Am I That Dumb About Money? Part 3: Spending & Budgeting

Becky Blevins, CFP®, CPWA®, MSFS January 3rd, 2023

Part 1 of this series talks about the title, and I would recommend reading it if you have not done so already.

This blog’s title was going to be budgeting and spending, but as I started to write, I realized I needed to flip the order. Most people say creating a budget is the first step in controlling your spending and savings, but I disagree with that (a little). You cannot improve your financial position and health if you do not know where your money is going.

I suggest you first figure out what you are spending before you can even think about a budget. Determining spending is where most people stop in their tracks for many reasons, but it all boils down to (in my opinion) they are embarrassed about how much they overspend and where they are spending.

I will take care of the second half of that bold statement first. I do not care in the least bit what you spend your money on. To some having a nice, fancy car is important; to others spending money on travel is important; different strokes for different folks. The “how much they overspend” part of that statement I care a lot about (more on that later).

So, how do you track your spending? Credit cards make that incredibly easy because they categorize your discretionary spending for you. Fun fact: I changed the category for Amazon from “shopping” to “household goods,” my husband will never know unless he reads this blog.

When you pull all those expense items together, you then want to add non-discretionary items and other expenses that don’t necessarily go on your credit cards. Think rent, mortgage, loan payments, insurance, etc. Now I know what you’re going to say (believe me, I hear it almost every day) “this month {or year} was an anomaly” because the washing machine had to be replaced, or we had to upgrade our HVAC, or the basement flooded, the list goes on. Guess what… there’s ALWAYS a washer or HVAC; it’s just a different name. You can prepare for those items by saving, but next year it may be the car or roof needs to be replaced.

When you have nailed down your spending, it’s time to create a budget. You can do this on paper, Excel, or an app; there are plenty of avenues for you to create a budget. Anyone who knows me knows my nerdy love for Excel, so that’s how I track my budget personally.

Below is a list (not all-inclusive) of what your budget should include:

  • Income – List all sources and dollar amounts of the money you receive. Sources of income can include paychecks, investment income, alimony, settlements, money that you make from your side hustle, etc.
  • Expenses – At this point, this should be easy because I already discussed it as your first step.
  • Savings – Money going into your 401(k), IRA, regular savings accounts, etc.

Once this information is compiled, subtract your expenses and savings from your income, and the result is either positive or negative. Tah dah! You now have your current budget. You don’t need an “alphabet soup” of designations behind your name to know that a negative net cash flow is not good or sustainable.

If you’re overspending, this is the point you will likely say, “this is stupid,” and quit the entire budget idea altogether. Ignoring overspending will not make the problem go away. I REPEAT, ignoring overspending will not make the problem go away. There are two ways that you can go from a negative net cash flow to a positive: 1) make more money or 2) spend less.

Earlier in this blog, I said I do not care what you spend your money on, but I care a lot if you overspend. Since you pulled your spending numbers, you know exactly what you’re spending and on what items. It’s up to you to determine which items you can/should cut back on. We’ve all heard the expression, “no food tastes better than skinny feels;” while I disagree with that to an extent, the same thought process can be applied to your budget.

At this point, you’re probably like, “huh?” but stick with me. No discretionary item will make you feel better than the feeling you have when you are not going further and further into debt, and you actually have money set aside in a savings account. The long-term joy and euphoria of the latter will outweigh the short-term gratification you experienced when you bought {insert whichever discretionary item here}.

Tips and Tricks: When I created my initial budget, I started with my paycheck – a line item in my inflows section for gross income and line items in my outflow section for taxes, insurance, savings, and all other withholdings, then added in my discretionary and non-discretionary outflows. I’m currently cash flow positive (believe me, that hasn’t always been the case), so I don’t break out my credit card spending into categories because I don’t need to figure out where to cut expenses. When I was cash flow negative, I had each category broken out… in excruciating detail.

In my blog about saving money, I talked about creating four buckets or piggy banks (saving, investing, giving, and spending) for your kids. So, now is when we talk about what they will do with the spending piggy bank that has been burning a hole into your child’s dresser.

When they march down to the store, piggy bank in hand, do not let them spend more than what they have in their piggy bank (this will also be the time when they are first introduced to the joys of taxes!).

When kids get older and start to “support” themselves through employment, it’s important for you to sit down with them and go over how much they have to spend and the expenses they need to cover. This is probably an easier concept for the kids to grasp on a per-pay check basis rather than a monthly or annual basis. They, like you, will be either positive or negative cash flow.

In Part 4 of this series, we will discuss “Debt Management” – a topic everyone wants to avoid but really shouldn’t.

As always, if you have any questions, please feel free to reach out!

Read More By Becky Blevins, CFP®, CPWA®, MSFS

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. Investment advisory services are offered through Concord Wealth Partners, an SEC Registered Investment Advisor.

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