“I make six figures, but I don’t know where my money is going!” This was a snippet of a conversation that I was overhearing from two guys walking behind me on my way to lunch the other day. I’ve heard comments like this before. If I could interject myself into any of these conversations, I would let them know that the main reason they don’t know where their money is going because they don’t budget. Compounded with that, sometimes, is the tendency to raise our lifestyle as soon as we feel that we are making a little more than before. As financial advisors, we can help people to invest their money, we can help get them on a savings plan and also provide tools for budgeting their income, but of course, it is up to the individual to actually stick with budgeting or not. There might be different reasons why people are not good at budgeting, but the main reason I see is the lack of personal goals. Without a goal, the importance of budgeting and saving gets lost on an individual. This is something I can personally attest to and hope to make clear as I share my personal story.
My experience as a young man not budgeting differs greatly from the one I have now. As a young man, as you may gather from the context of this blog, my budgeting habits were almost non-existent. We’re constantly exposed to spend culture and I wanted what I wanted when I wanted it. However, I had a turning point in my late twenties, as my priorities started to change, and I knew I had to start budgeting. I can’t lie, the beginning wasn’t fun. The first thing I did was cut down on hanging out more than once per week at restaurants/bars. That had a big impact on what I was able to have leftover in a month. We all know how expensive hanging out with friends can get. As a form of positive reinforcement to not get too upset that I wasn’t hanging out with friends, I linked each expense cutting with a goal I wanted to achieve. So the money that I was saving was put away for travel; it turned out to be a good tradeoff for me. I then looked at my grocery bill and found that I could reduce there too. The groceries part was easier than I thought. I created 2 lists, 1. The things that I needed every week and 2, the things I would need monthly. I kept everything on the list the same week to week and month to month. I found that I was cutting down on snacks and stuff that I didn’t necessarily need every meal and instead, buying food items that helped me to have a better diet. Having better food that could spoil sooner encouraged me to wake up early in the morning to prepare my breakfast and lunch each day. It was hard in the beginning stages, I have to say. Adjusting to no more coffees bought at Starbucks, Dunkin Donuts or other places didn’t come as easy as I thought, but I made it happen. I brewed my own coffee at home and invested in a quality travel mug that could keep my coffee hot so that I could sip and enjoy it the whole work day.
Budgeting for the essential bills and purchases came a little more naturally, but when it came to tempering my spending on big purchases, it was a little harder. Since I’m a big fan of cars, the hardest part was resisting on buying a nice car. However, after putting some numbers in an investment calculator, I could see that the reality of having a nice car for a few years didn’t outweigh what I’d earn if I used that money to invest and apply to my savings. This was a mature realization that I would have never had when I was a teenager or wasn’t budgeting. I saw I could benefit way more with the money I saved and invested in the long run! The trade here was putting money for my retirement instead. Tough financial decisions occur, but knowing your priorities will help you through. After a while, budgeting became a habit for me and I know if you establish set goals for your money, it can become a habit for you too. For me, it got to a point that it was something that I couldn’t do without. If there’s anything you walk away from this blog learning, I hope you take away this. If budgeting is something you seek to master, remember to keep it simple and make sure your saving habits are in line with your values. Whether you start with a budget sheet you create yourself or use an app, the point is to just get started so you can get closer to achieving your specific financial goals.