Priorities Continued—Enjoy Life AND Pay the Bills

Setting priorities and creating a budget gave us the time and money to  enjoy the surprising beauty among the ruins of Alcatraz.

Setting priorities and creating a budget gave us the time and money to enjoy the surprising beauty among the ruins of Alcatraz.

Written in collaboration with Jeff Milkie.

The Preliminary Budget

I conquered the art of expense tracking and we were able to construct our budget based on my findings and annihilate irresponsible spending. This takes some sacrifice. But the discomfort is temporary. Expense tracking taught us how we were spending so we could manage our money to work for us and our needs. Once we got the finances pinned down—how much we were spending where—we came up with a budget that allowed us to spend and save in the categories we created for each month, and pay down the student loan. 

The most challenging part of budget creation, although seemingly obvious, is prioritizing where and how to spend money. To do this, we had to decide what was important to us. We wanted to accelerate my loan payments. We wanted to go on vacations. We wanted to eat out every once in a while. These items became categories we built into the budget. We did not want to completely give up all fun, we just had to be smarter about how we spent our money.

There were categories I wasn’t willing to cut spending too drastically, like food for instance. Health and nutrition are important to me and I do my best to buy and prepare whole, unprocessed real food. Because we live in a country obsessed with fast and easy, it isn’t as affordable as it should be to buy whole and healthy foods. But there are some guilty pleasures I indulge in from time to time. To reduce our spending here, and satisfy our health priorities, we cut the amount we spent on snacks, ice cream, and alcohol. We did not cut those things out completely (you gotta live right?), but decided to purchase them more moderately, on the weekends or special occasions. 

Items that we decided were not as important to us allowed us to make spending cuts. These included things like cell phone plans (we found ways to reduce ours), new clothes, new household items (unless absolutely needed), beauty products, cable, etc. Adopting a minimalist mindset really helped us cut our spending, and save our money for the things that mattered.

Balancing the Budget

Using the reprioritized spending categories from our expense tracking, we setup a spreadsheet to balance our budget—the Master Budget sheet (as mentioned previously).

Again, the categories are what works well for us and we have included several others that may be relevant. There are six main groups.

  • Income: Here we put the net money coming in—our paychecks. We don’t track taxes (they just make Jeff angry) or benefits deductions, but we could.
  • Transfers: Here we include all the money we transfer out of our paychecks to another account including retirement, savings, or for medical expenses in the health spending account (HSA). Because we pay for all our medical expenses from the HSA, we include medical expenses in this section. We also include any transfers out of savings as well.
  • Expenses: Our expenses are divided into four categories. The groups are color coded in the spreadsheet by group…
    1. Expenses - Reoccurring Necessary
    2. Expenses - Reoccurring Discretionary
    3. Expenses - Necessary
    4. Expenses - Discretionary 

Reoccurring expenses are separate because we don’t make a decision to spend this each month. We include insurance payments and other expenses that are made irregularly by separating them into monthly amounts. For example, if we pay $600 for 6 months of car insurance we put $100 in the budget each month. Necessary expenses are areas we know we will have to allocate some of our budget to live. Discretionary spending are for things we decided we would like to allocate money towards based on our priorities. These are the hardest to finalize so the budget is balanced.

If you look back at your expense tracking sheet, I mentioned before the Target column. Here, I input the amounts we set for the Budgeted column in the master spreadsheet so I can see where we stand throughout the month.

The other additional item previously mentioned was Magic Money. This includes unexpected income like gift cards, cash gifts, store returns, cash back rewards from our credit card. This is added both into the expense sheet and the Master budget sheet and subtracts from the amount spent—giving a net positive for items purchased using a gift card, cash back, etc.

At mid month and at the end of the month, we do a budget review. I keep track of the expense sheet and Jeff inputs our current totals into the Master budget spreadsheet. This keeps us both involved but can easily be combined. Then we evaluate to see how well we are doing. 

The Takeaway

Spending time to determine our priorities (both financial and for life in general) made all the difference. For us, all additional found money from saving elsewhere went towards the loan until it was paid off. I don't believe in “good debt”. Debt is debt, but some is certainly worse than others. I still have a car payment, but it has a 0.9% interest rate, unlike the 6.55% interest my loan was accumulating. But while we were throwing any and all extra cash we found at the loan, we were also saving for vacation and allocating money towards things we liked to do! Again, you don’t have to live like a monk (unless you want to).

The key principle that I learned through this process: it’s not about cutting out the things you enjoy to save a buck, it’s about reallocating your money so you can afford the things you enjoy and still pay the bills.

Expense Tracking: The Nitty Gritty

Natural beauty growing up around the ruins of the warden's house at Alcatraz. Has nothing to do with expense tracking, but it sure beats a picture of a spreadsheet don't you think?

Natural beauty growing up around the ruins of the warden's house at Alcatraz. Has nothing to do with expense tracking, but it sure beats a picture of a spreadsheet don't you think?

Written in collaboration with Jeff Milkie.

In my first post on budgeting and getting shit together, I gave an overview of how we figured out our spending for both our time and money, and how that helped us enormously at paying down debt and having more of both to do what mattered to us. Here is the detailed version of how we track expenses. It helps that I love tracking everything and Jeff loves analyzing data, but these quirks are not requirements for getting your finances in order and making priorities for yourself.

