budgeting lessons learned & tips for success

The start of a new month is a good time to be thinking about budgeting. We’re not quite there, but it’s approaching. In previous budgeting posts, I hinted toward some of the things we’ve learned along this journey and tips we’ve found that helped us succeed.  In this post, I’m’ going to dive a little bit deeper into those. 

A Few Lessons Learned

• When you first start to create a budget, it’s easy to be to extreme funding the critical areas and targeting to significantly underspend in the more discretionary areas – be realistic, it’s about progress
• I found it easy to set a budget, but then continue old spending habits of spending the money and then reconciling the budget

Tips for Success

• Focus your efforts on your biggest opportunities first
• Gamify the process
• Make a plan for your biggest areas of spend (food – meal planning; shopping – zero based budgeting, etc.)
• Fund what you care about and not what you don’t (hotels vs. camping, subscriptions, coffee, etc.)
• Have a vision and goal in mind – the “why”’ you’re doing what you’re doing

“Be Realistic”

My initial response to the budgeting process – reviewing our historical spending, our adjusted income, and new budget – was very ambitious.  It was like stepping on a scale, being faced with the reality that you’ve not been a good steward, and wanting to make drastic changes to right the ship immediately.  This response was due to a couple of things – first, we needed to make some pretty dramatic changes to our spending in response to going down to one income.  Second, our historical spending was embarrassing.  It wasn’t out of control – we were spending within our means after funding the important stuff.  And yet there were other personal goals we had that remained unfunded.  All the while, we were funding the convenience/treat of coffee and lunches out.  It felt lazy and undisciplined – not a good feeling.  And so we got realistic about the big semi-discretionary spending areas (food and groceries), but neglected adequate funding of the completely discretionary areas like shopping or sporting goods.  The result was we quickly and consistently overspent in these areas, defeating the purpose of our budget (the plan).  The lesson here became leverage your historical spending as a reasonable guide and stretch yourself to make reasonable adjustments in the areas that aren’t a priority for you.

“Change Your Habits”

Setting a budget is step one.  This is a different skill than executing a budget.  Executing means checking the budget before you spend.  Not the other way around.  You can’t bring your pre budget habits into your post budget discipline.  You have to change your behavior to achieve the goal.  Seems basic, but it to me a minute to catch this.

“Start Big”

In the process of prioritizing where to spend your time and energy, you want to focus on the big opportunities first.  One way to think about this picturing (or even illustrating) an x/y axis chart with one axis graphing level of effort and the other level of materiality.  Your biggest bang for your buck, will be low level of effort, high level of materiality.  This is obvious.  More than likely, most of your high level of materiality areas will be areas requiring a high level of effort.  This is life.  The point is don’t let the things that don’t matter (low level of materiality) distract you from the things that do.  If I’ve lost you in all of this graphing, know that you’re biggest opportunity areas are going to be within discretionary spending (groceries, eating out, shopping, subscriptions, etc.)  Sure, you may have room and decisions to make in non-discretionary areas (housing, transportation, etc.) but those are less common.

“Gamify the Process”

The Dave Ramsey cash envelope system is a perfect budgeting example of gamifying the process.  It leverages an alternative way of paying where full transparency to the budget is always available.  I can see, and feel, and notice each dollar that leaves my grocery envelope.  And any day of the month, I know how much is left without looking at an App or spreadsheet.  This just isn’t the case when you’re spending with a debit card.  Debit cards make funds feel never ending, until your reconcile your spending at the end of the month.

Today we have Apps that manage rewards programs, but remember punch cards?  These are another example of gamifying the process.  Although rudimentary when compared to the personalized marketing that digital loyalty programs leverage today, punch cards cultivated loyalty among patrons because there was a payoff if you followed the behavior the merchant wanted.  There was a payoff for both the patron and merchant (albeit the merchant always comes out ahead).

“Make A Plan”

If you want to make a dent in discretionary areas of spending, you’re going to have to change your behavior, and set yourself up to be successful with you new budget.  For groceries, meal planning is a great way to help you reduce grocery spending.  We’ll get into this in much more detail later, but it prevents you from buying random items that you may not use but look enticing (hello, Costco) and it makes your spending very efficient.  With other areas where you have high amounts of discretionary spending, you may want to create a zero based budget.  This is simply a budget that doesn’t use historical spending to “trend” a budget amount, but rather builds it bottoms up.  We spend a lot in sporting goods because it’s our recreational activity of choice.  So instead of plugging $200/month into that category because it sounds like a good number, we plan at a item level what we want to fund in that category in the coming year.  For instance, we’re both interested in getting into big game hunting.  Mike has a dream of harvesting n bull elk and I a mule deer buck.  Big game hunting is expensive.  It requires weapons, licenses/tags, gear (boots, backpacks, etc), and 3 or 4 very expensive sets of optics.  And this is just one area of the larger sporting goods category for us!  So to create a reasonable sporting good budget, we had to be planful, thoughtful and specific and build it from the bottoms up.

“Fund What’s Important”

Continuing with our sporting goods example, it is important to us to experience and learn new things and to recreate outdoors.  More so than renting Airbnb’s and flying to far off destinations for vacations.  And so the average person may see our sporting goods budget and think it’s atrocious – and they’re probably right that it would be for them.  The same people would see our vacation budget and think it’s altogether anemic.  But we’re putting our money in the things that we care about and not in the things we don’t.  We’d just assume take road trips for vacations all over the West – tell me of a place that’s more beautiful than the nooks and crannies of Washington, Idaho & Montana.  And we actually enjoy camping and the flexibility on where you can do it rather than a $300-400/night Airbnb.  Don’t get me wrong, I do enjoy Airbnb vacations and nice hotels, but that doesn’t have to be the standard for every time we travel.  We’d rather fund a big purchase that gets us outside or enables an outdoor activity than spend two nights in a bougie cabin in Bozeman.  The secret to personal fulfillment is determining what you care about and sacrificing in the areas you don’t, even if people around you don’t get it.

“Have a Vision”

Budgeting is hard – it requires sacrifice, and it requires discipline.  No one likes to tell their friends that they can’t join them for dinner at a nearby restaurant because it’s not in their budget.  No one likes to start dinner after a long and busy day of work.  But sometimes these are necessary in order to stick to your plan.  If you’re going to have to do hard things on occasion, which we all do and all should do, you need to have a vision as to why you’re going to choose the hard thing over the easy thing otherwise it’ll just be too easy to take the easy path.  So whether it’s a goal to get out of debt by a certain date, to pay off your mortgage by a certain date, or to buy something that allows you to live out your dream (boat, RV, property, etc.) create a vision that will motivate you and keep you when the hard decisions need to be made.