Being “on a budget” doesn’t mean you’re poor

The more I learn about personal finance, the more things stand out to me. Often I’ll read or hear the phrase: “If you’re on a budget, this [inexpensive item] is a great option for you!” News flash: We’re ALL on a budget. Every last one of us! The word “budget” can get a bad rap. It might conjure images of eating beans out of a can, putting coins into rollers, or clipping coupons (none of which are shameful or bad, for the record). When some people hear “budget” they think “poor,” or “restrictions.” For those of us personal finance folks in the know, a budget is simply a tool we use to make sure our money is properly directed to where it needs to be.

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Cash.” Image from Pinterest.

Here’s my point: Everyone has a budget, even if they haven’t defined it. The budget of a family that earns $300,000 a year will look different than that of a single mom working two minimum wage jobs. Everyone’s budget is completely unique, and how you define that budget is up to you. The reality is, even the wealthiest person has finite financial resources. A budget is a structured tool that simple tracks “money in” and “money out.” Everyone should know where their money is going—regardless of how much or how little of it they have.

“I don’t have a budget, and I don’t need one,” you insist. “I make enough money, I pay my bills on time, and my accounts are in good standing.” Yes, you still have a budget, you simply haven’t defined it yet. Even if you don’t overdraw your account, put money into savings every month, and pay all of your bills, you still need to define your budget. Budgeting brings to light financial blind spots you may not see until you’ve done your homework. And believe me, you need to do your homework.

Your budget can have space for all of the lovely wonderful things that bring joy to your life: Golf memberships, yoga classes, brunches, concert tickets, vacations! But defining your budget and bringing it structure may help you to meet your future financial goals. It may be a wake-up call. When I started tracking my spending, I realized I had spent $500 in one month on clothing and beauty products. When I only earn $2,000 after taxes, that’s a big red flag. I needed to see what I was spending in order to define my budget—so that I could try to stick to it.

Defining a budget requires a two-pronged approach: 1) Make a list of all your “obligations.” Utilities, bills, debt payments, housing, etc. 2) Track your spending for a few months and add up what you spend in each category. Find a number that falls between what you actually spent and what you feel “fits” into your income with your obligations.

No one is perfect: Be flexible with yourself.

For example, I allow myself $100 for clothing each month, $100 for beauty, and $100 for eating out (combined with my fiancé). I may not stick to that budget every single month exactly, but I know my ballpark figure and try not to go too much over. Simply being aware of where you are is empowering, rather than letting all those “small” purchases add up without realizing. I recommend keeping a money diary where you write down all your spending on a daily basis, and a daily to weekly update of a spending spreadsheet, where you can track your spending by category (this works well in a Google Sheet for myself and my fiancé). It doesn’t have to be fancy, or perfect, your just have to do it.

Budgets are for all of us! Have you defined yours? Let me know in the comments.

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12 questions to mitigate impulse spending

Throughout my journey to financial fitness, I’ve been thinking more about my spending habits. Instead of mindlessly slapping down my credit card (or entering my password and hitting that dangerous “complete order” button), I’ve started asking myself a combination of these questions:

1. Do I like the product or the packaging?

Be honest here. Companies are really sneaky when it comes to packaging. Beauty companies come to mind—I dare you to walk into an Ulta or Sephora and not be seduced by something, even if you don’t know what the item is. Whether you’re into all things cute and feminine or like sleek minimalist aesthetics, packaging can be quite alluring. Think about the product inside—were the product in basic or even ugly packaging, would you still want it? Example: Room spray in a beautiful lavender iridescent glass bottle, but I didn’t like the scent—I almost bought it just for the pretty bottle (that didn’t appear to be reusable).

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Case study: Packaging & marketing that worked almost seduced me: Birthday Cake Balm Dotcom. Photo: Glossier

2. How does this purchase inspire my creativity?

This is a great question when it comes to purchasing items for your hobbies. If you get inspired by a sparkly pink eyeshadow and have a vision for a look to create, you may want to buy it—after asking yourself the rest of the questions, of course. Example: The Anastasia Beverly Hills Aurora palette with its untraditional shades gives me so many interesting looks, not just for highlighter but layering over eyeshadow.

