3 Tools to Herd in Your Spending & Keep Your Income Stable
Plotting about get rich quick schemes can be unproductive, when you can have more immediate control and keep more of the money you already have with the use of a personal budget, even if you think you don’t have enough money to budget. As a person’s income rises their expenses and spending tend to rise with it, sometimes leaving them worse off than they started. A budget can help you save more to invest and payoff debts, and gives you a great sense of freedom knowing you are in control of your money.
Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver.
Another way I like to think of a budget is like having your own Air Traffic Control. Different airspace traffic control towers can handle takeoff and landing of planes, your budget should handle incoming money streams and outgoing money streams. Traffic control looks out for bad weather and airplane traffic; your budget should prepare you for unexpected financial shocks or increases in expenses with the right course of action. Traffic control handles different flights within their airspace zones and flight routes; your budget should track and monitor you different categories of expenses, debt or credit levels and plans for your financial destinations or goals. You get the idea; your budget is responsible for your money traffic and without one financial accidents can happen and you could lose track of your money.
High Level Budget Strategy
The three tools I use in my personal budget system are Google Spreadsheets, Mint.com and Level Money.
Google Spreadsheets or Excel allows for flexible financial planning and would serve as your blueprint and tools to planning and designing your “Financial Road Trip”. When we need to get a little more advanced, Mint.com is the right tool and acts as our “Financial Google Maps”, to navigate our trip and track our financial journey within bugetary borders and boundaries. Level Money is our “Financial Compass”, our money meter that makes sure we are going in the right direction and have enough fuel.
With spreadsheets, you have the flexibility to create different financial calculations on the fly. I was able to experiment with different budget levels first in sheets and map out what were my stable expenses (Fixed) from my expenses that fluctuate month to month(variable). Add another column next to the amounts for a goal/ preferred amount. Since you can only have one active budget at a time in mint and instead of constantly changing the budget levels of different categories, which would weaken the integrity of my budget, I used excel to create set three budget levels.
I used special terms to represent varying budget levels. In the middle is my normal budget level (Cruise Control – Green ). A tight budget (Mayday – Red) would be a 25-50% decrease in variable expenses. An expanding budget (Drift – Yellow) would be a 10 – 20% increase in fixed or variable expenses from normal budget levels.
I update my mint budget based on one of three budget levels once every three months if necessary or immediately when a significantly large expense risks budgeting me 2 months or more over budget a number of categories.
When it comes to software, we are moving away from one time purchases and moving towards subscribing monthly or annually to more software as a service. Overtime these small or large subscriptions can add up, so it is important to keep track of them. I have a spreadsheet that lists all of my web or mobile subscriptions and their monthly and annual costs. Now I can see the big picture view of how all of these costs add up and make strategic decisions on what services to unsubscribe from or are worth keeping.
From the example spreadsheet above I’ve listed a small portion of subscriptions and with this I see the total costs per month for all these subscriptions as well as their total annual cost. When I need to make decisions on what subscriptions to cut back on, I can see it’s price relative to other subscriptions I have as well as my specified level of importance.
When planning your budget try to have a buffer or extra money as insurance. Your preferred level is your ideal budget level but in practical use when your budget is at normal level it accounts for some extra buffer to reduce the chances of going over budget.
Budget templates from Google:
Mint intelligently categorizes your transactions for you which allows for accurate budgets.
You can have a quick view of your cash flow which shows how much you spent vs how much you take in. Based on your spending activity and budgets mint also intelligently displays alerts when your spending patterns shift sharply.
Although mint seems to use their advice section to pitch other services, one feature of advice that is handy is the reminder when you go over a certain credit utilization which can negatively affect your credit score.
You can view your score easily and for free at Credit Karma with a detailed breakdown of why your score is what it is, how you can improve it and what your odds are for qualifying for various loans and credit cards.
Some more information you can see is your overall spending percentage based on category, your total spending amount and net income over time.
Mint also provides many more ways to drill down and explore your own personal data and uncover patterns and trends.
You can set up financial goals and mint will help you track and project how long it will take to reach a goal based on the total contributions you set. If you fall behind or are ahead, mint will let you see your current progress on the goal.
I aim to check into mint once a week to fix any issues with automatic categorization of transactions and see my budget levels. At the end of the month I check to make sure that the budget is on track and usually every 3 months I will do a deep dive and try to find trends in my spending for that quarter.
Level Money a mobile app available on ios and android, automatically updates spendable cash as you make purchases each day, providing a simple, real-time picture of how you’re doing in order to stay in the black all in the palm of your hand.
Level calculates a daily, weekly and monthly spending meter which is simple enough that it makes it easier to actually follow your high level budget. You have a quick view on high fast your spending immediately and you can slow down when needed to make sure you are on pace to meet your budget goals.
If you have an android device, there is also a widget available.
Benefits of Budget:
- Better understanding of where your money is going
- Determine your financial health
- Reduce Stress and Uncertainty
- Helps you towards financial goals like saving more money
- Helps you see patterns in spending and adjust accordingly
- Builds character, responsibility and discipline (Key benefit)
The dangers of not having a budget are much more costly than the efforts it takes to maintain a budget and with the technologies we have available you can set up a budget with very little effort and it can work automatically in the background with little maintenance. Of course a budget will only get you so far as you must have the discipline to follow through on your budget.
With Spreadsheets, you have a range of budget levels you can put in place and a way for you to track subscription costs among other things. Mint allows you to better understand the flow of your money and your overall financial landscape and boundaries. Level gives you quick info on your daily spending allocation so you can better pace your spending.
Sometimes constraints are helpful, they force you to simplify and make your priorities clear
Too many people spend money they earned..to buy things they don’t want..to impress people that they don’t like.
I hope some of these systems and tools help you to keep more of your money, pay down debts and give you the runway to takeoff to your financial success.
Please share if you found this valuable or know someone who could benefit with these money herding tips.
Let me know what tools or systems you use to budget or other thoughts down below in the comments or email.