By Megan Liamos
February 7, 2017
Updated: May 13, 2020
The New Year has arrived and is well on its way. For many, if not all, of us, this can be a stressful time as we try to set up and follow through on goals we want to achieve, especially when these goals are centered around money.
One of the big financial goals I have this year is planning and saving for my upcoming wedding, which has proven to be more of a time and financial commitment than I ever thought could be possible. Basically, the stress is real.
But with all of this pressure of achieving our financial goals this year, I thought I would try to help by sharing two very different approaches to setting up and following through on a budget for 2017.
This blog will be the first in a two-part series where I discuss my “hands-on” approach to budgeting versus my fiancé, Jesse’s, “hands-off” style. And, as I am the one writing this blog, I thought I would share my “hands-on” approach first.
Some context: looking back at “hands-on” vs. “hands-off”
For those of you who didn’t read my previous blog, my fiancé Jesse and I, while both financially responsible, have polar opposite money management styles. I’m what you’d call “hands-on”–I check my bank accounts almost daily, make very detailed budgets that I constantly track, and overall feel calm and in control when I know where my money is going. Jesse, on the other hand, is what you’d call “hands-off”–he hates dealing with money and automates everything, from savings to paying bills, to minimize the amount of effort he puts into thinking about his money.
While the principles guiding what we do and our long-term financial goals are similar, how we get there is quite different–and that’s okay (even if it drives me crazy sometimes)!
My take: a hands-on budget:
- Start with what’s possible: I start my budget by looking at the biggest constraint on my spending: my total income (not just my paycheck). I average out my paycheck from Varo and any extra money I have coming in on a regular basis (e.g. money from a side-hustle) in order to create a baseline of what I can spend each month.
- Prioritize and categorize: I then break down my spending into different categories and prioritize them based on whether they are a “required spend” (e.g. rent or mortgage), “uncompromisables,”activities and hobbies that are important to me and I know I will spend a fair amount of money on (e.g. baking supplies & tools ), or “nice but not necessary” (e.g. coffee or tea with coworkers). I also take into account any big trips or events like, oh…I don’t know…an impending wedding? This helps me paint a picture of where my money regularly goes or where I know it will definitely go in the year.
- Jump to the numbers: From there, I look at what my spending was over the last year to help give me a benchmark for setting up this year’s budget. It’s important for me at that point to assess how I felt about my spending during the year and take note of areas where I stayed on track and others where…let’s just say I could improve (*cough* ride sharing *cough*).
- Be realistic: After creating this baseline, I back out all the money that I need to pay each month for bills and rent (unfortunately, no avoiding these). With what’s left, I assign dollar amounts to my “uncompromisables.” It’s important for me to approach budgeting with a good sense of what I’m not willing to give up. I’ve learned that this gives me the best chance of success and there is no point in creating a budget you know you can’t stick to.
- Divvy out the discretionary: From there, the money left over is for anything else I want to do for the month, like going out with friends or catching a concert. While I still try to assign specific amounts of this money to activities I know I enjoy, I’m a bit more flexible on categorizing everything here. After all, this money is about having fun, so it’s okay if it isn’t perfectly categorized.
- Track and adjust–it’s spreadsheet time: I’m sure you’re probably thinking, “What? A spreadsheet?!” But, hey, it works for me! To make sure I stay on track as the year goes on, I use Mint to aggregate my accounts and get the first pass at the categorization of each day’s spending. However, Mint alone just doesn’t get it done for me. So, from there, I then export it to Excel to finish categorization and do my budgeting breakdown. I then keep daily tabs on how my spending is matching up to my budget, and update the spreadsheet as I go. At the end of each month, I assess how I did staying on budget (always a mildly terrifying experience) and make adjustments to my yearly budget to account for any changes.
Some parting thoughts:
I know that my extremely hands-on approach to budgeting doesn’t work for everyone, something the research we have done at Varo emphasizes every day. And that’s totally fine. What matters is that you find a method that works for you and helps you stay on track over time.
That being said, I hope that by sharing my approach to creating a budget, you are able to pick up some tips that can help make managing your money easier!
Image credit: Carly Schwer