Personal Finance, Routines

Budgeting 101: This Financial Hack Will Revolutionize Your Spending Habits

As 2020 comes to a close, many of us are reflecting on what a year it has been – and it has been quite a year. Like many others, I am a person who (usually) spends most of her disposable income on experiences, like live shows and traveling. 2020 has not been the year for any of that. BUT as a result… let’s just say while I have internally suffered from this shift to a “quarantined life”, my bank account has thrived.

Ok, maybe not thrived, but I have saved significantly more money this year for being forced into this lifestyle against my will. I like to see this as a major upside of 2020, despite the many downsides.

However, making sure that I haven’t overcompensated for not purchasing “experiences” by purchasing more material items, has required me to keep tabs on what I have been buying. You see, all last year (2019) and this year (2020), I have tracked my spending and savings to make sure I stay on top of my finances. How do I do this?

Let me break down this basic budgeting hack for you.

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First and foremost, it is important that you keep a spreadsheet tracking each and every one of your expenses.

WHY? Several reasons, but the main benefit is that it helps you take inventory on what you actually spend money on and how much you’re spending. By manually logging your expenses, you are forced to remember all of the times you dropped $6.24 on a Peppermint Mocha at Starbucks last month – and you will be able to see how much it really adds up (see below for more on this).

HOW? I use Microsoft Excel because I’m comfortable with it and I have a Microsoft Office subscription, but Google Sheets will also work. In the first tab of your spreadsheet, you will log every transaction by hand – on your credit card, debit card, Venmo, all of the above (see example below). This is for expenses only, though – no need to document your income here. Each row in the sheet should represent a transaction. Columns should include, at the very least:

  • Item purchased
  • Category of item
  • Item price
  • Transaction month (or date, if you want to be specific)

Second, make (and stick to) a plan to log your expenses.

Once a week or every two weeks is ideal, depending on your schedule. Setting a reminder in your phone or making it part of your routine (hello habit stacking!) are great ways to ensure that you do NOT lose track of it. I can speak from experience when I say it also saves you A LOT of time to log expenses for 15 minutes at a time on a weekly basis, as opposed to an hour or more on a monthly basis. Ultimately, it is up to you how you decide to schedule it – but be sure to have some version of a reminder so you stay on track!

Third, create a budget (if you don’t already have one).

NOTE: Your budget does not have to be PERFECT or EXACT! Start by listing what categories most accurately capture your expenses (hint: necessities like rent and utilities are usually a good start!). If you’re feeling real lost, check out this budget template. Include a “miscellaneous” for anything that might not fall into any of your categories. But keep in mind that you are allowed to change your budget over time, especially as you gain a better insight on what your actual spending habits are.

Next, by estimating what you typically spend on each category per month, declare what you ideally would want to be spending towards each one. Again, necessities like rent and wi-fi might be fixed costs (AKA they do not change month to month), but do this for all other categories.

BONUS TIP: If you have a specific savings goal for 2021, go the extra mile and calculate what your monthly budget will need to be to meet that goal based on your income. But no worries – another blog post on savings to come in the future!

Finally, visualize your data!

This part is a little trickier, especially if you are not an Excel whiz, but once it is set up… it is life changing. Seriously. Because you are tracking your own financial data in real time, this means you can also visualize it in real time. Let me explain.

In your spreadsheet, create a new tab. You will need to make a PivotTable. Instructions on that can be found here. The goal is to make a PivotTable with: 1) each category (row) and 2) the sum of item prices (value), which are all pulled from your first tab with all of the expenses that you logged. In the PivotTable, add a filter for month. Keep this table to the left of your sheet.

To the right side of the sheet, use the cells to make a new table with your budget. Each row should be a category. The first column should be blank for now, and use the second column to enter your monthly budget amounts for each category.

Now, in the first column of your new budget table, simply hit “=” and click the corresponding expense in the PivotTable. Once you have done this, the table will now automatically update your aggregated expenses for each category as you continue to log more expenses. This will continue also as you enter a new month.

You can do this as categories become available in your PivotTable (i.e. as you add more expenses with different categories), or you can copy the formula from the screenshot below and manually edit the category name (usually in quotes) for each category in your budget table.

This is a very basic tutorial on how to track your expenses and compare them against your budget, but more detailed tips to come in the future! The key here, as I’ve stated many times, is to stay on track and make a habit of your expenses. The purpose of this blog is all about taking action to improve your life, and if you want to make big financial moves in 2021, KEEP UP WITH THIS – you know you can!

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