Let’s get personal and talk about finances
Money has always been one of those taboo topics and I wish it wasn’t. We’re taught to internalize our worth based on how much money we make and have, which shouldn’t be the case. What should matter is how we spend our money. Money impacts all our lives, whether we want to admit it or not. Being able to understand how to spend money enables a better grasp of your behavior and beliefs. If we can talk about money and share our experiences, there is a lot we can learn from one another.
So, how do you spend your money?
About a little over a year ago, I would answer this question with “Yeah, I pay for food, clothes, rent, utilities, etc.”. I was able to meet my basic needs and spend on nice-to-haves, so everything was “fine”. The problem with that answer is, it’s too broad. It answers nothing and does not address how to spend money. I thought I was one of those people who approached my finances pretty well. I used the apps and made the spreadsheets. I set budgets for each of my categories based on what I thought I had.
I always seemed to have enough….on some months, other months the numbers were muddy and didn’t always add up. I would then have to reach into my emergency fund at times to make up for those numbers. Rent, utilities, and monthly subscriptions were the only consistent numbers. All the other categories I had created weren’t flexible. They were especially not outfitted for drastic change and uncertainty.
A mindset shift — budgets are guidelines, not constraints
I knew I needed a mindset shift. I’m not sure if it was a coincidence, but my partner introduced You Need A Budget around the same time.
“Another app, not again” is what you’re thinking. That’s fair. There are so many budgeting apps out there, why would you want to use another one? I’m not trying to get you to use another app to manage your money. It’s the mindset that I was able to gain, and YNAB has been a huge influence in advocating for that mindset.
What YNAB helped me realize:
Plan with what you do have, not what you think you’ll have.
Most people are setting aside assumed money based on a bi-weekly or monthly paycheck(s). If you are one of the fortunate ones to have a stable job, you’re “promised” a decent sum of money on a consistent schedule. The problem here is, we budget based on future numbers that are not guaranteed. If you lost your job tomorrow, that next paycheck is gone. The future money you put aside for groceries…well it’s not there anymore. It’s unfortunate to say, but this scenario is closer to home for many people right now.
Budgeting is like having envelopes with categories written on them. To put money in an envelope, it needs to physically exist. You can’t put in imaginary dollars and think you can spend them. So when you are budgeting, the dollars that you distribute reference the actual dollars in your bank account. Don’t plan on your next paycheck to make up for a deficit in your budget. If you have $3,000, then you only need to be distributing $3,000 to all your categories. No more no less.
Budgeting is something you do often, not monthly.
I get it! It’s exciting when payday arrives! There is an influx of cash, refreshed numbers in your bank account, and you’re ready to go. But that’s the thing. You shouldn’t only be reviewing your numbers when you have an increase. Don’t review your spreadsheet at the end of the month to calculate how you’ve spent your money and then distribute. Reviewing transactions is something you do daily. This is about building a routine, like how you wake up and make coffee for yourself.
You’re not a stickler if you’re looking at what you’ve spent every day. Doing quick reviews of your transactions builds more transparency in how you spend money. Reviewing the inflow and outflow of your cash doesn’t have to be something that takes up 30 minutes to an hour. It’s supposed to be less than 5 minutes’ kind of activity. This prevents the dreaded number crunching day when something doesn’t add up. You’ll have an overview of how you’ve been spending your money and get insights into your spending patterns. This leads to a more intentional approach to your spending habits. Knowing this information leads to more peace of mind, which is such a good feeling.
Give every single dollar a role
To help build transparency, when you do get an inflow of money, every single dollar to your name needs a role. When placing money in a category, think of it like you’ve given it a specific job. Don’t leave any pennies or nickels lying around! Again, every single dollar, down to the penny needs a role (even if the category is called Miscellaneous, Rainy Day, etc.). Are you overspending in certain categories? Do you have more than you need in another category? This is the type of clarity you’ll have with your dollars, which will lead to more flexibility in the long run.
Priorities are Relative
When you’re able to spend money with more clarity and transparency, the more freedom you gain. Budgeting can seem so constricting when you’re assigning those roles to your dollars. The beauty of roles is they can change and adapt based on your needs for the now and in the future. Sure you’ll need money to set aside for consistent costs like rent and utilities. At the end of the day, all the categories that you create are relative to your context in the moment and future.
One of the best examples I have is when I was able to buy an $800 TV after seeing it on an Instagram story the day before. All the stars were aligning, we didn’t have a TV at the time, and the price seemed like a good deal. The price though good was still a chunk of change to spend. This was definitely not an emergency fund expense, and I had to figure out where the money was going to come from.
The categories I have to build in my system, reflect my priorities The same should be for you. I previously made a category called“For Future House Things” which had about $400 saved. The other $400 was where I had to begin and reevaluate my priorities. I have other categories dedicated to spending called “Hobbies and Games”. I happened to be saving up for a new phone at the time which had about $300 saved up in its own little envelope. That’s when I asked myself, was having funds for hobbies and games important to me at the moment and near future? How badly did I want a new phone?
It would be nice to have all these things, but at that moment my partner and I needed a TV. So I reached into Hobbies, Games, and my New Phone envelopes and gave a new role to those dollars. Their job was now going to buy me a new TV.
When I spent that $800, it felt good. There was no stress or anxiety. I already knew what parts of my life it was going to affect, and they weren’t things that were a priority to me at the time. My priorities had changed at the moment, and that’s ok. Of course, I’m going to advocate making smart choices with your money. That’s why I didn’t move any money from my rent category because that to me is a major need, so it’s a higher priority than a TV.
Find your digital envelopes
Being able to get this mindset ingrained and have a system did not happen overnight. It’s something I’ve been working towards since December 2019. I’ve been able to get to a place where I am comfortable with how I spend my money. Each time, when I have to give roles to my dollars, I become giddy because of the possibilities. When you begin to create this foundation in money, you’re able to plan for the unexpected, whether it be good or bad.
I’m not going to tell you to use another app, but I have to say, YNAB was the reason I’ve become confident spending money. If you want to give it a try, there is a 34-day free day trial to test out. Human behavior is one of the hardest things to change. Starting out is going to be hard because it is a mindset shift. YNAB has a ton of resources though to help you get started! Their customer support is super friendly if you get stuck!
Regardless of what you do, find your digital envelopes, and remember to keep these main points in mind:
- Plan with what you do have, not what you think you’ll have
- Budgeting is something you do often, not monthly
- Give every single dollar a role
- Priorities are Relative
What other ways have you found to create confidence in how you spend money? I would love to learn more and am open to further the conversation.
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