Saturday, October 27, 2012

Money Talks. I Hate to Listen.

Let's talk about budgeting! This is exciting, yes?

The other day on my Twitter feed someone posted that one of her goals for the year was to work on her personal budget and wanted to know other people's tips for budgeting. I started to answer, but realized I had more than 140 characters worth of thoughts on the subject. (Me? Struggling with brevity? NEVER.)

Not to toot my own horn, but I happen to think I am pretty good at budgeting and I'm sort of fascinated by the psychology of money. Since I don't write about much besides babies babies babies these day I thought I'd capitalize on the fact that I was feeling inspired by this topic to share some thoughts.

First, some background. (See? Already any hope of brevity has been dashed.) My dad is a financial advisor, so money and budgeting is something that was always talked about in my family. It was never a taboo subject and my parents made a point to educate us on the topic. We received an allowance and had to split it between a savings account and spending it on stuff we wanted (budgeting 101!). I distinctly remember my shock when my Dad asked me to cough up some of my baby-sitting money at 18 to help fund an IRA. My thoughts on that today? Compounding interest for the win! 

I'm not exactly financially literate when it comes to things like reading a 401k benefits explanation (blerg) and words like dividends and market cap still feel very slippery to me. However, I think the fact that we talked about money in my family and I had a pretty early introduction to some basic concepts was a big boost to my confidence in handling money and budgeting. 

I don't have a business degree but I've got the basics down: I've avoided having consumer debt, I've got liquid savings and I can honestly say I have pretty great willpower when it comes to most impulse buys. (Let's not discuss the fact that we oh so in debt when it comes to our combined education loans... but we are aggressively chipping away at those bad boys. And they were worth it.) 

So, now that I've rambled a bit and bragged a bit, I thought I'd share some thoughts on how I handle budgeting.

First, the logistical part. I've used a tracking tool ever since I first started having my own expenses in college. First I just used a hand-written ledger, then an Excel spreadsheet, then Quicken and now, today Using a tool like this has always put it in black and white how much is coming in, how much is going out and most importantly, where it's going. This is very important when you love Starbucks as much as I do. 

Mint is totally brainless and I can't think of any reason to not use it. You link it to your financial accounts and it automatically updates. You may have to occasionally recategorize transactions but even that is a simple and fast step. You can pull up trends by month, 6 month or year time frame and see exactly what percentage of your spending goes to each category. You can also set budgets and get a text message or email when you've gone over. Bam. Brainless. This is a real life screenshot of my spending trends from last month from Mint.

The other thing I've done is taken savings out of my paycheck at the start of each month. I'm a firm believer that you'll make do with what you have each month and if the money is gone already, you likely won't miss it. (If you put in a liquid account, like an ING savings account, it can be easily accessed if you have an emergency.) When I had my first real paycheck job but was living the oh-so-expensive life in DC, I only put $25 a month away. Still, seeing that little egg grow each month made me happy - and I certainly didn't miss that $25. I never touched that emergency fund and to this day, continue to contribute to it.

However, I think tracking tools and auto deductions are just the tip of the iceberg. I see a strong parallel with financial tracking tools and weight loss tracking tools. Calorie counting has been my number one recommendation for weight loss for over a decade - but it rarely works as a stand alone. Even when we know what our budget is (calorie or money), a lot of decisions about where to spend it are not exactly logic-based. (Again, calories and money.)

Here's where I've had to do the most "work" around money and I'm hoping that what I share will be helpful. For years, I budgeted from a place of fear. I never carried debt and I saved like a squirrel, but all of my actions were rooted in fear of not having enough. I was so afraid of getting in over my head with debt that I swung the other way and I rarely allowed myself any indulgences. When I did spend money beyond what I had budgeted, I felt nauseous about it.

While I was meeting my primary goal of not getting in debt and saving extra, I never felt good about money. I constantly worried about it, beyond what was really necessary and reasonable. (Real talk: I basically did the exact same thing with calories for many years.) But a few years ago I decided I was sick and tired of being in knots when it come to spending money. So the first thing I did was try to work on having an mindset of "enough." When I would write a check for a bill or swipe my credit card at the grocery store, I would take a deep breath and say to myself "I have enough." I found this statement to be really calming for some reason, and slowly but surely the little tension knot I had in my stomach began to release when it came to handling money.

