Hi. My name is Sarah (on the right.) I am a shopaholic.
Well. Maybe note quite. But close. My sister and I make it our prerogative to go shopping at least once a month (that’s us on Black Friday 2012, which is basically another holiday to us!) It’s not like we buy a LOT during these times, but we like to scope out the latest fashions and decide what we’re currently loving (or hating.)
I realized, however, that I had a budgeting problem the day that my sister bought everything from the higher end clearance racks and walked away spending under $100 with a few complete new outfits (accessories included.) I, on the other hand, walked away spending over $100 on not even one complete outfit, without entirely knowing where this money was coming from.
It was the days leading up until now that convinced me to (a) start a SMART budget that would make a financial adviser proud, (b) learn how to invest for my future while still enjoying my hard earned money NOW, and (c) stick with my budget through thick and thin.
I don’t claim to be an expert on budgeting or finance and I still have my ups and downs, but I have learned a whole lot about what works for me and what doesn’t. This is what works for me…
1. Create a spreadsheet.
I’m currently saving money for my Master’s. I knew (in my head) that most of my income was going towards this, but I didn’t have it on paper which meant I often lost sight of how much I had and how much I needed (or how much I could spend on clothes without tapping into this necessary fund!)
I break my spreadsheet down into very detailed pieces via excel, but it can be as simple as keeping tabs via microsoft on…
- Fun Money:
- Living Cost (food, housing, etc.):
Anything that you spend money on routinely should be included on the spreadsheet. I like to break each category down; for example, my “fun money” fund has subcategories for clothes, vacations, coffee, etc. But that’s just me being nerdy with details and numbers!! 😀
2. Track how much money you’re currently spending.
I was shocked (SHOCKED!) to learn that such a high percentage of my money was going towards starbucks lattes and magazines. While I love a good read and a pumpkin spice latte, my weekly purchases were adding up. I decided to only purchase these two things on “special” occasions and only as my budget allowed.
The main idea is to look at a month worth of current spending and see what you’re spending your money on (and what adjustments may need to be made.) I wrote all expenses down in a notebook and it was a very eye opening project.
3. Decide what percentage of your pay check should be allocated to housing, clothes, etc.
As a general rule of thumb, most financial advisers recommend not spending more than 50% on needs like housing,food, car insurance, phones, etc., 30% on wants such as that really cute handbag, the phone upgrade, pets, etc., and (at least) 20% should go towards savings including 401k’s and other retirement funds. There are a ton of books out there that help break this down even further (I’m a big fan of Suze Orman!)
4. Keep up to date with your budget.
Whether you decide to enter the money you take in and spend on a weekly, biweekly or monthly basis, do your best to keep track of what’s coming in and going out.
I like to check my budget on a weekly basis. I keep a little notebook to write down anything I spent throughout the week and then I subtract that from whichever fund it comes out of (on my excel sheet.) Whenever I get a paycheck, I disperse it into each section so that I can keep tabs of my “cash flow.” I’ll know exactly how much money I have at any given time and this keeps me on track!
5. Don’t starve your “fun funds”.
When I first started budgeting, I felt very virtuous when I skipped a month of fun money and poured it all into savings. Look at my college loans getting paid off!!
The problem is that this created a “diet mindset.” Feeling deprived created eventual overindulgence. I found that I went crazy when I did spend money and ended up overspending. Magazines? Yes! New sweater? Yes! That expensive granola? Yes, Yes, Yes!!
Allowing myself to have fun money AND smart money proved to create the best balance. No more deprivation. No more guilt with spending money.
And that’s how I do budgeting. Now excuse me while I go peruse the Limited’s clearance racks…