I’ve known numerous people that made more income than me yet somehow they still wound up needing to borrow money. Oh, there’s a fee for this service… the Bank of Dave standard interest rate… so it’s profitable for me in the end. But it continues to baffle me that people ever allow themselves to be put in this position. Often the fallback explanation is that an unexpected bill suddenly came up… car repair, let’s say. Which of course is precisely what a savings account is for! I do understand when someone is unemployed long-term, has major medical bills, etc. Times can get tough and poverty is at times unavoidable. But if you make more money than I do and I’m somehow keeping things together, then there is simply no excuse. Math doesn’t lie.
So without further ado, I am going to break-down some of the secrets to responsible budgeting because many Americans desperately need to figure their shit out and people aren’t taking cues from financially responsible people on their own (cough)… so here it is. And I would like to note that I was never taught how to budget, this was something I did on my own.
WRITE IT DOWN
I start by making a spreadsheet at the beginning of every year. I have done this for exactly a decade now and it’s extremely helpful. It’s not easy to keep track of every bill in your own head, I get that, so do the obvious thing and keep a record. Format a simple template that works for you and is easy to read. Here’s my real chart for January 2015 to use as an example:
Narrow down the bills you can accurately and reliably anticipate and input them into the spreadsheet for at least the next 3-6 months. If you already know what a bill will be you should be factoring that in to your long-term planning. For example, I know my car payment, car insurance, rent, and prepay cell phone bill will be the same for the rest of 2015 so I went ahead and made a budget chart for the entire year with those bills. I can roughly estimate my credit card spending, so I often will input those ahead of time as well. If you do this, and do it far enough ahead, you can have your entire year of bills written down.
When designing your template, I recommend having two categories. One for bills (pink) and one for income (green). This way you can see all the money coming in and all the money going out. This is, y’know, kinda the essence of budgeting.
My January 2015 chart, which I made in late December, showed me that I had $2781.83 worth of expenses to cover. That’s how much I needed, not wanted, to spend.
My roommates I sublet to have a consistent rental rate, so I factored that in early too.
Between a wage dispute in Texas that had recently been settled and a former-roommate that owed me money, I had quite a bit owed to me for this month. Combined with my paychecks (which took a hit due to reduced holiday hours) I could anticipate $4,090.42 would be coming my way for the month.
Minus what you need to spend from your anticipated income and see what the difference is. This number is essential to moving forward.
For January, which was a nicer month for me than usual, I had $1300 leftover. This is where I believe most people fuck up royally. They think that the remaining cash is somehow “fun” money to be spent. It’s not. A bare minimum of 50% of those leftovers should go directly into a savings account. The reason for this is to be able to cover all your monthly expenses for the next 90 days in the off chance you were to lose your job tomorrow. Myself, I prefer to have enough to cover 6 months before feeling financially secure, but that’s just me.
If you have any outstanding credit card debts, pay those first. Remember, we’re thinking long term here. Interest can add up fast and suddenly you could find yourself deeper and deeper in debt. Which leads me to my next tip.
DON’T SPEND WHAT YOU CAN’T AFFORD
This one kills me because it’s the most obvious.
Most of us have credit cards, right? It’s handy to swipe a card in a store and not have to pay anything upfront. I get it, I have four credit cards myself. But if you can’t afford the bill at the end of the month even after burning up “leftovers”… well, you fucked up. Baring some kind of fluke emergency, there’s just no other way to put it.
So when you go to make a purchase, ask yourself if it’s something you need or not. If you can wait on it, do it. If you truly can’t, go for it. There aren’t too many tips I can pass on when it comes to credit cards since it mostly just comes down to individual impulse control, but here are the first five that come to mind:
1) If you go to bars/clubs, bring the amount of cash you can actually afford to spend and leave the credit cards at home. It’s easy to put things on a tab but those drinks can add up quickly, especially if you’re a guy trying to impress a chick. Believe me, at the end of the day she’ll be more impressed with a guy that has a sound financial plan than someone that can afford to buy an endless train of mixed drinks for one night. Also, drink prior to going out even if it’s in the parking lot just before going inside. Drinks are ridiculously over-priced. I never buy more than 1-2 in the rare instances I even go to a bar. Consider that a bottle of Sky Vodka on sale costs $20 for a 1.75L bottle. That easily lasts a month for most people. But buy just 3 mixed drinks at a bar and you’ve already spent more! Sheer madness.
2) Fuck taxis, cabs, and goddamn Uber!! Drive or take the bus. You people are throwing money down the drain if you do otherwise. Twenty bucks here, twenty bucks there… just like drinks, it adds up.
