Where You Should Be
Before jumping into specific tactics, let me recap where you should be at this point. If you're not here, check out my other blog posts here, here, and here, so you can catch up. You should:
- Be motivated to make a change. This is about freedom. It's time for you to start controlling your money instead of letting it control you. You work too hard (most of you) to let money be your master when it's supposed to serve you.
- Understand it may take a long time. Budgeting and changing deeply engrained habits takes time and shouldn't be considered. If money has been your master for a long time, you will feel tempted to go back to the only life you knew. Budgeting is a new sense of freedom that can be strange to most and at first glance seems like it's not freeing at all. Don't let that freedom scare you. To remind you -- look at your debt or the debt of your friends who dig deeper into the hole just to have another "experience" that's forgotten the next day. You're in this for the long haul. Be patient and trust the process.
- Have a buddy. Freedom is best experienced in community. One of you is a Nerd and the other a Free Spirit. Find someone who wants to take this journey with you and is in a similar boat. You will need each other.
- Begin the Quick Budget. Take a stab at this. You may want to look at past bank statements, but don't worry about tracking your spending. Just get a good idea of what a full budget may look like for you.
Now here's one major tip I want you to take into strong consideration for when you start following your budget.
Envelope System Using a Foreign Object
We live in a plastic world. Gas stations, grocery stores, restaurants -- wherever we go, they all accept plastic. There ain't near one damn one of us (what did I just type) that hasn't gotten red all over when some place "only takes cash" and it's usually one of those uber-hipster joints that's the "hottest in town" and if you've never been you're anathema with your friends. And with new technology like Square and Apple Pay, it's getting even easier.
But can I make perhaps one of my strongest recommendations on this budget stuff? When you first start, use cash and use envelopes. In case you're unsure of what cash is, it's this odd substance made of paper or metal. It's tangible and you can exchange it for goods or services. It can have a funny smell and you shouldn't eat it, but you can use it to buy flowers or food, so there you go.
I would say for at least the first 3-6 months, use the envelope system for the following:
- Personal Spending
Why am I strongly recommending this and why these categories? Well, I think it's necessary in order to change bad spending habits. Using a card is easy and you never really see the transaction; you only see numbers on the screen and you don't feel the pain of handing over cash to someone else, even if it's for something you like. As for the categories, I recommend them categories because these tend to be the largest spending categories for most people. If you have other large spending categories, I'd recommend going the envelope route for those as well.
So, and I haven't said this yet, but stop using your credit card immediately. Use cash envelopes for the larger categories and use your debit card for the rest. "But what about emergencies you ask?" Great question.
Baby Step #1: Get 'Er Done Pronto!
Baby Step #1 is to save $1,000 toward your emergency fund. Why? Well, for one, so you stop falling back on the "I need a credit card for emergencies" excuse. Imagine a world where you can actual pay for emergencies that will inevitably arise because you planned for them by stashing some money aside? It's crazy, but possible and awesome!
You should be able to finish this step the fastest. I would recommend taking whatever tax return you got or will get (Happy Tax Day!) and throwing $1,000 in a "high-yield" savings account. These don't yield as much as they used to, but look for something in the 0.75-1.00% range. We use CapitalOne360.
If you didn't get that kind of return, start selling stuff that you bought with your credit card to make up for those mistakes (you know at least a few of those were mistakes). Whatever it takes, get this one done super fast and start cutting up those cards! I'm sure there are objections, so let's chat about that. Also, if you need any further help with any of this, just write in the comments below and we can get down to brass tax.
Last, I'm realizing that this will take time for those of you who are reading this and actually taking it seriously, so don't be surprised if I take a break from the budget theme for a week or so. I'd hate to write about topics and steps that you're not ready to take yet. If someone did that, and I were in your shoes, I'd stop paying attention.
This blog is an idea. An experiment. An adventure. I am writing a post on one thought for 30 minutes everyday for a full year. If you like what I write, have an idea for me to write about, or have any feedback, please share in the comments below. Also, if you think it is at all valuable to you, share it because it just might be the same for someone else. Boom!