3. Will this fit me–as I am now?

Never buy items for a future body goal. It’s not motivating, it’s discouraging. If you’re on a weight loss journey, buy items that fit you now, donate or sell them as you outgrow them, and only keep clothing that fits you. The same goes for oversized clothing. Example: Adorable sweatshirt from TJ maxx that was two sizes too large for me. I ended up putting it back because I knew it would be too baggy.

4. Is this an aspirational purchase?

Understand where the “idea” to buy the item came from. Was it on YouTube? Am I unconsciously trying to emulate someone else’s lifestyle by purchasing this? I once considered buying a milk frother after watching a video on YouTube of someone making the perfect matcha latte (which I don’t even drink, but I want to be the type of person who drinks a matcha latte, if that makes sense). Fortunately I skipped that purchase once I caught myself in that “aspirational” mindset.

5. Does buying this item somehow support my future goals—and if so, how?

These goals could be personal or financial. Items in this category include: fitness equipment, self-help books, web-building services, and the list goes on. Of course, be mindful of spending without action to follow up. If you buy a $60 yoga mat and never use it, consider that money wasted. I consider these types of purchases “investments in your future self,” but they have to be managed carefully.

6. Will this item integrate with my current lifestyle and storage needs?

While that $300 blender might make bomb green smoothies, it’s more of a burden than a benefit if you don’t have a decent place to store it. I’m currently fighting this battle with my wedding registry, which is a little different since the items a) aren’t purchased with our money and b) are designed to go in the house or condo we will eventually have. Think about your current situation—do you have a plan to store this newly coveted “thing?” Or is this a purchase you’re making for a “future self” (see previous question)?

7. If I postpone this purchase, or look elsewhere, can I get this cheaper?

This strategy is gold. Example: I was going to buy my trusty niacinamide and zinc serum from an online retailer for $15, when I got the original bottle from Marshalls for like $5. I held off until I went to a TJ Maxx, where lo and behold my serum was there for $6. By delaying my purchase, I saved myself from paying nearly three times as much for the exact same product.

8. What have I already spent on this category this month?

This works if you’re tracking your spending—which you should definitely be doing. I keep track of all my purchases in a notebook and enter them into a spending tracker spreadsheet that I share with my fiancé. Example: I budget $100 for clothing each month (sometimes I do go over). Monitoring my spending by category helps me to remind myself what I’ve already spent, and keeps me from going on spending sprees or buying things I can’t truly afford, even if I technically “have the money.” If I can put it off until the next month, I may not be tempted by the same item(s) anyway.

9. What does my current “inventory” look like?

Before buying yet another pinky-nude lipstick (guilty as charged) or pair of black yoga pants, get real with yourself about your “inventory.” Consumerism is rampant these days, and it can be so easy to be sucked in by a good sale, clever marketing (see next section for more on that!) but at the end of the day, think about whether or not you truly need “another” of whatever you’re about to purchase. Humans are creatures of habit, and as consumers we tend to gravitate towards similar items, often leading to a surplus of “dupes.” It’s perfectly acceptable to replace favorites as items reach the end of their lifecycles, but try to avoid accumulating heaps of similar items, perhaps not all of which will be enjoyed or used.

10. Am I being marketed to?

As the saying goes, “a sucker is born every day.” It can be harder to spot these days with ads embedded as sponsored YouTube or Instagram content, and those familiar ads that pop up in our sidebars based on our browsing history. And let’s not forget “just for you” promo emails with coupon codes that can put the pressure on to buy now. Always ask yourself if you’re being marketed to—make yourself aware of that fact, and choose how to respond. Example: You may see an ad for a crystal-infused water bottle and be compelled to check them out, only to discover they’re $80 (me), but remember—it’s all just clever tactics companies use to get your money, and they can be really good at it. Stay strong, be informed, and don’t be a sucker.

