Power of a Budget

Note: To join our once-a-month e-mail Budget Boot Camp, sign up here. Here are the lessons we've done so far:

Why Budget: According to studies, the most powerful predictor of successful weight loss is TRACKING what you eat. So it shouldn’t be a shock to realize the best way to ensure healthy spending is to TRACK WHAT YOU SPEND. Take frequent and honest looks at your spending habits. For anyone who’s ever kept a food diary, you may be surprised by what and how much you are eating (FIVE bowls of Frosted Flakes! Really?!). Spending money is the same way—we’ve all developed some nasty habits. The first step to making those corrections is to track your spending so you can identify where you can “trim the fat.”

How to budget in three easy steps: 

Step 1: Create a budget

Don’t worry—you can always adjust it later, just get something down.

  • Mint.com and Yodlee.com are free (and awesome) ways to automate budgeting for people with multiple bank accounts and credit cards. Just create an account, add all your various accounts and cards, then set up your budget. (FYI: We're not getting paid to recommend these sites--they're just the best). You may find you want to use a spreadsheet in addition to these tools.
  • Many banks and credit cards offer free budget tools that can be created in minutes.
  • If technology overwhelms you, if nothing else, write it down (see example budget here:).
  • Lauren and her husband use a combination of Yodlee and an Excel Spreadsheet. My husband and I use Quicken, but it's not the most user-friendly for new budgeters.

--SPECIAL NOTE--Include a “mad money” account in your budget (More details here). It’s good to be disciplined, but just like a hungry dieter, if you feel deprived you are less likely to stick to it. Each spouse should have their own little mad money that they can spend on whatever they want. The trick is to set a specific amount so you can buy some fun things guilt-free. It’s okay—it’s part of the budget!

Step 2: REVIEW!

The most important aspect of budgeting is to review your spending regularly (at least monthly). My husband and I find it’s easier to remember if we review on a weekly basis, on the same day of the week. We have what we call our “audit” every Sunday (sounds serious, I know--let it be known these audits are often conducted in our pajamas). Basically, we make sure all our transactions got downloaded, then we:
  1. Look at our overall budget and how we're doing
  2. Focus in on any "problem" categories
  3. Brainstorm on what we need to do to improve and make any changes necessary

Step 3: Make Adjustments

If your expenses are exceeding your income or you're not putting away enough towards savings, retirement, etc., then you have two options: (1) Increase income or (2) Cut expenses. Here are some ideas for both:
  1. Extra sources for income
    • If your job is hourly, can you take on extra hours? Can you get a second or third job? (During the last year of our Master's programs, to ensure we could be debt-free soon after graduation, my husband had three part-time jobs and I had two.)
    • Turn unused items into cash (cars, old cell phones and other electronics). Sell online or have an old-fashioned garage sale.
    • In the long term, consider getting additional education that would qualify you for a better paying job.
  2. Ways to Cut Spending
    • If you are renting, shop around for a more modest place to live that better meets your budget.
    • Eliminate recurring expenses such as cable (use internet tv) or other memberships. Changes should be sustainable. Dropping our cable seemed like a tough decision at first until we realized almost all the shows we watched were available online for free.
    • Cut back on eating out (limit to once a week, once a month, or whatever is needed)
    • Cut your grocery bill by cooking more (in season produce = cheap), buy fewer prepared foods
    • Consolidate insurance (auto, home, life) for discounts, make sure you're getting all the discounts you deserve, or if needed shop around for a cheaper company
    • Get a cheaper cell phone plan that still meets your needs
    • Cut credit card interest expense by paying off balances (see our debt page)
    • Old fashioned saving: borrowing books/movies from the library instead of buying, thrifting instead of buying new
    • So many more ideas! Get creative.
Budgeting may seem restrictive, but it’s just the opposite. Once you’ve tracked for a while and settled on a realistic and comfortable budget, you can spend money—including on fun things—without ANY guilt. Even if you’re on a limited budget due to education, unemployment, or other life issues, as long as you’re living on a budget, you won’t have to sweat over every purchase because you already know you can afford it! That’s the power of a budget.

See more budget-related posts here.

Livin' On A Budget - What crazy things have you done to ensure you always live within your means? Dropped cable? Gone to an all-cash system?


How do you budget? Mint? Excel? Quicken? Envelope system? ;)

7 comments:

  1. All cash! I actually started this when I had to cancel my credit card due to fraud. In the time it took for my lender to send the correct new card to the correct address, I realized how much money I was saving.

    I did eventually start using that new card, for online purchases only. Some things are so much cheaper online, it's worth it.

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    1. That's amazing! Thanks for sharing your tip.
      I think even people who are disciplined with their spending would benefit by going to an all-cash system. Makes the spending seem all the more real. Glad you were able to get the fraud situation figured out--that's one reason I prefer credit cards to debit cards. Much better protection (IMHO).

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  2. Just found your blog today and I'm excited for your boot camps! Thanks for being committed to helping others. My husband and I use Google drive spreadsheets for tracking our spending. It's really convenient, because we can put expenses in the moment we incur them, and as soon as either of is enters and expense, the other can see it, meaning we don't accidentally overlap expenses or exceed the budget on the same day. It's great!

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    Replies
    1. That's amazing! Spreadsheets really are the best way to hammer it out sometimes, it just takes more of a commitment. Good for you and your husband for making it happen! Both of you being involved in the budgeting makes it easier to reach your financial goals, so way to go!

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  3. Love these budget tips! Do you happen to know of a way to avoid Mint double counting accrued budget items? For example, when you setup a recurring budget in Mint to save money each month for your Home Owner's Insurance which is paid annually, then Mint will include the monthly accrual in each month's budget AND will also include the full payment amount in the budget for the payment month? This drives me crazy! Does Yodlee handle this better? Thanks for the great blog!

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    Replies
    1. Personally, I use yodlee to aggregate my expenses, but then I plug them into an Excel template because I like to format it my way :) So I don't have a ton of experience using their budgeting tools. It looks like a lot of people from Mint have that problem, and I didn't find much googling the issue for Yodlee, but browsing through the site, I don't have much hope that they do a better job with accruals. Sorry!

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    2. It's true, Stephanie. We switched to Quicken because we hit a certain level of sophistication with aggregate expenses that we felt like the free tools just couldn't handle anymore. That being said, Quicken is a big jump. It's not very user friendly, but since it's accounting software, it can handle more complicated issues like this. I think using an Excel spreadsheet along with Mint is a good in-between solution for fixing little issues like that where you know that data Mint is giving off isn't completely accurate.

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