Welp it’s almost 2021 but nothing is going to change unless we work for it. I love taking myself through a full financial audit and setting new goals for the upcoming year around this time. So that’s what I’m doing on this week’s episode, but it’s a walkthrough for you to get an idea of what you should be doing too. Set yourself up for success with these ideas for budgeting and use my tools below to help you get started as well! Bonus tips on today’s topic are exclusively on the blog below!
Where I’m Starting with my Budget
So a little background into today’s episode. If you’ve been riding with me since 2018, and even way before that on the blog, you know that I love budgeting. So much so, that I created a budgeting course and workbook explaining my process for those who need a little help in starting their budgeting journey.
But essentially I’ve been using Google Sheets for years, tweaking over time the way I keep things organized as my needs, goals, and banking methods changed. My particular budgeting system helped us pay for our wedding, save up for our home down payment, and more financial goals!
Also before we get into this, note that Nick and I manage most of our money separately and commingle funds that go towards shared expenses and savings goals, so that’s why I have so much freedom to make these adjustments and meticulously adjust my budget over time.
I like using what is called a Zero Based Budgeting System which basically accounts for every dollar of income within my budget categories. Now this does not mean that I’m super strict on myself and lack the ability to splurge on things I want. I simply make sure that all the necessities are covered first, and then extra money is divvyed up between fun budget categories like pampering, clothes shopping, hobbies, and the like.
Obviously the nuances of the budgeting goes deeper than that and I change up what I do each year based on my goals. So today, we’ll dive into that process, the workflow so to speak, to give you an idea of what YOU can do starting next year with your finances.
My Overarching Financial Goals
I always make sure to get a gauge of some overarching financial goals and benchmarks before I make changes to my budget. As I mentioned before, I use Google Sheets but I only manage one year at a time per sheet. So each year, I’m making changes to the template based on my goals and benchmarks.
I’m always tracking my credit score, whether its just the Vantage Score (which is somewhat limited) or my actual FICO score that gives the most accurate snapshot, as far determining how “bad” the score can be. Related, but separate, I take a look at my total outstanding debt and what I can focus on this year to put myself in a better position moving forward. These items drive a lot of my decisions in my goal setting, because it’s kind of a necessary evil to tackle before I entertain anything more exciting. The questions I ask myself are:
- What could I do if I paid this off?
- Do I have the ability to pay this off within the upcoming year?
- How much extra money can I put towards payments and how long will it take for me to payoff?
Saving & Investing Goals
I end up taking a similar approach with my savings goals and large ticket purchases, but in the reverse. Thinking of my savings and large purchases as investments helps me better decide what to actually include in this category. For example, I made a 2019 & 2020 goal to save up for my real estate business knowing that start up fees and education would cost me more than what I could put aside in one check. I also include other things that I think will be a great investment personally and side business wise like purchasing an iPad Pro (which is actually a 2021 goal of mine) and bigger investments like our home’s down payment that was a 2019/2020 goal of ours.
Speaking of investments, my savings and retirement investments are important to me. In the last few years, I’ve been focusing on my consistency and comfortably increasing my contributions to both. Especially since graduating from graduate school in 2017 and FINALLY diving into the workforce full time, I started to get serious about having a savings reserve that I aim to not use at all, an emergency fund, and maintaining consistent 401k contributions.
This past year, I made it a goal to always keep my emergency fund at $1,000, even when I had to dip into it for an actual emergency. That gave me peace of mind for the unexpected, but it also took a while to get to that point. So I encourage you to find what that easily achievable number is for your reserves and get that stashed before any other savings. In 2019, I started following a 26-week savings challenge and added that to my regular contributions to grow my reserve even faster. This year, I will evaluate my success with that plan and possibly tweak it a bit so I’m keeping my savings fresh and growing.
I found that gamifying, basically making a fun challenge out of my consistent savings, got me to stick to my plans. So I suggest finding ways to increase your savings each year while having fun doing it. Same goes for my investments, I love checking in to see how much my funds are growing from steady contributions, and projections on where I’ll be in 10, 20, 30, 40 years.
