Five Lessons Learned by Budgeting

Disney vacations are extremely expensive. How is it possible to save $3,000 to take an amazing trip to see the mouse, can we save that in a year? Having a yearly financial goal is a great way to be able to track progress and make tweaks in your plans if necessary. It also can be a great motivator in how you live your life. To make large financial changes to make your financial future much brighter. How to budget to hit that goal is a skill to acquire for sure. Here is my journey in applying a budget and the five lessons learned on how to budget more easily.

         If you keep this up consistently, over time huge changes can be made and goals can be met. So, let’s talk about my yearly goal for this year. I would like to save $700 of my post-tax, post-contribution, post-insurance pay. For some people, that isn’t a very big goal but for my income, it is a pretty hefty goal to be sure, but possible. I don’t make much, so it is a small number to hit but also, I don’t make much, so my bills do stack up at the end of the day. Luckily, I am debt-free, so a majority of my income is mine.

         Here is the journey so far.

         The first month was a benchmarking month. Don’t track my money weekly, no budget, just come back 30 days later and see how I did. I have always been pretty good about spending; I don’t need much to live a happy life that I have built for myself. Do I wish I had more freedom, sure. More investments, sure. A house, sure. I am not in that moment in my life right now so what can I do today to make sure I am going to be financially secure later on in life? Most of my bills are on autopay, I have one credit card that has a $1,000 limit. This allows me to not spend much. This month I coasted, did not budget, paid my bills, had some fun, and only left a little money left over. $328 to be exact which was almost halfway to my goal. I realized I need to really buckle down if I have to double this.

         Doubling this would get me to $8,000 which is my goal to have saved by May of next year. $8,000 divided by 12 is $667 but to round up and look cleaner I decided to save $700 a month. This also would mean I would have $8,400 saved not counting any interest gained on the money which in a high-interest savings account is about 4.5% at the moment.

         How do I go from $328 to $700?

         There are many different strategies for saving and maybe earning more but sometimes that isn’t necessary. If you are trying to hit a savings goal, look through your monthly expenses on a regular month and see if you can cut in certain areas. If the math requires more income, then you have to do more.

                           In the month of March my Income was $3760

Here is my spending:

                                    $970 on Housing (rent, wifi, utilities)

                                    $480 on groceries

                                    $208 on gas

                                    $89 on taxes

                                    $200 on dining, travel, entertainment

                                    $1197 on education

                                    $150 on tolls

                                    $138 on misc expenses

                                    $3432 added all up.

         A “weird” month for sure, not a great one lots of one-off purchases but every month will have those random expenses like tuition. It was also a three-paycheck month so it kind of balances out. I was still spending way too much if I wanted to hit my goal. If I continue to put away $300 a month, I will have $3600 at the end of the year. A solid savings number to hit but I want to hit more. Luckily, there are areas where I can cut back. Keeping track of a “Control” month where you keep spending normally is a great way to show you holes in the boat that need to be patched up.

         One major one for me is $150 just to drive for work. That could help a bunch if I cut back on tolls. It saves time, and the driving is much less congested but let’s find out if it is worth it. Maybe take a regular road to work and a toll road back home. Which would mathematically cut this to $75.

Gas and entertainment being a combined $400 is a bit much for where I am at. I feel like slashing it to $300 could be valuable.

Groceries being $480 is a problem. With how many cheap recipes are on the web just waiting for you to find them there is no reason I should be getting close to $500. I want to keep it below $400.

         Just with these slashes, I am looking at more than $250 of margin back in my account.

After looking at my paychecks I noticed a trend. I was looking at $1120 a paycheck after all contributions. I have to leave early for school in this time of my life and I thought those hours were lost, never to be made up again. That was my sad reality in my last job. After one conversation with my boss, he said it would be okay to come in early or stay late to make up those hours to make it to 40.

         Looking at my check in April after making these changes my paycheck jumped to $1240 a paycheck. Another $240 of margin was found in life. That is almost $500 of combined margin that could be easily slashed just from taking a look at it. Blowing my goal out of the water by more than $100. I can distribute that back into the budget and increase a couple of areas.