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Confession: I almost bought this $84 “crystal infused” water bottle because of an instagram ad. Sorry, Glacce, I’m not your sucker. Not today. Photo: It’stheNow.com

11. How am I sufficing without this item/product?

9/10—probably just fine. When we see something, our brains can often find ways to rationalize how this will make our lives somehow easier/better. Let’s face it: most of the time, it’s all a lie! Find ways to use the things you already have in new ways. If the item truly offers a “solution” to an active problem in your life (i.e. shoe organizers to get your kicks off your closet floor) then maybe it’s worth considering. I find that this question helps me draw a clearer line between my wants and needs.

12. Does my purchase of this item/product align with my values and ethics?

I ask myself this question a lot since I’ve become cruelty-free. I am now about 90% cruelty free and as such, I tend to be more conscious about my purchases. Fortunately, more brands are going cruelty-free/vegan/organic, and using sustainable practices. Think about how the production of that “fast fashion” can impact the environment, and it may encourage you to look at other options. As consumers, we have the power to “vote” with our money. Consider brands that support causes that matter to you (like Tom’s shoes, for example). If a product is not only something you truly want (and need), but also aligns with your values, it’s a win-win.

The Ant and the Grasshopper

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Illustration: Library of Congress

This Aesop fable came to me in a dream a few days ago, and I haven’t been able to get it out of my mind. Early spring is the time of year when (for the past 2 years) my fiance and I plan a vacation for the last week in April. In 2016 we went to Arizona, last year we went to California. We had so much fun, and looking forward to a vacation brings some light to what can be a really hard time of year in the northeast: spring is (technically) here but it’s cold, and things are still brown and barren. This year is different: we’re getting married in July, and working toward buying our first home. While we do have some financial help with the wedding, there are still many expenses we’re covering on our own. When it comes to buying a house, there’s no such thing as having “enough” money. Even with a no money-down loan, we still have to worry about closing costs, real estate fees, inspection, and future improvements. Since last fall, we’ve buckled down hard on our finances. We’ve been diligently tracking every dime we make and spend, making a practice mortgage payment each month, sticking to a budget, paying down our existing debt, and majorly scaling back on frivolous spending (eating out, clothing, movies, etc.).

We knew this year it wouldn’t be wise for us to take a vacation. Not only do I have to save every iota of paid time off from my employer to take my vacation week off, but we just can’t afford it. I guess we could–but we know we shouldn’t. Our “new lives” are filled with a discipline and restraint we never really practiced until our goals became clearer (and closer). We are the ants–saving and storing our grain for the hard times ahead when we know we’ll need it. I desperately want to be a grasshopper, living a carefree life enriched with travel and energizing experiences. It pains both of us to know that we’re missing out on that this year. But we hope that marriage and home ownership will be new kinds of adventures for us, with different rewards. We accept that this is simply a season in our lives, one that we need to go through if we want to become homeowners (which we definitely do). We crave roots, a place to call our own, a washer and dryer, a basement, a place we can invest in and make our own. We want to build our lives.

It’s okay to be the ant. Maybe it’s even better. We’ll keep our heads down as we work away at building something that will last for many seasons to come.

10 steps we’re taking before buying a home

 1. Completing homebuyer education.

If you’re looking to buy a home for the first time, I highly recommend checking out homebuyer education programs in your state or area. Many states offer incentives and special programs for first-time homebuyers who meet certain income requirements, and the USDA Rural Development also offers programs for low-income individuals. The program in our state also includes one-on-one first-time homebuyer counseling, which can help individuals and couples better prepare for this life-changing financial event.

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Dream home: Gorgeous A-frame cabin. Image via Pinterest.

2. Tracking our spending.

Truth: This is something that is really difficult to start doing. But once you do start—I promise—it does get easier. I recommend using pen-and-paper methods, and then entering the purchases into a spreadsheet later. If you have a partner, both of you should be tracking as a “unit.” The physical act of writing each and every purchase down keeps me accountable and more aware of what I’m spending on. It becomes a habit if you do it consistently, and you may actually find some satisfaction in the ritual itself.

