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You know why everyone spends so much money on Starbucks instead of saving? Forget the seasonal drinks (although they’re a silent killer). It’s the fact that you’ll never find a neighborhood without one.
I started my Starbucks addiction in college. There were two locations on campus with the small, less crowded one right next to my dorm. And by sure luck, sometimes I’d get Starbucks for free. Now if you think about it, this is genius. You’ve got overwhelmed college students trying to stay awake. Coffee is the easiest way to do it. And if you put it right in front of their faces, they’ll catch the bait.
Fast forward to now. I’m telling my boyfriend that I don’t want to be one of those people who spend hundreds on Starbucks yearly. Have you seen that app that roasts you for not meeting your savings goals and spending it on frivolous stuff like Starbucks instead? Yeah, I saw that and it dawned on me just how getting Starbucks a few times a month can amount to hundreds a year. It doesn’t help that they charge me extra for soy milk (dairy intolerance). That’s $6 for my Frappuccinos which is something I could easily make into a meal for four people. Yet I’m here spending money on Starbucks.
So I tell my boyfriend that I want to reduce the times I go to Starbucks. And then in the next few days, the worst occurs. Fall season arrives and Pumpkin Spice Frappuccinos are now available. Since then? I’ve probably spent $30 on Starbucks with my boyfriend. I’ve literally gone to Starbucks more in the past few weeks than in the few months before it.
Why does this matter? Because I only said I wasn’t going to go to Starbucks as much. I never laid out a plan and told myself how many times I could go. I didn’t even make a promise.
The point is we always say we’re going to save, but then do the exact opposite. It’s not that we don’t want to save. We just don’t put it into action. We keep it as words that hold no meaning without any action to back it up. That’s why if you want to save, then you need to start acting. And one of the first actions to take is figuring out how to create a budget that works for you.
Set Time to Create a Budget
In order for you to take this seriously, you need to intentionally set time to create a budget. Otherwise, if you do it in the midst of doing everything else that you have to do, you’ll find yourself not giving enough time to budget.
Write down your income and expenses for the month.
Write down your income for the whole month. Make sure to separate overtime from your base pay. Then write down all your expenses. You don’t have to literally write them out. You can make a spreadsheet or copy them from your bank statements into a word document.
Avoid using your bank’s statements because it’s usually not accurate.
The reason why I said to write down your expenses on your own is because the bank will more than likely mess up the categorization of your expenses. And categorizing your expenses is important to finding out where all your money goes and where you can save money.
Figure out your 50/30/20 allocation.
The common rule to budgeting is this 50/30/20 rule. This states that 50% of your income should go to fixed expenses like rent and car bills. 30% of your expenses should go to variable expenses such as groceries, dining at restaurants, shopping, etc. Then the last 20% of your income should be your savings goal.
If you find yourself spending more than 50% of your income on fixed expenses, you need to figure out why. More than likely, if you’re living in Los Angeles or any city in California, you’ll be spending more than 50%. But if you’re in a position to live with roommates and bring that percentage lower, you should consider it.
The variable expenses is the part you need to focus on the most. Because if this part is the largest, then this is the part you need to trim the fat. And good news for you, this part is the “easiest” to tackle. Because if you’re spending more than 30% and have a shopping addiction, then that’s something you can take control of versus something like rent.
As for your savings goal, this is the whole reason why we’re budgeting. Know the reason why you want to save and that will be your motivator.
Consider an auto-transfer of your new savings goal.
If you have a checking and savings account in the same bank, consider an auto-transfer of your savings goal. That way no matter what you’ll hit your goal. This may not be for everyone. If you’re really strapped for cash, consider auto-transferring what you know for sure, regardless of your savings goal, that you can meet.
Categorize your variable expenses (anything not fixed).
Now that you’ve written your expenses down and figured out the allocation of your expenses. You need to categorize your variable expenses. This means that you need to group the expenses that are for groceries, for going out with friends, for entertainment such as Netflix or Spotify, shopping, etc. The list goes on. The reason for this is that variable expenses is the part of your spending that you really have control over. And this is where we’re going to spend our time reducing what we spend.
Find out the average of each category.
Now that you’ve categorized your variable expenses, identify the average of each category. This will allow you to see how much you spend. And fair warning, it might be an eye opener.
The amount of money that I spend on food beyond groceries is the majority of my variable expenses. Let’s just say… it’s a struggle to stop myself from indulging.
Set Budget Goals
Now that you see how much you spend on everything, it’s time to get to the nitty gritty. It’s time to set budget goals.
Don’t reach for the stars and assume you can shave off $100 dollars off your monthly grocery budget of $400/month. Start small because you will find yourself struggling and wanting to quit especially in the beginning.
The goal here is not start with outrageous goals, but to train yourself and show yourself that you can do this.
Figure Out Steps to Take to Ensure You Meet Your Budget Goals
Just like saying you’re going to save and never do it, if you say you’re going to meet these budget goals and don’t have a plan, it’s not going to work. So if your goal is to spend less on groceries, look at what your grocery lists consist of. If you see you spend most of it on snacks, then limit yourself to one item per week. For more tips on saving money on groceries, check out my full guide here.
Don’t Forget Misc Expenses
Miscellaneous expenses are what kills all of us. It’s what prevents us from reaching our savings goal or worse puts us in the red. This is why it’s important not to forget these miscellaneous items when you’re budgeting. These items might be a car battery replacement or simply a stop at the gas station to get a drink because it’s ridiculously hot and you’re dehydrated. Whatever the miscellaneous expenses you have, you need to have a gap in your budget for this to fall into.
Don’t Forget Bi/Tri-Monthly or Annual Expenses
This is one thing I forgot. When my boyfriend’s PlayStation Plus membership came rolling around, it was another $24.99 that wasn’t accounted for. Now that might seem small, but that can be the difference between reaching your savings goal or owing money. The littlest amount counts! So take account for these expenses that might happen every two or more months.
Adjust Your Budget
Budgeting isn’t a perfect process. You’re going to make mistakes. While you want to come into this knowing you’re going to get it right and with the motivation to do so, give yourself grace if you fail.
The point is that budgeting is a learning process that requires adjustments. So if you find yourself not meeting your goals, look at your budget, identify your areas of struggle, and find out what you need to do in order to reach your goal next month.
The most important part to budgeting is never giving up. The moment you give up on trying to save is the moment you lose control over your money. Can’t meet your savings goal? Put as much as you can at least. Because here’s a secret, that’s totally what I did. If you’re overwhelmed at any point in the process, just remember that’s it’s better than how it was yesterday.