Step #1: Initial Expense Tracking

In June of 2014, we had lived in Buffalo for three months, I was struggling to find a job I wanted, and getting more and more anxious about my student loan. We decided to do a little experiment. Starting June 1, I tracked everything we spent that month…

To my great horror and surprise, we were spending more money than we made each month. At this rate, we were going to be in debt forever (common sense tip—don’t spend more money than you make). I had an intuitive spending method up to that point, where I sort of guessed how much I thought we had in our bank account and figured we could afford whatever seemingly small thing it was I added to the cart when shopping. Nope! My intuitive spending instincts were way off and this shit had to stop.

I use Numbers on my Mac but this can be done with Excel and Google Docs spreadsheets as well (or good old fashion paper and pencil if you prefer). Note: Excel and Google docs do not support two tables in one sheet, so the two tables I have in my one sheet are split into two sheets when I converted the template to Excel. Same rules apply though.

For expense tracking, I use two tables. One holds the expenses and the other has my budget categories. There is a second spreadsheet that I will call the Master budget sheet. This sheet has additional categories that are not on the monthly expense tracking sheet like insurance, income, etc. (More on the Master budget sheet in the next post). 

First things first, I had to figure out how we spent money before the Master budget sheet could be accurately created. As you can see in the template, I go day by day. In Table 1, I fill in the expense date, a description of where I went, and how much was spent there. I track everything. Nothing is left out.

Step #2: The Categories

At the end of June, we were able to see all the areas where we spent our money—grocery stores, the mall, Amazon, Netflix, cell phones, pet food, eating out, etc. This allowed us to come up with the categories for our future expense tracking and the Master budget sheet, and how much we typically spent in each category. 

We organize each expense into its respective category, and add up all the expenses in that category (as shown in the samples I included on the template). I add the expense and categorize it at the same time. I have found this is the easiest way to make sure the category is correct. Some receipts get split because they are a combination of two categories (like when we buy alcohol at the grocery store—alcohol is a separate category for us).

For example, I spend $100 at Target and $50 at Trader Joe’s. I record both of those in Table 1 separately. Then I come over to Table 2, and in the Food and Necessities row, I add those together for $150 spent. I add each expenditure to this row every time I do some kind of food or toiletry shopping so I know how much I have spent on Food and Necessities at any point over the month. 

Simply stated, starting with the first column, every time I go to the store, eat out, make a payment, buy something online (you get the picture), I record it in table 1 in the expense sheet with a description and the price. It then gets added to its appropriate category in table 2.

These categories continue to evolve. Our reasoning behind the categories is to track the intention of the spending, so we can determine if we are spending in the areas important to us.

You may notice a target column in the expense sheet template. I will talk more about that in conjunction with the Master budget sheet in the next post. When I first started tracking, there were no targets, but when we discovered how much we spent and determined what we wanted to spend in each category, I found it helpful to have that number in the expense sheet so I knew when to reign in spending in a certain category. Also, there will be more information on “magic money” in the next post with the Master budget sheet.

Step #3: Identify “Wasted” Spending

Tracking each purchase as we made them created a hyper-awareness of what I was spending at the store. Knowing I would need to record it and it would take away from my goal of paying down my student loan really made me stop compulsory buying. I set out to only buy things we needed, were well considered and planned, or that we had already built into our budget, such as our trip to the West Coast, Part 1 and Part 2

Tracking also highlighted the areas we were wasting our money. For example, the two gym memberships we did not use. We went pretty regularly for about a month and half, but then it drastically declined. I hated the gym vibe, with all the obnoxious, testorone-filled gym rats hogging all the weight equipment. It’s just not for me. And Jeff, lucky boy, has a gym at work. Health is important, but this was not a good use of our money. I prefer running outside and quick circuits at home, or ballet and yoga. Jeff likes running outside as well, and makes use of his work gym for free. This little re-evaluation saved us $80 a month. 

We also decided we could spend less money eating out. Other than pizza, Buffalo isn't overly vegetarian friendly anyway and every time we went out (with a few exceptions) our meal sort of sucked. It was healthier, tastier, and more cost effective for us to make the majority of our meals at home and plan those meals so we didn't go out to eat because we didn't have anything (for both lunch and dinner). Smaller savings came in from things like getting a library card to reduce the amount of books I bought. I try to borrow them instead when possible. I still buy a lot of books, but it saves $10 here and there. 

One of our biggest savings came from not impulse buying at the mall, Target, Home Goods, etc. (insert guilty pleasure store here that just seems to have ALL the things you want). If I needed something, I planned it, went through what I had first, and purchased what was essential. If there was something I wanted, I gave myself time to sleep on it, really consider it, not impulsively buy it (this one is tough, especially at places like Target). Because this one is the toughest, its also the one that made the biggest impact, sometimes hundreds of dollars were saved in this category. A shirt here, a necklace, a water bottle, sunglasses, a purse, throw pillows and blankets, home decor…this stuff adds up fast even if it is on sale. This took a bit of a mind shift and I learned that I needed to be considerate here on the value it would bring to our lives before buying (there are also ethical and environmental considerations to keep in my mind when it comes to fast fashion and buying cheaper, disposal items. Buying second hand and repurposing old items can be the more socially responsible choice when possible—but that’s another post).

Up next, we will talk about how the expense sheet goes together with the Master budget sheet and how this process helped us achieve financial and personal goals. The categories discussed above and in the expense tracking sheet template are generic and can be changed to anything. You want to spend a lot at Target because you love it, then absolutely go for it. The tracking method just helps you to see where you can spend less to make your spending work for you and not against you.