3. Identifying “problem areas” of spending and addressing accordingly. 

Patterns will emerge once you begin tracking your spending. I found that was spending $25-$40 a week on workday lunches. My office building has a cafeteria which is extremely convenient (and delicious), but their food isn’t cheap. I’ve willfully banned myself from buying lunches out, including my beloved Panera and Chipotle—at least for now, I’m committed to bringing food from home DAILY. I still allow takeout once a week and dining out once a week. It makes the times I do eat out more special, and is an easy category to cut back on, especially if you’re ok with eating leftovers!

4. Stalking my credit reports/score. 

We learned in homebuyer education that the “magic” credit score to open the doors for eligibility for mortgage lenders is 640. Mine is somewhat above that (thanks to a lot of hard work). I keep track of my score via Credit Karma, which is a handy site/app that gives a well-illustrated snapshot of your credit and provides weekly updates and notifications of changes to your credit score. One con is that Credit Karma only pulls from two of the big three major credit bureaus (Equifax and Transunion), so for Transunion, you can always pull from AnnualCreditReport.com, which directs you to each bureau to request a free copy of your report (does not include your score). It seems like a no-brainer, but you’ll want to comb through your reports to ensure everything looks correct, and resolve any disputes well before applying for a mortgage—doing so right before your lender pulls your credit will actually cause your score to drop.

5. Avoiding applying for ANY new credit. 

Applying for new credit is always damaging to your credit score. Hard inquiries can remain on your credit report for up to two years. A single credit card may not be too bad, but what can really hurt is applying for an auto loan. A few years back, I traded in my failing car for a “new” used car, going from loan-free to having a monthly auto loan payment. Three months later, I was rear-ended and my new car was totaled, forcing me to apply for another auto loan. Typically dealers will apply on your behalf to several lenders, seeking the best interest rate. Each inquiry to each lender will lower your score a bit. If your car is in working condition, try to keep it until you are in your new home. If you desperately need new wheels, consider buying a cheaper used car in cash, or going through a credit union for financing to avoid multiple hard inquiries.

6. Keeping my oldest lines of credit active/not closing any credit accounts. 

Keeping lines of credit open is key for healthy credit. In general, the longer you’ve had an account, the more of a boost it gives your overall score. Lenders look for average length of credit when viewing your creditworthiness, so it behooves you to maintain older credit accounts, even if you use them infrequently or want to close them. Once you’re in your new home, you may want to gradually close accounts one at a time or let them inactivate on their own, but as you’re preparing to apply for that mortgage, keeping your accounts active is usually the best option.

7. Watching my utilization ratios like a hawk. 

When it comes to credit, ratios are key. When assessing creditworthiness of potential borrowers, lenders want to see that you can use credit responsibly. Ideally, you should only be utilizing 10% of your total available credit in revolving accounts. That means if your card has a limit of $1,000, you should only “use” about $100 of that. This can be difficult to accomplish, but remember: don’t be afraid of high credit limits. If a lender raises your spending limit, that is ultimately a good thing, because it automatically decreases your utilization—just be careful not to turn that available credit into debt.

8. Saying no to things I love that cost a lot of money. 

This one is painful for me because it includes two things I’m passionate about: travel and getting tattooed. These “expensive hobbies” are being set on the back burner until we get into our new home. Travel is an important human experience and something I want to do as much as possible, especially before I have a family to look after. I’ve tried to approach this with my partner and see if we can plan a “lite” vacation or a small getaway next year, but he’s been firm in our need to buckle down and focus on saving for the house instead. He is, of course, right. We are on the low-income spectrum (very much working class, not middle class) and we’ll need as much as we can in liquid funds to cover expenses. So…I’m (grudgingly) postponing any travel and tattoo plans for the foreseeable future.

9. Sitting tight in my current job, even though it won’t be my lifelong career. 

While a new career with a better salary may make mortgage payments easier to manage, lenders are looking for stability when determining what to give you for a mortgage—this is especially true as a first-time homebuyer. Lenders are always assessing risk, and one of the easiest ways to do that is by looking at your employment. They’ll want pay stubs to prove your income, and being at your current job (at least within the same organization) for 3+ years is ideal. A job or career change may not be a deal breaker, but it will weaken your position as a first-time homebuyer. There are times where a job change may not be an option, but if possible, it’s best to sit tight until you have closed on your new home.

