Up until recently, I was someone who was trying to dig herself out of a five-year financial hole of defaulted student loan debt, with no savings to speak of, and a terrible track record with budgeting. I realized that in order to fix my personal financial crisis, I needed to attack the problem with the same ferocity with which I had previously avoided it. To do this, I put a bunch of different systems in place to help keep me on track while I pay down my debt, build my savings, and get myself out of my financial hole:
1. I started a pay day-based budget.
I started my budget by listing my monthly expenses from highest to lowest and noting the due dates, if applicable. Then I listed my paycheck amounts (two per month from my full-time job, and two for my regular side hustle), and my pay dates. The rest was a matter of playing around with the numbers so that I assigned expenses to be paid out of each paycheck, being sure to leave a little slush from each for my unbudgeted expenses. When I was done, I calculated that 80% of my income goes toward debt reduction and savings (because I’m aggressively paying off debt right now), and I live on the remaining 20%.
2. I made myself a “budgeted savings” system.
One of the line items that comes out of my first paycheck of the month is what I call my “budgeted savings.” My “budgeted savings” is the money I set aside for things that I know I’ll need to spend money on, but that are treated differently than monthly expenses. For example, this would be things like medical and veterinary expenses, automotive repairs and maintenance, attending weddings and baby showers, etc. I use my bank credit card to make any purchases that fall into my “budget savings” categories. At the end of the month, I transfer money straight from the “budgeted savings” account to pay off the credit card in full. My credit card earns cash rewards, which I have set up to automatically deposit into this savings account.
3. I gave my accounts nicknames.
I’ve always done a lot with online banking and now I check my accounts daily, so I took advantage of the “nickname” feature for my different accounts. My checking account became Minimum $500! Checking, because I wanted a constant reminder that I should always keep a $500 buffer in my checking account. No more overdrafts! This is also when I made my Budgeted Savings account, and I named my credit card Budgeted CC to remind myself that the credit card is not for emergencies, but for those planned, budgeted expenses that will get paid out of my Budgeted Savings account each month.
4. I got a high-yield savings account.
Paying off my debt is incredibly important to me, but so is saving for a down payment to buy property, and for that, I wanted a high-yield savings account. I did my research on NerdWallet to compare my options, and I settled on a Barclay Dream account. The regular interest rate is competitive (1.5%), but what I really love about the account is that it rewards good savings habits. If I make a deposit every month for six months, I get a retroactive 2.5% interest on that money.
While my plan is to use the money to buy property, the account also serves as my emergency fund. When I do buy property, I will leave at least three months (but hopefully closer to six months) worth of expenses in the account as my emergency fund. After I buy my property, I plan to keep depositing faithfully every month into this account to maintain it.
5. I made spreadsheets galore.
In addition to tracking my monthly budget and my savings, I have a couple of other Excel workbooks that track aspects of my financial well-being. One has pages for each of my debts so I can easily track my remaining balance and estimate when the debt will be paid off. If I make an extra payment, I record it as the last payment, so that I can clearly see that I’ve shaved off a month of my debt-elimination journey (time is money!). I have another workbook in which I record all my secondary income, using all the data from my paystubs, so that I can see at a glance how much I’m banking from each side hustle.
6. I started using a spending tracker app.
Once all my set expenses were accounted for, I realized I needed to get a better sense of where the rest of my money was going. I chose to download a spending tracker app, and now I manually have to enter my expenses, and sometimes the mere thought of having to log an expense keeps me from making a purchase. I made a whole list of highly-specific spending categories (snacks is separate from groceries, for instance), and my app gives me a detailed map of my spending habits.
7. I created Money Rules of the Month.
Last but not least, I use data from my spending tracker, as well as inspiration from TFD articles and other sources, to create a set of Money Rules of the Month. Some are consistent month to month, such as making the last week of the month a “no-spend week.” Some rules come and go as needed, such as setting limits on particular spending categories based on trends observed from my spending tracker app.
In my experience, I need to be actively paying attention to my finances on multiple fronts in order to have the best opportunity to successfully meet my goals. I quickly found that if I slack at entering my purchases in the spending tracker, or don’t record my “budgeted savings” expenses, my spending gets out of control FAST. All of these systems may seem like overkill, but they help immensely to remind me of the diligence needed to reach my goals.
*Willa prefers to use a pen name.
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