The Art of Budgeting

As most of you know by now, I recently accepted a job that, while a massive step up in my career, is a drastic step down for me financially.

As some of you know, and I want all of you to know, I am not a person who gives a crap about money. I am not motivated by it. I don't want a lot of it. It cannot be substituted for love, support, or quality time. All it does is afford me the lifestyle I feel comfortable in. It is not a lavish one; it is a comfortable, safe, and independent one.

Even given that philosophy regarding money, taking a 40% pay cut is terrifying. Because it means that if I do not bring in side income through freelancing or a second job, I will not make ends meet without burying myself in debt—and since I climbed out of it and cleaned up my financial act a few years ago, debt is not an option for me.

I wrote about money—specifically my money rules and how I budget—last year. I still keep a monthly budget and an incredibly detailed account of my finances. This may not look like the work of a person who doesn't care about money, but hear me out: Taking a few minutes a day to make sure all my pennies are organized or accounted for saves me from feeling stressed or confused about my money, keeps me from being surprised by my account balance, and keeps money from having unnecessary control over my mental space.

This has never been proven more true than when I was told what my new (non-negotiable; I tried, I promise) salary would be. I did some quick calculations to estimate my take-home pay, and went right into my the folder where my monthly budgets live to compare that number to the top half of my budget—the monthly no-questions-asked bills.

Having an at-a-glance understanding of my financial situation allowed me to think quickly on my feet and start formulating a plan for taking this job and what that would mean. I am not exaggerating in the least when I say that I truly felt waves of gratitude for my financial organization system that allowed me to think quickly and removed what could have been an additional stress of mental math and missed calculations.

I truly believe that financial awareness and a clear understanding of one's own financial standing is a crucial component to self-sufficiency. Hence why I'm going to talk about budgeting again on the blog today. More specifically, I want to share how I've changed things up since last year, and how it's working for me lately.

How I Budget: 2015 Edition



Income
Starting checking/cash: This is the cash or checking account balance I start the month with; anything held over from the previous month. Usually just rent money and a couple of bucks, since everything else usually goes to savings.
Salary: my calculated guaranteed income.
Other income: Sometimes this is a lot; sometimes it's a little. I add in everything here: Swagbucks, freelance writing/editing income, the errant cash gift, any side work income.
No spend days: I try to set myself a number every month of "no-spend days" and keep track here. No-spend doesn't apply to bills on auto-withdraw or usage of things that cost money. It means I didn't stop to pick up lunch or a coffee that day, or I wasn't tempted to grab a bottle of wine on my way home from yoga (it happens more than you'd think).

Monthly Fixed
Rent: because living in an apartment is better than living in the Jeep.
Cell phone: because I need something to instagram from. In seriousness, I'm grateful my mom and stepdad let me remain on the shared plan, because it wasn't too long ago that I had a single-phone plan and payed double what I pay monthly on the family plan.
Netflix: because Gilmore Girls. And Friends.
Car Payment: because Jeeps ain't cheep, yo.
Car Insurance: I actually pay this bi-annually, to save myself a monthly transaction and a total of like $8 per year. I don't count it monthly, and pull it from either general savings or a monthly paycheck, if I can, when that time rolls around.
Utility Fund: So I do this strangely, probably. I have a separate checking account just used to pay my Verizon (Internet; I don't have cable) bill and my electric bill (gas heat & hot water are included in my rent, praise.) I don't like estimating monthly budget numbers, and obviously the electric bill varies. What I used to do is transfer the same amount into this fund monthly, and pay these bills from that fund. I would have a little left over to compensate for the months that the bills were a bit higher.

A few months back, I landed a decent-sized freelance contract and shoved all that money into this fund so I didn't have to think about it. I still manually pay these bills and keep track of all transactions each month, but I won't have to worry about feeding this account until January. And, it's a CapitalOne360 account, so I get a couple of cents back in interest every month, which certainly doesn't hurt.

Savings
Savings: This is just my general savings account. When it's juicier, and I know more clearly what I want to do with it in the long- and short-term, I'll split it into a property fund, maybe a business fund, what have you. For now, it's general savings for Alyssa's life.
Retirement: I have never in my life had employer-sanctioned retirement savings like a 401k. I started my Roth IRA last year when I realized that 25 is a good age to maybe start thinking about 65, or something like that. This doesn't get a lot from me every month, because I just don't make that much, but it does get a non-negotiable monthly deposit (as does my general savings) but that money does not exist to me, and it won't until I am at least 55.
Emergency: Most financial smart people will tell you to have 3-6 months expenses in this account. I do not have that. I have one month's rent. This is because I always felt safe in my job, and renting affords me a bit of flexibility that home-owners don't have. (My boiler breaks? My landlord's problem, not mine.) I'm not saying this is the smart decision for everybody; it's probably not even the smart decision for me. But it's what I feel comfortable tucking away in this place while I let my other money move around where I need it most.

If you've read this far, kudos to you. If you've read this far and are wondering about the personal spending portion of the program, fear not: It's coming at you in a separate post, because this is long enough as it is, don't you think?

In the meantime, please tell me if you hate me talking about money, because I know it's kind of a niche subject of interest. But if you're down with it, let's get some chatter going. What are your major money rules?

Comments

  1. I remember you did a post like this a while back and I really loved it!! I'm such a fan of budgeting and it's kind of funny how excited I get when I don't spend money - makes me feel accomplished! xo, Biana -BlovedBoston

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  2. I'm not great at budgeting. AT ALL. So these tips are really helpful in motivating me to start a budget plan of my own.

