Three years ago, I decided to pay off my student loans. I graduated with almost $21,000 in debt. My monthly minimum payment wasn’t crazy, only about $250. I made the minimum payments for a couple of months and I felt very grown up. One day on a whim, I decided to login to my account and check things out. I saw just how little of my payments were going to the principal balance. I decided to get a second job and pay off my student loan debt, with the idea being that I didn’t want to change my lifestyle. I would keep spending how I was and put the extra towards debt. While that worked, it didn’t fix my poor spending habits. It was just a band aid.
I actually don’t recommend making a budget right out of the gate. I think it sets yourself up for failure. It’s easy to think you only spend $50 a month eating out and put that into your budget, but the reality may be that you spend $100-200 per month. Now you’re over your dining out budget significantly and you’re also discouraged. So before you start a budget, I think you should monitor your spending for three months. You might find out that you spend what you expected. Or you might find out like I did that you are an over spender. I recommend the Mint website for beginner budgeting. It’s fairly user friendly and you attach your bank accounts, so logging expenses is automated. It also has an app that I check religiously.
Once you’ve figured out what your spending your money on, it’s time for some reflection. For example, I found out that A and I eat out. A lot. We were spending about $200 a month eating out. It wasn’t unusual for us to eat out 3 or 4 times a week. That alone might not have been too bad, but we still spent a lot on groceries that would sit in the fridge until they went bad. Shopping was another high spend category for me. I bought whatever shiny new piece of clothing I wanted. Ultimately, it was easy to look at where our money was going and find some ways to cut back. Now, we only eat out once a week and I only budget $50 per month for clothes. Just these two changes opened up about $300 in our monthly spending. Knowledge is a powerful thing. By learning how I spend and what expenses are important to me, I was able to change my habits which allowed me to put larger amounts toward my debt and pay it off in 13 months.
At this point, budgeting is second nature. On the first of every month, I login to Mint and review my categories and adjust as necessary. Since, A and I have a trip planned for our upcoming wedding anniversary, August has a specific line item for paying for the flights. I also decreased some of the other line items to make sure we would be able to cash flow the trip. On September 1st, I will login again and make several changes. Obviously, the cost for the flight will be over which frees up that money and I will also need to change some of my other line items based on a small cost of living raise (whoop whoop).
If you have any questions about budgeting, please drop me a line. I’m interested in how you do money. Does your family operate on a budget?