Managing My Spending Habits
The last overarching goal is to control my spending habits so that I can still enjoy myself but also keep any overspending in check. Especially at times when I have a pay increase that I know about, I’ll treat myself to an increased spending allowance and maintain whatever that new amount is throughout the year for consistency.
Updating My Budget Template
With those goals set and adjusted a bit, I will then update my budget template to reflect those changes and log some of the money decisions I need to make each paycheck to reach those overall goals for the year.
This section will walk through my actual spreadsheet setup, so you’ll want to take notes or head over to the store for the budget template to get it for yourself. From there you can customize it or use it as is.
Budget Overview Sheet
The first sheet is a high level view of each month’s expenses. I will list my income across the top for each month and then all the expenses I expect to have for that month below that, obviously most of them repeating each month for bills. I’ll add up all the expenses and at the bottom, compare my income to expenses. This gives me an idea of whether I am spending more than I am making.
The following tabs are for all 26 paychecks I get bi-weekly. Every pay period I list out who to pay within that 14 day timespan and the amount. I love organizing this by paycheck because the monthly view is not realistic based on my pay schedule and I can easily work in short term actionable steps towards my goals such as an extra debt payment, extra savings, and even money to set aside for those large financial goals.
Bonus tabs that I just track for the fun of it and a separate record from my bank is:
- A savings tracker by goal and not just total amount saved
- Debt payment tracker (which I have a really cool and free tool for you if you plan on paying something off quickly or what to see how much interest you will pay – you can find this in the show notes)
- A credit score tracker that compares my scores not only between the 3 bureaus but also the various versions of the score and how it fluctuates over time.
- Log or tracker of all my bills and the company information such as name, average monthly payment, due date, and my typical payment method. This helps me make sure that no bill slips through the cracks since I base my payment schedule on my payday and not due dates.
So that was a lot of information and detail, but I love to share details about my budgeting system because it ends up helping people who need to create a budget or sparking ideas for customizing their own! But that’s not where my work ends. Next are the finishing touches to any updates I need to make for the new year. Some of these things do happen throughout the year, but I tend to streamline my budgeting process in January such as moving all my payments to a particular account or cutting expenses to save money.
And those are actually my main tasks! I update my payment information, add new accounts to autopay or transfer payments to a whole different account. And again, some subscriptions are cut off in total if I find that they haven’t been all that useful. I also love to spend this time to determine annual discretionary spending so that I’m ahead year-round on those “out-of-the-ordinary” budget items. That includes birthdays, now cross-country trips back home for holidays, random gifts, annual renewals like my car registration and now real estate license, and other things similar to that with predictable timelines.
Once all of these things I’ve talked about are taken into account, I finally crunch the numbers in my spreadsheet and make slight adjustments until I feel like each month’s estimated budget is where I want it to be. Of course this changes even more so throughout the year, but I find having a baseline plan to begin with makes all the difference in the world when practicing self discipline and thinking about the long-term success with my financial goals.
Bonus Tips for Prepping 2021 Finances!
- I save all of my bank statements, paycheck stubs, church offering receipts, and other tax applicable documents in preparation for tax season. These easily go into a Google Drive folder.
- Create spending, saving, and investing rules to keep myself on track. I’ll literally write out rules like, “10 transactions max per pay period on non bill items” or “invest a minimum of $5/day this pay period” to keep on track.
- Optimize how I use all my checking/savings/investment accounts. I closed a bunch of accounts in 2019 and 2020 that I don’t use anymore. But also kept backup accounts to segment savings and such.
- Evaluate side hustle expenses. If they ended up being more of a liability rather than an asset (I was spending more money over my earnings), then I’ll adjust accordingly.
- Look at my credit score from various sources to log in my tracker from Credit Karma, my banks that offer my score for free, credit cards who offer for free, and my one paid service. Don’t forget the one free report from each bureau per year as well!