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  3. I got some advice a while ago about 401Ks and how you can take loans from them for major purchases, so I've been squirreling away as much as I can in my 401K and not worrying about saving too much outside of that. Now I'm regretting that a bit, as my liquid assets are pretty minimal and I'm realizing there are a lot more restrictions on the 401K loan than I initially thought. But I've still got a few rules: a set amount goes into my 2 savings accounts each month. The one savings account is for my goddaughter, so I just pretend I don't know that money is there, since I'm not taking it out no matter what. The other one is my "emergency" fund, and that might get used after I cut hours at my job while I try to beef up my client work. We'll see. I'm going to try not to touch it too much.

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  4. I have YNAB and never use it anymore. I was doing really good, but then I went on vacation and ALL THE EXPENSES that needed to be logged and it was just.. ugh. I seriously would love a finanical planner to look at my dollas and be like, you have THIS much you need to do THIS with it and I would.
    Since moving out, I know that I'm going to have less dollas, so I KNOW I need to manage this situation before it gets out of control. I feel like I do a pretty good job of not spending money (with the exception of online purchases on occasion) but mostly its because I save my trips to the store for the weekend because if it's not between home to work to the gym to home, I can't be bothered on a week day.

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  5. Ok. You should know by now that I love talking about all things organizational or that are for self-growth. That being said, I love this post!

    I notice you don't have credit card or loan expenses listed. Lucky girl! And the separate utility account? Awesome idea! I'm a big fan of the CapitalOne 360 accounts. I have several for saving and one additional checking with them.

    You know I'm on a spending freeze and honestly, it was the BEST thing. Being financially stable is incredibly important to me since my 20s were a financial nightmare.

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  6. I recently created a budgeting spreadsheet that I am trying my hardest to follow. The first month I actually stayed under budget, but last month I completely screwed up and went about double over what I was supposed to. Yikes!

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  7. I'm so glad you posted this because I told myself that starting August 1st, I was going to put a serious lockdown on my finances and get everything in order. Maybe we'll facetime one night and you can help make numbers not seem so scary ! Did you make the spreadsheet from scratch with formulas and all that or do you do the math yourself whenever you fill it out ?

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  8. I'm pretty organized with our finances mostly because it makes me feel calmer to know where our money is going. There's a definite freedom in organization. Knowing where I can and can't spend makes our frivolous spending guilt free. So that's nice, too.

    I think you have a really good system and I'm off to respond to your email about the rest :)

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  9. Ugh, I hate the B word. An evil necessity! Looks like you have yourself pretty damn well organized and can easily tell where you are at all times. That is important for sanity!

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  10. So inspired by you each and every day. I'm finding ways to budget through free fitness, cooking healthy meals, choosing cold brew or water instead of latte's (I know this will make you sad), and searching for a job to tide me over while I'm in search of the real career here in Memphis. I'm a spreadsheet geek so let me go track down what 'our' expenses are and recreate something like this for myself.

    Also, Hooray for Roth IRA! I've been doing it for 5 years and going strong. I won't see that money for a long time but at the moment it doesn't exist and I'm thankful for that!

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  11. Budgeting posts make me so happy :) 40% pay cut would make me nervous too but you have a plan and that's what matters. I would love to see follow ups though for sure!
    I just have an arbitrary number for emergency. It's actually more like 10 months expenses ($10k). I'm not worried about my job, but it's more like 'Hawkeye needs major surgery' fund. Yup. With a landlord and no car and no debt, that's literally the only thing I save it for. But something just makes me feel secure having it there, whether or not I need it. I realize it could grow faster being placed elsewhere, but I don't like the risks. It's not logical at all, it's just what I do.

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  12. Yay budgeting! I am really good about making spreadsheets and tracking expenses but not always that great at sticking to the numbers I had planned. But I couldn't live without my spreadsheets, like how would I ever know how much money I currently have and will have at any given point in the future?!
    We have a similar system for car insurances, property tax, etc that you do for utilities. I figure out how much all of that will cost for a year, then divide that up by 12 and "deposit" that amount each month into a fund for those expenses. I say "deposit" because it stays in our checking account, but I keep that money mentally separate since it's only to be used to those expenses a few times a year. That way when car insurance rolls around I'm not writing a $300 check straight from my checking account. And I do the same thing for a short term emergency fund.

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  13. a year or two ago, i would have freaked out if i was told i'd take a pay cut because i didn't have all my financial stuff organised, but now i do so i can totally understand how having that made you feel better and help to make your decision.
    i totally understand and agree about the rental thing - if something were to happen to us or our house, we have to pay for it and that is terrifying. so that savings is much more important than it was when we were in our flat.
    i need to get some retirement sorted out. it's hard though because it's like, i want to know which country i am going to retire in first.
    i like the way you do your utility bills, that makes a lot of sense actually.
    i appreciate when you talk about $$ because it's helped me in a multitude of ways and i'm super happy about it. good luck friend!

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  14. I'm organized with finances and will check accounts daily so I always have an idea of what's going on in them.

    I always have a month to two months of expenses for emergency fund, but I never quite get to three. One day. I also keep a large limit credit card at $0 for any type of dog emergency or home emergency that is in the $8,000+ at once type of range.

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  15. you are awesome! and it was really cool to see how you budget and how you are able to do so so well!! I agree- money cannot buy love or friendship or knowledge. It can only buy things. and who needs things if you dont have love, friendship, or knowledge? congrats on your new job!! i'm positive you'll thrive and love it!!
    xo, Candace | Lovely Little Rants

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  16. I am always fascinated by how other people budget! I happen to be great at creating them and not-so-great at sticking to them. haha Thanks for sharing!

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  17. This is awesome, thanks for sharing. I always love tips on budgeting!

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  18. Budgeting seriously gives me a headache but I have to do it every month. I have a very similar checklist except I printed it in my planner and just tick it every month. If that makes sense. I love tips though - numbers arent my strong suit.

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