3) Don’t eat out all the time! I mean, chow down between her legs, sure, by all means… but when it comes to FOOD buy some fucking groceries. Consider if you bought a foot-long sub at Subway for $5 for dinner every day. Good price, right? Decent food, right? But that’s still $150 a month. And what about breakfast and lunch?? See how quickly even lower-priced food is if you dine out? And please, please… don’t be one of those people that pays for coffee every morning. Let’s say you pay $3-5 a coffee every day. Boom, that’s already another $90-150 gone! Instead, buy a $20 coffee maker and the giant $10 tubs of Folger’s which makes 270 cups worth. That’s right, they only cost $10. And don’t knock Folger’s, just find the right fuckin creamer for it.
4) There’s this backwards “I gotta have it NOWWW” mentality that has become culturally pervasive in America. SPOILER ALERT, you don’t need it now! Don’t buy anything that was just released, like a movie or a video game. Wait three months and the price will drop by at least a third if not in half (especially if you buy it online). A little patience will save you big bucks in the end. If you can hold off for a year you’ll pay a crazy good price. Myself, I tend to drop $200 on gaming and movies once a year on Black Friday when everything is 75% off or better. I mean, c’mon. That’s enough entertainment to last for over a year. Also, just-released books are also a surprising ripoff since a hardcover edition that takes a few days to read tend to cost $25-30. If you wait, Amazon Marketplace tends to sell almost any book for dirt cheap and you essentially only pay for shipping. I’ve gotten dozens of used books for one penny each and if you buy a bunch from the same seller they’ll even combine the shipping costs.
5) Keep tabs on your cell phone data!! I’ve known a guy that I rented to who got a bill from Verizon for $800 and change because he used his phone to download torrent files and had left it running. This same individual also slept on the floor of my living room because he couldn’t even afford a used futon. If he’d kept track of his data he’d have been in much better shape. Seemingly small oversights like this can cost major bucks later.
6) Don’t pay for cable TV. Have a strong internet connection and connect an HDMI cable from your computer to an HDTV and there ya go. The only downside is you might have trouble finding live shows, such as sporting events, but if you’re that big of a sports nut then odds are good you haven’t read this far anyway so fuck it.
SET SPENDING CAPS ON EVERYTHING
How much do you need for food this month? How much do you need for rent? Utilities? Cell phone? Gas? Figure out what you truly need to get by, how much is enough to be comfortable, and how much is over the top. Then figure out how much you’re actually spending and cut out the difference. When money gets tight, the easiest way to get back on track is to ration across the board so you aren’t severely lacking in any one area. If you sacrifice evenly you’ll rarely feel the impact. Here are some limits I’ve set for myself:
Food: $200 a month is plenty. If I run low towards the end of the month, I eat slightly less. Back when I was scraping by in my first apartment in Albany I was stuck at $80 a month. I don’t recommend spending that little on food, but it illustrates how possible it is to get by.
Cell Phone: $60 a month, prepaid. If I run out of minutes, I’m fucked until the next month. This never happens.
Internet: $25-30 a month. Negotiate with customer service and you can get fast access for cheap. I recently pitted Time Warner and AT&T against each other, telling them I was offered a better deal by the other until eventually I was offered 200mbps for only $24.99 a month. That’s fast enough for 3 people to stream Netflix in HD at the same without any notable buffering.
Gas: Well, I drive a Prius so for me this isn’t much of an issue… but I do still shoot to keep it at around $80 a month. The trick regardless of what vehicle you drive is to condense your errands. If you’re running low on food and need to cash a check and happen to pass BOTH a grocery store and your bank on the drive back from work…. well, then stop by both on the way home. Der. And buy at least 2 weeks worth of groceries so you don’t have to keep going back. It amazes me when someone will drive to a store just to get a chicken dinner or something. If you’re already there, make the most of it and load up on 1-2 weeks worth of food.
“This looks like it takes too much time!”
Once you have a template you can copy and paste it every month and just update the numbers. That’s all. It takes me less than 10 minutes per month to do this, so I’d wager just about anyone with two brain cells to rub together can do the same within an hour or less. If you can’t invest an hour a month of your time to keep track of your money then there is a larger problem going on that probably should be addressed.
“I don’t have Microsoft Excel!”
If you have the internet you can download the full bootleg version. Or the free basic version. Most PC’s come with the program (though I still fully support Mac’s over PC’s). And if you don’t have a computer you can still write it down. The only disadvantage is that you’d have to do the math with a calculator.
Oh, what a terrible burden!
I might add more to this later, but that’s all I can stomach for now without risking an overly snarky tone. Between the recent relationship advice post and this one I think I’ve posted enough “should-be-obvious-but-often-isn’t” tips for one day.