How to Budget Better in 3 Simple Steps
Lets talk about the freaking green elephant in the room. MONEY. One of the most empowering things I have done for my life is gain control of my financial situation. Tell me if this sounds like you:
· Money stresses you out.
· You hate checking your bank account balance.
· You avoid opening or paying bills, even when you have enough money.
· The thought of retirement or savings is throw up inducing.
Anyone? Yeah, this used to me too. I won’t lie, some days it still can be. For the last few years I’ve been on a mission to heal my relationship with money so it would stop becoming a source of anxiety/worry for me and instead become something I could feel empowered about.
Here’s the shocking thing I learned: It’s not about MUCH or how LITTLE money you make.
The solution to having your finances in control doesn’t = Make More Money. We are not feeding into the hamster wheel syndrome of always feeling like you need to make more and more money. We can certainly use the tools I’m gonna lay out for you to determine if you need to make more money, or just budget better. Ask your self; do I
1. NEED to make more money because I can’t live on what you make.
2. WANT to make more money because you wish you could live differently.
3. FEEL like you need to make more money because you are just scared to look at your finances and actually see if you are #1 or #2.
Many people in traditional jobs are tied to what we call the billable hour. You are paid X amount of money for X amount of hours and if you want to make more money you have to work more hours, right? Most people DON’T want to work more hours.
(BTW-- > if that sounds like you, you might want to look into a side hustle that can bring you in residual or more passive income. Residual income would be defined as you work one time and are paid continuously without having to do any (or much more) work. One example of this is acting. When I book a job, I get paid a certain amount of money for working that one day. Then when the show airs, I get paid again and again, every time they air or replay it. I don’t have to keep going to set and re-shooting that scene to get paid. If you are a millionaire, you can just invest your money and live off the dividends or interest. But for the other 99% of us who don’t have enough cash laying around in the bank, there are plenty of legitimate and smart ways to invest your time and money in a residual income producing business. If you are interested in learning more about the other business I do that brings me in mostly residual income every month, shoot me a message and I’ll be happy to explain it to you)
Today, however, we are focusing on how to manage the money you already have, not teaching you how to make more of it. Or rather, we are gonna help you see if you need, or want to make more money and then YOU can decided how you want to go about doing that.
What I learned about money management started with putting my expenses into 3 categories:
1. Fixed expenses: These are the things that stay the same each month. Rent. Car payment. Daycare. Stuff like that. You know exactly how much they are going to be, down to the dollar every single month.
2. Varied Expenses: These are trickier. They stay in a range, but kind of fluctuate. Groceries. Gas. Your electricity bill. You Uber or Lyft’s. Eating out. Spending money. You get the idea. Things that are NOT fixed. You might have a general idea of how much you spend on each area each month, but your not 100% sure. And honestly, it changes every month, so it’s hard to know. This is where you can budget and stuck to a certain budget the MOST.
3. Whammies: I loved this term. They just come in and WHAM. Destroy your budget for the month. These are those expenses like: My Check Engine light just came on. Or my kid whacked their head on the coffee table and had to get stitches. Or my dog got sick. Or, I had to buy a flight home for the holidays. These are NOT expense that we generally plan for and they are often the culprits who get stuck on a credit card to be paid off later… and later… and later. Sound about right?
The biggest trick I learned? How to make WHAMMIES into FIXED Expenses.
So, again, whammies are expenses that we don’t usually plan for. They are either emergencies, or expenses that are so sporadic that we forgot, or it’s hard to save for them. Sure, everyone says you should have 6 months worth of savings, but does that mean when your check engine light comes on, you should pull that 1K out of your emergency savings to pay for it? What constitutes an “emergency”? What about when I have to buy my flights home for Christmas and its $750? Or what about your car registration that comes around once a year? Paying your tax girl or guy to do your taxes? What about gifts for birthdays and holidays? Birthday parties? See my conundrum? These are not expenses that we have every month, or sometimes even every other month.
Here’s how you work around that!
Lets take your car registration as an example: Lets say it’s $240 to register your car every year. Great. Now what you are going to do is treat that like a monthly bill, which means every month you are going to pay yourself $20 towards that car registration. $20 hurts a lot less each month than shelling out $240 one random month of the year, right?
If its something less predictable, like that check engine light I keep talking about, you will use an estimate of your usually YEARLY costs in this area and break it down to a monthly cost. If you look at your expenses from last year and you see that you spent about $1200 on car related repairs, then you know that every month you need to save about $100 for car stuff.
Here’s the trick: You save this money into its own special account and you treat it like a bill every month. So each month you pay yourself $120 for car repairs and $20 for registration = $140 a month to your “car savings account”.
Ok, you say, cool, but how many savings accounts do you have???
Yep. I have 12 savings accounts. For all the different “WHAMMY” areas of my life. They range from everything from Car Stuff, to Travel Fund, to Gifts, to saving up for Spa Days. And everything in between. When its time to pay that bill, or the whammy hits, simply transfer the money from the savings account to wherever it needs to go.
And THIS is the coolest part. Capital One 360 offers FREE savings accounts that link to YOUR bank, no matter where you bank. There is no limit to the number of accounts you can have or min balance you need to maintain. It’s easy to set up and link to your bank AND they have a cool app that just lets you quickly transfer money each month as you “pay” those bills. Which takes a HUGE stress of your money plate each month, knowing that if you blow a tire, you already have the money saved for it, and its not going to set you back in your budget this month.
I know it can sometimes feel icky to talk about or think about money, but if you have struggled or feel stress around money I urge you to educate yourself and find a way to be in control of your money instead of letting it run your life. Its one of the best things I ever did for myself and an investment that I would make over and over again.
If you have questions, drop them below and Ill do my best to answer them for you. And if you have other tips for gaining confidence with money, please share them in the comments.