establish a spending baseline (find tools for this here and here). Finding a baseline makes sense because you need to understand how you are currently spending before you try to make plans. However, the transition from looking back at a couple of months and asking “how much did I spend?” to looking forward a month and asking “how much will/should/can I spend?” is a tricky one. My advice for this change? Try to start by planning out your spending for a week and then slowly expand on that.
Elmblad, S. (2020, January 10). Use These Finance Spreadsheets to Manage Your Finances. The Balance. https://www.thebalance.com/free-budget-spreadsheet-sources-1294285
Pant, P. (2020, July 18). Try This Simple 5-Category Budget to Help You Manage Your Money. The Balance. https://www.thebalance.com/try-the-simple-5-category-budget-453622
Schwahn, L. (2019, December 20). How to Budget Using The Envelope System. NerdWallet. https://www.nerdwallet.com/article/finance/envelope-system
Schwahn, L., & O’Shea, B. (n.d.). Budgeting 101: How to Budget Money. NerdWallet. Retrieved March 31, 2021, from https://www.nerdwallet.com/article/finance/how-to-budget