By Emily Elmore | 27 April 2020
Maybe you’re getting ready to graduate, change jobs, or even have a baby. You know budgeting is important, but you’re not totally sure where to start and the whole thing is kind of overwhelming… especially when you’re in the middle of a major change. So we’re going to make it easy. It’ll take you three minutes to read and 10 minutes to make. As you get more comfortable with budgeting you can get fancy. For now, let’s stick with the basics.
Know Which Way the Money is Moving
Do you have extra money at the end of the month? If not you might be putting those extra expenses on a credit card, which is increasing your overall debt. We want you to have money left over each month (and we know you do too) so this is the big picture part of budgeting.
To keep it simple we’ll do this for one month. Coronavirus may have upended your ability to earn money. If this is the case you need to make a crisis budget. Before we get there, we need to make sure we know what was typical and what you expect/need to get back to. So let’s use the month of February as our starting point.
1.Determine how much you earned.
Add up your wages along with any stipends (like an internship for example) or supplementary allotments like alimony, child support, disability, etc.
2. Determine how much you spent.
You can do this quickly by looking at your bank statement totals for the entire month. How much did you spend in February out of checking? How much did you charge to your credit card? Did you pull anything out of savings? Looking at these should cover most of your expenses.
3. Subtract expenses from income.
How did you do? Do you have extra, or did you spend more than you earn?
Pro tip: Don’t get stuck in the weeds. You’re more likely to follow through with making (and following) a budget if you start simple, so keep this first step really high level. For example, if you make about $400 per week and spend $1300 in rent, groceries, utilities, stuff and entertainment, that’s $1600-$1300 = $300 left over at the end of February. This can be an estimate, and it’s the easiest bite to chew. If you do nothing else with your budget, this first step will let you know if you need to tighten your belt.
Break Down Income and Expenses
We recommend using these categories, but you can always add or remove categories depending on your income streams and personal expenses.
Income
- Wages
- Allotments
- Other income
Expenses
- Housing
- Transportation
- Food
- Insurance
- Loans
- Personal Care
- Children
- Pets
- Entertainment
- Taxes
- Gifts and Charity
Pro tip: There’s a budgeting feature in the Nav.it App. Once you connect your accounts you can make and manage your budget from your dashboard. Easy peasy. All of our features are free until further notice, so check it out and tell us what you think. If you prefer spreadsheets, you can find templates in Excel or Google Sheets as well.
Once it’s filled out you can see trends by month, season, and year. Once your accounts are connected the budgeting feature does this automatically after you initially specify the categories. If you’re using a spreadsheet you’ll want to save your bank statements and manually type them in. Once you get the hang of it you’ll spend maybe 10 minutes at the end of every month updating your budget. That’s less than a sweat sesh at the gym and just as important for your health.
Optimize Your Budget Around Your Goals
Maybe you’re trying to pay off credit card debt or save for a trip once we’re out of quarantine. Whether you’re moving into a new apartment or just want to save for retirement, you probably have something you’d like to allocate more dollars to.
(Travel fund? Emergency fund? Try automating it inside the nav.it money app)
Scenario One: You spend more than you earn.
We need to get you back to spending within your means, or you’ll soon have runaway debt. You can earn more, spend less, or do a little of both.
Earn more: take on a second job or start a side hustle from a hobby. You could tutor, become a virtual assistant, or start an online store. So many ways to earn.
Spend less: Make a list of essential expenses. Housing, transportation, food, and kids all need a chunk of your paycheck. If you’re trying to reduce spending, you’ll probably want to identify the non-essential items you’re willing to stop funding first. This might be cutting the cable cord, or reducing the frequency that you dine out. Once you have a goal you can determine where you can save in order to meet that goal. It doesn’t mean you have to live in austerity, but it does mean you need to be mindful of each expense and budget for it. (Check out how mindfulness can empower your money moves.) If your budget can’t accommodate going out to lunch daily with your coworkers, bring your lunch. It’s your money, and it’s your budget. Once you know where it’s going you can choose to cut back, earn more, or allocate differently.
While you’re reducing spending, you can also save some dollars in the “essential” pile. Often groceries are a huge chunk of change, and choosing store brand can reduce that weekly bill. So can shopping by recipe instead of by staples. I was able to reduce my overall grocery bill from $180/week for a family of 4 to $120/ week and this includes 7 days of fresh, organic produce. I selected lunch and dinner recipes that would provide for 8 people (4 people over 2 days each). I shopped for 4 dinners and 4 lunches, and stuck with eggs, yogurt, grains, and fruit for breakfast. Buying ONLY the items -in the quantities- that were on that list actually cut the bill down to about $95/week, but we like wine and chocolate so that’s where the extra $25/week comes from. Not willing to go without, so I factor it in the budget. $60 in savings over 52 weeks is $3120.
Boom!
Scenario Two: You break even or have a little extra.
You have a good idea how much you earn and don’t go over. Well done! Have you considered building an emergency fund? This is for unscheduled emergencies (cough cough, coronavirus) and can save your butt if your income is disrupted. Ideally this fund has at least 3-6 months of savings. If you implement the strategies above to earn more and/or spend less, you’ll be able to identify some opportunities for saving. It’s never too late to build your emergency fund.
If you already have an emergency fund, consider paying off more debt. Whatever the interest rate is on your debt is how much of a return on investment you receive when you pay it off early. Pay that debt down, Nav.igator! Once the debt is gone you can focus on investments and growing your wealth. This might look like an IRA for retirement, stocks and bonds once the market improves, real estate investment for passive income, or maybe an investment in your health through a much-needed vacation, spa day, or therapy sesh.
We’re changing the narrative around money but change can’t happen with a one-sided conversation. Send us an email and let us know what you think. And remember the nav.it money app offers you free tools for budgeting, account aggregation, and debt repayment calculators.
You can download it at Google Play and the Apple Store.
