Budgeting Basics: What I Learned From Budgeting

A budget is telling your money where to go instead of wondering where it went

-Dave Ramsey

To be honest, planning out a monthly budget feels like being on a diet. But just as a diet can help you maintain a healthy lifestyle over time, planning a monthly budget can help you maintain healthy finances. For my first year of college I did not know where or how my financial aid went and I definitely was not worried about being on a budget. It was not until I got a job my sophomore year that I started to plan out my monthly budget. I was motivated to plan a monthly budget partly because I thought it was time to stop wondering why my paycheck disappeared as soon as it landed in my bank account. I was also seeking to gain financial independence and save for an emergency fund. My monthly budgeting helped me do just that but it took time and a lot of self control to actually stick to a my budget.

Evaluating Needs vs. Wants

The first step to planning any budget is evaluating your personal needs vs wants. Food, accommodation bills (rent, utilities, etc) and transportation are my needs and were the backbone of my monthly budget. I was trying to get a grip on my spending when I first started budgeting so if something did not fall into those 3 categories then I did not buy it. To create more room in my budget, I also reduced my spending on some of my daily necessities. For food, I stopped eating out and bought groceries to cook at home instead. The same 70 dollars I spent to buy groceries for a week would only last for 2 days if I was eating out. I also put restrictions on gas money by only allowing myself one full tank of gas for the week. This meant that I either had to car pool or used public transportation to get to school and work for a couple days out of the week.

Wants were anything that was outside of my basic necessities. This was anywhere from new clothes to entertainment. The times when I had steady income, I started to include some of my wants in to my budget. Like when I wanted to buy my GoPro, I calculated how much I could save every month until I had enough money. I even put it in a separate category in my budget.

Know That Life Happens

Like I stated earlier, when I was trying to get a grip on my spending I would not buy anything if it did not fall under my “needs” category. I learned that putting myself on such a restrictive budget after just realizing that I had a spending problem was not too smart. I had plenty of spending relapses and times where I would give up on my budget. I learned to add some padding to my categories and added a “Life Happens” category. My Life Happens category was for emergencies or little expenses that come up here and there throughout the month. The category came about because I realized that evaluating needs and wants are not always black and white. For example, clothes and shoes may not be a necessity but if I wear my work shoes down to the point where the soles comes off then buying new work shoes becomes a need. Of course there is absolutely no way to determine how much money to set aside for an emergency but emergencies are not as strenuous on your pockets if you plan for them in advance.  ‘

Variable Income

At some points in undergrad, my income was variable. I was working a different amount of hours every week so I was not receiving a steady income. Budgeting on irregular income is challenging but possible. I did it by setting a baseline for my budget and created a date order checklist. For example, my baseline for rent, utilities and food would be $900 per month. This was the bare minimum amount of money I needed to get through the month. Notice that I did not include transportation in my baseline because I received free public transportation from my school. You may have to find ways to save money by cutting down on necessities.

My date order checklist would have bills ranked in the order that they were due throughout the month. When I got a check  I would take out money for food first then I would focus on paying my rent because it was due at the first of the month. My lights and water were due later on in the month so I focused on those after my rent was paid. If I had money left over after paying one thing from my checklist off then I would immediately focus on paying off the next. Variable income can really lead you to evaluating and replacing wants. Buying new clothes for an party that I had to pay to get in to was definitely a want. That does not mean I stopped partying, I just wore clothes I had and only went to ones that were free.

It Is a Process

After years of going through the trials and tribulations of managing my finances in undergrad, I have somewhat of a handle on my finances. When I used to have a monthly budget, I adjusted it just about every month. Know that the budget you set for yourself in January may not work in February or March. You should be revising your budget monthly and setting goals you want to accomplish financially. Also know that financial responsibility starts with you. It does take time but if you are not willing to accept responsibility for sticking to your budget and finances then creating a budget is a waste of time.

I have turned staying on top of my finances into a lifestyle. While I do not necessarily sit and number crunch every month for my budget now, I still evaluate every purchase and know where my money is going.  This comes from financial growth, maturity and discipline which developed after years of budgeting.

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