This was my final budget entering April:

                                             Housing: $975

                                             Gas: $200

                                             Entertainment: $100

                                             Food: $375

                                             Tolls: $20

                                             Other Misc: $80

                           Total budgeted expenses: $1750

         This budget is pretty well slashed to the bone. It easily lets me hit my $700 goal with my projected $2450 from work. This does not account for random expenses and random incomes like groceries split by my girlfriend or other ways of bringing in income.

                                             How is April Going?

         There are 12 days left at the moment. I have had some random expenses plus luckily some random income to balance out so $700 saved is well within reach. Remember when you make a budget you should check your progress at least twice a month maybe almost weekly ESPECIALLY starting new at budgeting.

                           Housing: $976                      $1 over budget

                           Gas: $154.57                        $45.43 under budget

                           Entertainment: $85.20        $14.80 under budget

                           Groceries: $158.03              $216.97 under budget

                           Tolls: $50            $30 over budget NEED to raise

                           Other expenses: $226          $140 over budget therapy

                                             Total expenses: $1649.80

                                             Projected Income

                                             Work: $2460

                                             Tuition Repay: $100

                                             Groceries Repay: $150

                                             Total Income: $2710

This means to hit my goals that my expenses can’t get above $2010. I do have 12 days left in April and I have $360 to spend. I am projecting $265 more in my expenses and if that happens, I can put $95 in the entertainment budget and go on a nice dinner for $95.

This is a good example of how a random income and expense can happen to a monthly budget. Life loves throwing wrenches into your plan. I had a $200 therapy bill from six months ago that I had to pay, but I also overpaid my UCF tuition, so I got $100 of extra income there.

So, after all of this sweating over a budget, what have I learned about tracking all expenses?

Lesson one is to be okay with increasing one area of the budget if it can give you more peace in life. For example, I learned pretty quickly that tolls at a $20 cap is way too few. I have found that driving on toll roads has been worth the money because at least they work on expanding them and making them better. Traffic on the other roads puts me in a worse part of town so I decided the cost is worth it. There has also been a bill passed that if you use a toll road 35 or more times then you get half off. I take two toll roads each way so I will hit that quick. If I hit $100 in tolls my real bill will be $50. The extra cost is worth the time savings and the extra peace of mind by avoiding the rougher areas and more traffic.

         Lesson two is there are ALWAYS going to be random expenses that pop up to knock you off your path. Receiving a therapy bill from six months ago that your insurance left unpaid is quite a lovely surprise halfway through your month when you are projected to hit your goals and that bill knocks off a bit of confidence. These things happen, life happens, have the flexibility and awareness to move money around.

         Which brings me to the next lesson. A budget needs to be flexible. There are going to be unforeseen issues. You’ll get a flat tire. An oil change is needed. You see an ad for a multilevel marketing scheme that markets extreme weight loss. It is very easy to tell yourself a story if a want is a need. You should have the flexibility to do that though. Just know you have to move it from somewhere. Don’t just accept that we lost that budget so might as well not readjust. ALWAYS be willing to readjust your budgets to suit your lifestyle for that month.

This plays well into the next lesson. Look at your budget more than once. If the only time you look at it is when you create your buckets of money at the beginning of the month, just know that it is very probable that this strategy will fail. Learning this will make the prior lesson easier, you will be able to notice trends like hey, my gas bill is over by $50 but what can I cut in the other world of bills to be able to hit this goal? Should you cut entertainment? Cut groceries? I like using the Numbers app on my phone, it is a smaller, not as intuitive clone of Excel on IOS, but it has a decent budget template. You add your budget categories and then on the next page in the workbook you put all transactions you have done and put them under a category. All from the ease of your phone. You can do it while riding in a car, waiting in line at Disney, procrastinating from homework, procrastinating from other life responsibilities. It is a big help for staying on top of your expenses.

         The final lesson that I learned from this little one-month experiment is that my quality of life didn’t decline. I am still living the life I want to, some sacrifices sure but this is an excellent way to see why your paycheck is disappearing so quickly. I am projected to save double what I saved last month just by writing it down, seeing it, and then slashing it.

If you want to accomplish a savings goal for the next year, please look into budgeting and keep up with it. You could find the money hidden to reach your goals without adding extra income or anything.

Part 2 is coming soon! Last half of April and plan for May!