10. Editing my possessions. 

Two years ago, I read Marie Kondo’s viral book, The Life-Changing Magic of Tidying Up. While I didn’t exactly follow her all-at-once declutter style, her book DID bestow on me the important question to ask myself when regarding my “stuff:” Does this spark joy? Another question I also ask: Is this useful? If they both are met with “no,” I eliminate it without further questions. I’ve yet to regret an item I’ve decluttered. Less is more, especially when packing and moving. In our consumerist society, we tend to accumulate more possessions the longer we are in a place. I plan on doing myself a favor and beginning my tenure in my OWN home with only things that bring me joy.

Are you on a journey to become a homeowner? Have you already bought a home? If so, what advice would you give to first-timers (like us)?

Money talk: Donating $ while in debt

When Hurricane Harvey ravaged southeastern Texas, one of the first things I thought was, “what about the animals?” Household pets, livestock, and wildlife were lost, abandoned, or even killed by the effects of the storm. As an animal lover, it hurt my heart knowing that innocent animals were suffering. From 2,000 miles away, I was compelled to put my money where my heart was, so I donated to a national nonprofit whose efforts were going to help displaced and homeless pets affected by post-Harvey flooding. My donation was modest; my income and debt levels don’t support the ability to give large amounts (I graduated this year with over $40,000 in student loans). But it still felt wonderful to be able to say I did something, especially when I couldn’t actually “do” anything.

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After submitting my donation, casually mentioned it to one of my older family members. His response: “When you squeeze your budget to live within your means and attack your debt, you may discover that donations are a luxury you cannot afford!” Mind you, this family member is from a different generation—one that didn’t use credit, and was raised to believe that if you owed money, you paid it back before “just giving it away.” Like many other millennials, I live in the shadow of student debt. I also spend some money on occasional meals out, a leather handbag, and way too many lipsticks. “Frivolous spending” is something most of us are guilty of, even when we carry debt burdens and earn modest incomes. But when we give our money to a cause or organization we believe in, our mindset shifts: no longer is it a purchase or expenditure we’re apt to later regret (added to our waistline or as clutter in our home), but an unselfish, intentional investment in something that actually matters.

“Tithing” (donating 1/10th of one’s earnings or belongings is a part of the Old Testament, and many religions believe that consistently giving to one’s church or charity should be a priority, even in times of financial hardship. I’m not religious, but I do believe that giving is still important, but should be adjusted to your personal situation. Ten percent is a steep number if you’re only making $35,000 a year—about $290 a month. That amount could be better spent applied towards some of your debt burden. But what about $10, $25, $50? These can be allocated into your actual budget, alongside your groceries and utilities. “Smaller” donation amounts aren’t going to make or break you financially, and that intentional spend goes toward something that’s not only relevant to you, but also benefits the community/country/world as a whole. A $20 donation to the World Wildlife Fund may not “do” much on its own, but it represents your charitable intentions and backs a cause you believe in. It also supports a healthy habit of giving and generosity, which can grow as your income grows and debt burden decreases.

Some personal finance writers are adamantly against giving while carrying any kind of debt burden. As far as I’m concerned, there is a significant difference between donating money when you’re living off of credit cards (bad) and doing so when you are living reasonably within your means and chipping away at debt (good). Not giving any money to charity is a Scrooge mentality, and does not align with the type of person I want to be. Giving to those less fortunate or advocating for causes like the environment and animals is and always will be an important part of who I am.

It is also important to remember there are other ways of giving than donating money. We can donate clothing, shoes, books, and household goods to organizations like Goodwill. We can give old blankets to an animal shelter. And of course, perhaps the most valuable of all donations, is that of time—which for me personally, is more difficult to part with than actual cash. So many organizations are in need of volunteers—if you can’t give financially, then consider giving the gift of your time.

If we postpone giving for when we (or if!) are completely debt-free, we could be spending decades of our lives not giving. And if we choose not to give, we’re ultimately doing ourselves a disservice by not living with intention.

What are your thoughts on charitable giving with debt? Tell me in the comments below!