Budgeting Thread: The Real Way to Budget
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Something I have always struggled with is budgeting. While after every paycheck I track how much money I spend on each expense (and think by doing so that I am budgeting and saving), I always feel myself short on cash and spending less at the end of each pay period. This habit I have created is because I am not budgeting, but I am expense tracking.
Expense tracking is the act of noting every expense one incurs over a period of time and evaluating it based on your total savings. While expense tracking is a great way to determine how much of your savings have been allocated to certain expenses, it gives no projection of how to allocate your budget for future expenses. Through expense tracking, one is unable to properly weigh how they want to allocate their cash and savings over a period of time.
Expense tracking leads to short term lifestyle inflation, or the tendency to increase spending when one’s income increases. A personal example of lifestyle inflation is my relationship with food. Whenever I receive a paycheck (and my bank account seems bigger), my drive to cook seemingly decreases, and I begin to order take out significantly more than usual. A week and a half later, I will track my expenses, feel worse about my savings, and you will find me eating 89 cent canned chicken for 2 meals a day. While this tactic of expense tracking and momentary lifestyle inflation is one way of living life, most of us can agree that it is not our ideal lifestyle.
The key to living a consistent and well-balanced lifestyle is to budget. Successfully budgeting is to list out all of your future expenses at the beginning of each year, month, and even week. By budgeting, you can get a clearer picture of how much of your savings you are willing to allocate towards a variety of expenses (or investing). Instead of ordering take out 5 times in a row, and then eating cheaply and unhealthily for 2 weeks, budgeting allows me to spread out my take out days, and allows me to manage how I want to allocate spending on take-out and home cooked meals versus all other expenses. While budgeting may prevent you from experiencing the short-term euphoria of lifestyle inflation, in the long-term, budgeting will breed a more financially stable and ultimately happier lifestyle.
While budgeting is a necessity, it is not easy. Knowing just how much to spend in each expense category is extremely difficult and takes time to master. However, it is possible. Here are some tips I have to increase your spend predictability and to budget effectively.
Use a budgeting app: There are many budgeting apps which can help you list out your expenses and provide tips as to how to allocate your savings most efficiently.
Subscribe: Using monthly-subscription based services is a great way to predict your expenses. Whether it is a subscription meal box or a streaming app, subscriptions in any expense category give a clear picture of how much of your savings need to be allocated towards a particular expense. (To save money on subscriptions, I recommend you subscribe annually to all your subscriptions, or use a third party platform which will offer you an added discount for committing to prepaying a subscription annually).
Invest to Save: When budgeting, people often believe savings entails leaving a particular portion of their budget in a savings account (and earning 1-2% interest annually). By investing safely in index funds, mutual funds, or ETFs (which all require very little investing knowledge to use), anyone can easily earn 10%+ on their savings a year. Through investing, your budget will slowly begin to look bigger and bigger.
I would love to hear any tips you have on budgeting! Lets start a thread here where we can ask questions and provide insight on real ways to budget.
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Which budgeting apps can you suggest?
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i dont budget, never have. just always spent less than i make.
i dont track every transaction, but do try to optimize each transaction to be most of value. i also track net gain over time but as long as i’m directionally correct, i don’t sweat the small stuff.
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Personally, I set a certain amount that I will keep for my savings. Then, I spend on my bills and my other needs (including personal treats for myself that I deserve). Any remaining amount will be added to my savings. Helps me control my money.
