PERSONAL FINANCE

CAN’T BUDGE

ON THAT BUDGET?

THE IDEAL BUDGET IS THE ONE THAT HELPS YOU ACHIEVE YOUR GOALS

BY SAM SCHIPANI

When my boyfriend Alex and I moved in together years ago, there were so many things to think about. Whose pots and pans would we keep? How are we going to make our decorations work together? What’s the policy on bathroom emergencies when the other person is in the shower?

One of the things our love-addled brains neglected to think about, though, was making a budget. We weren’t living above our means, and we had all that extra cash that comes from splitting rent and groceries.

Besides, budgets are boring! We’re young, footloose and fancy-free!

But now that we’re saving for a house and a future together, the need for a budget is much clearer. How can we plan if we don’t know where our money is going?

Abby Morton, planning director at Gather Financial Planning in Falmouth, said that having a goal in mind is a good first step to setting up a budget, whether you’re a single person, a young couple or a family of 15. Goals can range from paying off credit card debt, saving for a trip or starting an emergency cash reserve (three to four months worth of expenses is a good rule of thumb, she said).

I had tried budgeting for myself in the past, but never had much luck with it. I loved setting up the spreadsheets and downloading the cute and colorful apps, but would inevitably fall off of tracking my spending after a few weeks.

Well, Morton said that she has seen that same behavior with many of her clients.

“There are perhaps a thousand budgeting apps and spreadsheets solutions, but most people don’t have success with adopting them for the long term,” Morton said. “Most people, especially families, are too busy for that. I really try to talk to people about creating a very simple framework that will actually work and will be pretty much automated after they put the work in to set it up.”

The first step is to figure out how much money is coming into the budget through income.

“Sit down together so you know what you’re bringing home every month,” said Heather Massow, certified housing counselor and educator at MaineStream Finance.

Travel

Eating Out

Next, you have to see how you are currently spending your money. This means monthly bills, yes, but also any discretionary spending, to get a sense of your habits. Rebecca Grant, financial coach and savings consultant and MaineStream Finance, recommended tracking your expenses for a month in the way that is most comfortable for you, whether it is saving paper receipts or maintaining an Excel spreadsheet. Be honest with yourself, too. If you’re spending $20 a week buying breakfast empanadas at the gas station even though you have eggs and toast at home (just … hypothetically …), make sure that is accounted for. “A lot of people have those little habits and expenses and they’re not thinking about when they’re putting together their budget,” Grant said. “Make sure you’re tracking all those little expenses.” Once you have your expenditures for the month, add in any regular charges that come annually, semiannually and quarterly. Then, it’s time to figure out where your spending can be adjusted to better meet your goals. One popular guide is to think of your budget in terms of percentages. For example, about 30 percent of your budget should go towards housing, 15 percent towards groceries, 10 percent towards savings (Massow emphasized the importance of including savings into this breakdown, and setting up automatic payments to your savings account) and so on. There are a variety of different suggested breakdowns floating around the world wide web, but ultimately, the percentages will vary based on ONE POPULAR GUIDE your lifestyle.

IS TO THINK OF YOUR BUDGET “It’s just a guide, roughly,” Grant said. “It’s going to

IN TERMS OF PERCENTAGES. vary based on the person’s situation to begin with.”

FOR EXAMPLE, ABOUT 30 Morton said that it can

PERCENT OF YOUR BUDGET also be helpful to consider average expenditures in SHOULD GO TOWARDS different categories. HOUSING, 15 PERCENT TOWARDS “I’ll often do that with groceries,” Morton said.

GROCERIES, 10 PERCENT “If you are a family of TOWARDS SAVINGS ... four, $10,000 on groceries is normal whereas $17,000 AND SO ON. is kind of high. Percentages will break down sometimes when you have different kinds of

income, especially for things like groceries and housing and things like that.”

Grant said to figure out what elements of your spending are “needs” and what are “wants.” Some are obvious — you need a roof over your head, but you probably don’t need a breakfast empanada every morning — but others will vary depending on a person’s circumstances.

“If [you’re] working from home and their job requires [you] to have internet, internet becomes a need and not a want,” Grant said. “If it doesn’t fall into the category of what you need for everyday living, to get to work, to have a safe home for your family, then it may not actually be a need, it might just be a want.”

Not every “want” has to go away, but chances are, you will have to make some cuts in your spending. If the cuts hurt, Grant said it can be helpful to remind yourself of your goal — perhaps the cuts are only temporary until, say, you pay off your credit card debt. Also, you don’t have to cut out all the joy in your life.

“We’re not saying don’t ever eat out again,” Grant said. “We’re just saying to cut back.”

Once you have figured out your budget, the final step is to make it stick. Massow suggested trying the “envelope method,” where you take out the money for each part of the budget in cash at the beginning of the month and put it in envelopes. When your money is gone at the end of the month you don’t have any more to spend on that until you get paid again.

If you don’t think you can do this in the long-term, Morton said to try paying in just cash for three months.

“The cash really slows the process down and it’s a whole different psychological exercise, especially if you bring in big bills,” Morton said. “You psychologically don’t want to break that $50 so you’re a little more careful with it.”

Once you have settled into your budget — or “cash flow management system,” as Morton said she sometimes prefers to call it — it should, ideally, be easy to maintain.

“‘Budget’ can start to be a dirty word that people don’t want to hear,” Morton said. “You don’t want that negativity of a budget being boring or dragging you down or a stumbling block. I love budgeting because it’s just such a fundamental piece that almost everything else is better once you have got a handle on that.”

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