Getting your expenses in order

Budgeting & Expense management 

Last week, we looked at the income side of the personal finance equation.

Now, assuming you’ve done that work, I want to explore balancing the expense side in two simple steps:

1. Have a budget

2. Track your spending

These may seem like basic habits when it comes to personal finance, but they’re so often ignored or overlooked.

If you go to the gym on a regular basis, then overtime, you’re significantly more likely to achieve the health results you want to achieve, even if you don’t see immediate results.

The same is true for personal finance when it comes to budgeting & tracking your expenses. While it may not fix your financial situation today, you will be significantly more likely to end up where you want to be tomorrow if you’re disciplined about having a budget & tracking your expenses.

1. Have a budget

I often hear young 20’s say that they’re not making or spending enough to warrant having a budget. And while I get that sentiment, my take is that if you’re spending any money on a regular basis, then you’re spending enough to have a budget.

Budgeting is ultimately an exercise in prioritization. It’s sitting down at the beginning of the month and deciding (based on your income) how much you’re going to allow yourself to spend for different areas of your life.

Let’s dispel an important myth here: Budgeting does not take the fun out of life.

The idea of making a budget often gets a bad wrap because it seems like a cold, dark, soul sucking activity that is meant to shame you for every dollar you spend.

But that’s not the case. It’s true in finances as with all areas of life that boundaries create freedom. When you know where the guardrails are, you are free to enjoy the space between them, and that’s exactly what the budget does; it establishes the guardrails that allow you to make decisions in a way that aligns with your priorities.

A budget is a decision making tool, not a report card

One important note is that a budget is meant to inform your decisions rather than just act as a report card. In my own life, my wife and I have at times used the “budget” to “see how we did” last month, rather than as an active, living decision making tool for how we were going to spend our money.

When a budget is done right (meaning it’s clear and easy to keep up with), then it allows you the freedom and insight to inform your decisions on a regular basis.

Getting started

If you already have a budgeting system that you use, feel free to skip down to the next section.

If you don’t, I wanted to share a few ideas to help you get started. I’m not very particular on the specific methods to build a budget as long as you have one in the first place. But if you’ve never made one, here’s a few tips to get started.

1. Use a digital tool - using a spreadsheet or tool like EveryDollar or Tiller (explored in the next sections) will walk you through setting up your budget in a way that aligns with the most common areas of spending in your life.

2. Pick your categories - It’s important to create the categories that matter the most for you. Here are some common categories to get you started:

   • Rent / mortgage

   • Groceries

   • Health / Insurance

   • Personal spending / fun experiences

   • Eating out

   • Car payments & maintenance

   • Phone / phone bill

   • Gas

   • Travel or travel funds

   • Gifts

   
   As you’re getting started with categorization, it can often be helpful to not set an amount in your first month. Instead, simply track your last 30 days (or import from a tool in the next section). Then, see what you’re spending already before you make decisions about what needs to change.

3. Update as you go - Lastly, a common budgeting fault is not updating or adjusting as you go. It’s common to set a budget in January for the year, and consistently ignore and under or overspend in various categories. This isn’t helpful because it removes the discipline and accountability that a budget is intended to provide. Instead, at the end of each month, determine if large variance in a particular category is something that will continue and should thus be adjusted, or if it was a one-time blip for whatever the case may be.

2. Track your spending

I find that this step is where most people fall of the wagon when it comes to managing their expenses & budgeting. While some have a budget to start the month, few often know where every dollar they spend is going each month.

I’ve personally been tracking every expense in my life since sophomore year of college, or for the last 7 years or so, and it’s given me invaluable insight and accountability into where my money is going on a daily, weekly, monthly, and annual basis.

I think it’s essential to use a digital tool to track your spending. In today’s day and age, it’s nearly impossible to write down every transaction that might be running through a bank account or a credit card, and the advancement in technology makes it very simple to integrate debit cards, credit cards & bank accounts to get a list of all transactions you’re making on a regular basis. Without a digital tool, you’re going to be estimated and guesstimating a lot more than you are going to be actually tracking.

My two recommended softwares for tracking your spending are:

1. EveryDollar - for the budget-on-the-go user

2. Tiller - for the spreadsheet nerds

EveryDollar

What I love about EveryDollar:

• Very user-friendly interface and mobile app, allowing you to easily categorize your transactions in just a few minutes per day. It also has a good desktop interface.

• Built around Ramsey Solutions philosophies that prioritize debt-payoff, saving, and giving, all of which I am in agreement with

• There is a free version as well as a premium version for $17.99 / month.

What I don’t love about EveryDollar:

• They don’t integrate with American Express (or didn’t as of 18 months ago, I haven’t confirmed if this has changed or not), and American Express is one of the primary charge cards that I use.

• I found it more challenging to view my entire financial picture (assets / investments / net worth) when using the EveryDollar app. That’s because it is first and foremost designed to be a budgeting app, but I generally wanted to look at my financial picture all at once.

Tiller

Tiller is what I have personally used to manage my finances for the last 4 years. Coming in at $79 / year, the visibility into my financial setup has more

What I love about Tiller:

• At $79 / year, Tiller comes out to $6.50 per month, which is extremely affordable.

• It’s a Google Sheets integration, so I have the ability to add additional sheets & insights to my personal finance hub and customize it as I see fit.

• It provides monthly & annual budget vs actual & tracking categorization and gives a clear picture of where you stand against your goals.

What I don’t love about Tiller:

• One time I updated the “name” of my checking account, and that prompted a duplicate import of all transactions that needed to be cleaned up.

• It takes a bit more customization & setup to get it to where you need it to be.

• If you hate spreadsheets, I would not recommend Tiller.

Your turn

This week, it’s simple:

1. Do you have a budget? If no, then take the time to make one.

2. Do you track your spending? If no, then get started today.

Until next week.

Disclaimer: I am not a certified financial planner. No content in this newsletter or website is intended to inform you on what investments to make or stocks to buy. All financial decision making involves some level of risk. The content in this newsletter is written to give you helpful considerations & habits to make the best financial plan for yourself.

Questions: If you have any questions, feedback, or need anything, please reply back to this email and it will go to my personal inbox.