During this time, my money situation didn't change at all - just how I felt about money. During both my mindset of "scarcity" and my mindset of "enough," I had the same income, I continued to use tracking tools, I set aside savings and I never carried excess debt. The only thing that was significantly different was how I felt about money - but that alone was a HUGE deal to me. After a year or so of working on my mindset, I felt more generous and less stressed. I felt happy when I could buy a friend's glass of wine instead of stressing about it. I could drop money in the basket at church with a giving heart. I didn't panic and want to throw up when a car repair was a little more than I expected. That change alone was a big, big deal to me.

When I switched jobs from Wake to Aetna, my paycheck changed significantly. For the first time in my life, we actually had more than enough. It was kind of mind-boggling to me, to be honest. We increased our savings and chipped away a little more aggressively at our debt, but it was the first time in my life where I felt like I could just buy a pair of shoes I wanted or shop at Harris Teeter without coupons (gasp!) or buy the bottle of wine at dinner instead of the glass. It was the first time in my life where I ever had to really contend with impulse buys. Because really, that's what most of those things were. When I started to notice the pendulum was maybe starting to the swing the other way - in other words, when I had four or five items in a Boden cart and was about to hit "buy" without a second thought - I realized I had to do a little more work again around money.

I really don't like owning a lot of stuff and it didn't really jive with me to just be buying stuff because we had more money. I hate the feeling of an overcrowded closet, or looking in my make up bag and seeing 10 lipsticks I don't wear or having books sit on my shelf that I could get from the library. The act of overbuying didn't feel good to me - so I went back to my thoughts again. (I'm a life coach, yes I am.) This time instead of "I have enough," the thought that keeps me in check from impulse buys is "I am content." When I'm about to buy a shirt at Target just because it's cute, I stop and think to myself "I am content ... with the clothes I have." When I want to swing by and pick up lunch out somewhere because it's easier than making a sandwich at home, I think to myself "I am content...with the food I have at home." When I'm about to click "submit" on Amazon Prime for yet another baby item, I think to myself "I am content...with the outfit/toy/bottle/what-the-heck-is-this-thing that Bo already has." This has definitely helped as our money situation has changed again, and I've left my job at Aetna and we've become a one-income family and had to reign our extra spending.

I feel like right now I've find a good happy-medium with my money mindset. I'm never as stressed or as anxious about money as I was a few years ago, but I also quickly put my "ooh, so much extra!!" mindset in check after just a few months and with just a few extra pairs of shoes as collateral damage.  Today, I still clip coupons to grocery shop but I will pick up a friend's coffee with a happy heart. I still buy clothes or lipstick or lattes... I just wait a little longer and think a little harder before swiping the card. It's a good place to be and I'm kind of proud of what I've done to purposefully get here.

Our money situation will continue to grow and change as our family does and as we have to continually address new, complicated issues like saving for education. (Or praying someone will be a kicker and get a football scholarship!) While I know I'll always continue to use a lot of the tools that have helped me with budgeting throughout the years, I also know my mindset is the biggest tool I have in managing my money. I never felt like I had any control over my thoughts around money, but learning that I do AND that changing my thoughts changes my behaviors has been the best budgeting tool ever.


(Bonus points if you know what song my title is from. That lyric bopped in my head the whole time I wrote this!) 


Lindsay Collins said...

No clue on the title/song. But! I looove the post. I love reading these types of posts... I never would have thought to relate budgeting to calories counting but it is so spot on. Very enlightening!

Also... I think it'd be interesting to read a post about what it means to be a life coach. You know... if you're taking requests.

Jess Norden said...

We are in the process of "redefining" our budget...not fun! Haha...we have a combination of student loans/credit card debt (oops), but are working the old fashioned way to get it down! It's not fun, but in the long run, it will be so worth it to be debt free! We bought Dave Ramsey's book and his motto is "Live like nobody now so you can live like nobody later!" It makes total sense, but it's hard to remember sometimes :) Great post!! Now, back to the baby posts ;)

Unknown said...

..but lately it's been screaming in my ear...