Let’s Talk: Budgeting

We all skirt around the issue of money on our blogs and, to be honest, I’ve never really felt comfortable with my budget posts because they don’t accurately reflect how I budget for clothing. So, I thought I’d open the discussion about budgeting to share my strategies and learn your tips for fiscal responsibility.

GOAL SETTING

Before determining what to spend, or even what to save, setting up financial goals is a must. This includes long-term goals (like retirement), paying off debt, and big ticket purchases (think future house, not future handbag). Determine how much you need to accomplish these things and work backward to figure how much you need to put toward your goals annually and then monthly. These are your priority items that you should treat like a monthly bill. I urge you to be realistic about how much you can save each month. If all you can save is $50 per paycheck, it’s better than nothing. Choosing an unrealistic goal will leave you discouraged and unlikely to continue saving. (It should go without saying that paying off credit card debt should be your top priority. And, for goodness sakes, take advantage of your company’s 401(k) plan. It’s free money if they match your contributions.)

SAVING

Now it’s time to save. Without savings, we’d never have enough money for a home, vacation, wedding, or a covetable handbag. I use Capital One 360 to set up various savings accounts (no, this isn’t sponsored). I have a general account that doubles as my emergency fund where I’m working to save up three months of income. I also have a “Europe” savings account, a “Home” account for a future down payment and furnishings for our current place, and a “Splurge” account. Whenever I get paid, I transfer a set amount to each account. I don’t put very much in my “Splurge” account, only $50 per paycheck, but it’s also where blog income and eBay earnings go. The great thing about Capital One 360 is that you can create as many different savings accounts as you want without the need for a minimum balance. You can also name and rename the accounts to remind you of your goals. (I had one when I was saving for my Hermes bracelet. Having the account named as such made made me feel less guilty about spending that kind of cash on a piece of jewelry. Now, I’m starting one for the mini Chloe “Marcie” bag I love so much.) It’s important to put a dollar amount to each of your goals and determine a monthly savings goal to help you get there. It adds a level of urgency that helps to prioritize it when you’re weighing your options between putting that $200 in savings or buying a dress (ahem) that caught your eye.

BUDGETING

To determine my budget, I add the overall expected income for the month and subtract all fixed expenses (rent, student loans, etc.), credit card debt, expected variable expenses (i.e. medical bills for my fractured foot or car repairs), and savings goals. These are the nonnegotiable priority items that must be paid off first. Then, I take the remaining amount and divide that by four to calculate my weekly budget. This is money I use for clothing, dining out, entertainment, gas, and groceries. I found it too overwhelming to set a monthly spending limit for things like groceries. Breaking it down into a week-by-week limit makes it easier for me to manage. I offset any surplus or deficit with money from the surrounding weeks. This is why my monthly clothing budget didn’t really hold up. In the event that I want to splurge, I first supplemented my income with blog revenue or higher than average work commissions, and I cut back on spending in other areas.

For example, here’s where my money went last week. My starting balance is $225:

• J.Crew Sweater: $64 (This hasn’t arrived yet. I’ll add the money to this week’s budget if I need to return it.)
• Groceries: $84
• Dining Out: $11
• Home: $17
• Gas: $72 (This is unusually high because we drove to my parents’ house last weekend. It’s usually $25-30 per week.)
• Misc.: $9

That left me with a deficit of $31.50 that I’ll subtract from this week’s budget. Calculating my spending each week helps me stay on track to address these deficits before they snowball into a larger amount. Left unaddressed, $30 per week turns into $120 that I didn’t account for during the month. That money would be taken back out of savings and I’d lose traction on my long-term goals.

ADDITIONAL STRATEGIES

There are a few additional savvy spending and saving tactics to keep in mind:

• Cost Per Wear: This totally comes off as a fashion girl’s hinkey rationalization for a big ticket item, but there’s truth in it. Spending $200 on a dress you’ll wear 10 times comes out to just $20 per wear. A $60 ASOS number that you only wear once isn’t a worthwhile purchase. It’s hard to avoid those cheap thrills, I know, but it’s worth training yourself to spot items you’ll actually get enough use out of. (That said, go for that ASOS dress if you think you’ll wear it as often and the quality will hold up.)
• Rewards Credit Cards: Tread lightly with this piece of advice. As long as you’re able to pay off your credit card debt in full every month, go for a credit card with a great rewards program. I have a Capital One Venture card that’s basically like getting cash back to use on travel purchases. If you’re tempted to overspend, stick with cash or your debit card.
• Plan Purchases: I have a private Pinterest board where I pin potential purchases. So, when there’s an unexpected Lilly Pulitzer sale, I’m not nearly as tempted to stray from my planned purchases to waste money on something else.
• Unroll Promotional Emails: I use Unroll.me to consolidate promotional emails into one email I look at daily. This cuts down on sale temptation tremendously. I also use the service to manage subscriptions to store mailings and unsubscribe from ones I no longer care about. (Is there ever not a sale event at LOFT?!)
• Research Purchases: I understand the temptation of a flash sale, but do some research if it’s a brand that multiple retailers carry. Many times you can find the item even cheaper or discover a discount code at another location.

WHAT’S YOUR BUDGET M.O.?

And, if you just want the wallet…