I’ve mentioned here before how much I changed my life by learning to live on half my income. I did this in Japan and it was a true game-changer for me.
The word “budget” can make some people blanch, and cause others to leave the room completely. But I have some simple tricks that will get you budgeting your hard-earned cash in no time.
1. Fall crazy-passionate-stalkerishly in love with your money. You can say money is the root of all evil and resent the guys with luxe vacation homes, but the only way to have a good relationship with money is to love it. Now I know it’s hard to love money when debt collectors are calling at 8am on a Sunday, but you’d be surprised how quickly you can turn that around. (Trust me. I did it.)
Track your money. Invest a $100 bill and watch it grow. Or even better – share your money. Yep, I said it. One of the best ways to feel more financially free when you’re actually financially freaking out is to share the love. Get 10 $1 bills and spread those babies around. Tuck the $1 bills in envelopes at the card shop, behind the peanut butter on grocery shelves, between the pages of get-out-of-debt books at Barnes & Noble. Imagine the people who will find the surprise money, and what they’ll do with it. One dollar may not sound like much, but I know how excited I get when I find a forgotten-bill in my pocket. What about you?
Money is like water. When it’s fluid, it flows in and out with ease. When you’re rigid about it, it feels like a flash flood that’s intent on drowning you.
2. Follow people who are crazy-passionate-stalkerishly in love with money, and use free services provided to help you get on track. Why do we like Suze Orman when she wears cow-print vests and calls everybody “girlfriend?” Because she’s gaga over money and we can’t help but catch the fever.
Daily Worth is a great website for women with a super-positive vibe, and they have great resources on how to love, save and spend your money. I get their emails everyday.
LearnVest is another great site with an amazing budgeting tool, if the thought of budgeting your money all by yourself makes you squeamish.
Mint.com is an incredible tool – they automatically log into your accounts, track your spending for you, let you know when bills are coming up, create simple budgets and tell you when you’re overspending. For free. I use their services daily.
Lastly, if you’re really curious about how much debt you owe and what your credit score is, Credit Sesame is another great free service. (Maybe have a shot of tequila next to you when you’re about to see the damage. But remember – you can’t fix what you don’t know about.)
If you can’t muster up money passion on your own, catch it from someone else. Follow them on twitter. Get their newsletters delivered to your inbox. Watch their shows; listen to their podcasts. Make loving your money one of your hobbies.
3. Understand your income, and then downsize. My uncle is a self-made man, and he attributes his wealth to living within his means. His car is a top-of-the-line Lexus, but he bought the model from two years ago. He paid off his house before he even considered splurging on a vacation. He has his entire family on a phone plan and when they run out of minutes, that’s it – he doesn’t call and buy more.
If you’re making $30k a year but you have a Marc Jacobs bag and an iPhone, you need to really rethink your spending. You can’t live a smaller, slower life when most of your income is flying out the door.
Getting a ton of magazine subscriptions? Scrap them. All the news you could ever want (or celebrity gossip) is already available online for free.
Decrease your texting plan, and call or email your friends instead. They’ll get it.
Expensive car payment? Consider trading in your car for a five year-old Civic or other reliable set of wheels. I’ve never had a car payment and don’t plan to start. While you’re at it, try calling your local AAA and check out their car insurance deals – they can almost always offer the same coverage for less money.
Walk, take your bike, take the subway, take the bus. Cut down on the crazy cost of gasoline.
Eating out more than once a week? Buy in bulk and cook at home. If it’s the social aspect you like, have once-a-week dinner get-togethers where everyone brings a dish. Cheap and cheerful.
Nasty Starbucks habit? Make your coffee at home. Get a cute to-go canister that keeps your coffee warm all morning.
Blowing your money on a posh apartment when you have no emergency fund? That’s a no-no. Downsize, get a roommate, rent a guest house, couch surf with friends. Live within your means. You’ll feel better when you do.
4. Get rid of debt. Now. When I lived on half my income in Japan, I got obsessed with paying off debt. I made an Excel spreadsheet with interlocking formulas and got as close as I could to using half of my income to pay off debt. I paid off a credit card with an $8k balance in eight months. The day I got the receipt that the account was paid off, I jumped up and down in my kitchen. (Seriously, I did.) I tacked that sucker to my wall and highlighted it. I still have it.
That sinking feeling you get in the middle of the night when you wonder if that late payment raised your interest rates? It’s the worst. Do everything in your power to liquefy your debt as soon as possible. If you’re really in trouble, I highly recommend talking to the NFCC, a non-profit who can help you tackle your debt. Unlike shady debt sharks, the NFCC is a well-respected company (endorsed by Suze Orman at that) who will put you on a three-to-five year debt management plan. Yow make your payments directly to them and they make payments to your credit cards/collection agencies on your behalf. You’ll pay off that debt quickly, often at a greatly reduced rate.
Need some debt-payoff inspiration? Check out zen habits’ How I paid off $35,000 in debt. Here’s a woman who paid of $27k in debt in two years on a teacher’s salary. Check out this one too: How I Paid off My Student Loan in Only Three and a Half Years.
However you have to do it, just do it. (And then email me and tell me how good you feel!)
5. Try the envelope method! I want to put a thousand exclamation marks after this one – this method of budgeting my money was so unbelievably effective, and I still use it. I have Dave Ramsey to thank for this brilliant idea which straight-up changed my life.
Write down your monthly expenses on a piece of paper, minus the bills you pay online. This could include Gas, Food, Fun Money, Bdays/Gifts/Celebrations and Emergencies. Once you have all your categories figured out, get the corresponding number of envelopes and make one envelope for each category. (Hint: Really get into this step. I spent hours decorating my envelopes. I know people who printed designs, photos and cool fonts onto theirs. The cooler your envelopes, the more you’re likely to stick cash in them.)
After you’ve been paid, calculate the money you’ll be using on bills for the month. Pay the bills, ahead of time if you can. Afterwards, withdraw the money (in cash) that you’ll need for all of your envelopes. I currently spend about $120 in gas per month and $300 on food. I give myself $100-$200, depending on the month, for Bdays/Gifts/Celebrations. I put a minimum of $100 in my Emergencies envelope, and often put more in whenever I have the opportunity.
Here’s the ticker: Once you’re out cash, you’re done. That’s it. Blew your whole $200 in one insane weekend? That’s great, but now you’re done for the month. No more fun for you. But next month, I can promise that you’ll budget that money better. Wondering how you’re spending $500 a month on food for one person? Give yourself only $300 and see how you can really make that money work for you.
Why does it work? Because you really feel the zing when you’re handing over hard-earned cash instead of swiping a credit card. Also, nothing can make you rethink impulsive purchases than the feeling of that envelope getting thinner and thinner. When you’re out of cash, you’ll learn to say no to things, and that’s the most important lesson you can learn.
You can even make envelopes for things you want to save for. I have a “Greece” envelope and a “Thailand” envelope, and it makes me so freakin’ excited to put crisp bills in there. Which leads me to what you may have already guessed:
I am crazy-passionate-stalkerishly in love with the envelope method. If you take none of my advice except for this, you can expect to become an expert budgeter, pay off your debt at lightning speeds, and fall super-duper in love with your money. I cannot stress enough how powerful a tool this is.
Try it for 30 days and let me know how it goes – I swear, you’ll be crazy about it too.
Do you have a love affair with money, or is it more of a love/hate relationship?