This is my experience learning to create a budget and understanding my finances. Please note I am no writer nor financial adviser. I’d like to thank a few Medium posts (can’t list them, there have been a lot) as well as the Personal Finance subreddit.
At first, creating a budget seemed daunting. Money? What is it! I am thankful for two things: my family being open about our finances and having a curiosity of my own finances to do independent research because I was not taught the “basics” in school.
I thought of my budget in four stages: how much do I spend, how much do I make, what do I need/what do I want and what is my financial future?
An open source program called GNUCash has really helped me with this process. The program has built-in reports, graphs, and very easy to use. A big step up from a terrible spreadsheet!
To even start a budget, I needed to know what the hell I spent my money on! Nearly impossible to create a budget without that knowledge.
Like many, I have reoccurring static expenses like a car loan, phone coverage or insurance. Then, there are dynamic expenses, food, entertainment and fuel. By breaking it into categories it was easier to understand what I was buying. I knew my static expenses would not change per month and I can look at historics for the dynamic expenses! A fantastic first step!
My budget excludes overtime and bonuses, I cannot rely on those as a steady income (nor should you!). I include my 10% 401K contribution as well. This keeps my budget easy to read and excludes predictions.
I can either count side-money or throw it in the “spend as you will” bank account. I do not get a lot on the side, so I do not keep track of it.
Needs & Wants
As I broke out where I spent my money, I could see my needs and wants forming. The process of determining which is which was difficult. Do I really need my small website to have an SSD on Google Compute and DigitalOcean?
By seeing my needs & wants written out, I could make a smarter, more informed decision. I wrote them in a bullet-point list and for the low-ranking ones I tried to do without them for a short time frame. Spoiler alert: they got eliminated from my expenses.
Determining what I should keep and what should be tossed can help increase my expendable income. This (hopefully) new found income can be used to build up my emergency fund, pay off debt, save for that down payment or even thrown at my retirement funds.
I have been able to create a decent sized emergency fund and reach a general goal of financial independence. Both concepts are nearly the same in my mind. I am grateful for the ability to not have to worry, “Do I have enough money to fill up?” The independence has given me the flexibility of splurging here and there.
I understand my situation is totally different from yours. I live in a low cost of living and I am a homebody. I hope my budget philosophy will still assist you in taking control of your finances.
By learning how much you spend, tracking what you earn, determining your needs versus wants, and planning for your future, you will be in a better financial spot to do what you want in life…maybe retire early with me!