Re-Evaluating The Way You Budget – June 1st, 2017: $77.2K (CoffeeForTheBuzz)

June 1st, 2017: $77.2K

Update on Path to $1M by 30: My overall net worth has decreased a bit over the past few weeks due to some initial cash outflows as I begin my real estate investment business. There have been legal fees, appraisal fees, inspection fees, etc. even though the close on the first property will not occur until the end of June. This cash outflow may continue the next month or so as associated fees and moving expenses are incurred until we are able to begin collecting rent from tenants on the property and are all settled in.

Re-Evaluating the Way You Budget Money

Budgeting is a major topic in the personal finance world that many people my age find hard to do efficiently – or at all. But it doesn’t have to be that hard. I’ve noticed that over the past few months, my spending has gotten a bit out of hand because I have effectively gotten to the position I’ve been chasing the past two years – the ability to buy my first real estate investment property.

Being that my goal is to repeat this process as soon as I can, however, I decided to take a step back and budget out my life the way I did when I first moved into my first apartment two summers ago.

When you’re single, live in a big city, and don’t have any responsibilities other than a job, your expenses are pretty straightforward. For me, all monthly expenses fall into the following categories:

Rent and Utilities
Gym Membership
Web Hosting
Food and (a bit too much to) Drink
Golf (during the summer). You can substitute your major hobby if it costs money.
Transportation (Ubers and the commute to work)
Miscellaneous – all cash that I have leftover. This is the category that I have the most control over since I operate under a save first mentality.

If you are feeling like you are spending a bit too much money or just want to save more in general, it is a truly eye opening exercise to break down your budget in this way. My strategy during this most recent evaluation of my budget was to put side by side my past month’s spending habits next to my goals for next month. This gives me a targeted method for focusing on areas that I may have allowed to get a bit out of hand in the past 30 days.

For numbers sake, let’s say I earn $4000 in post-tax money per month. You may make more or less, but this should give you an idea of how to allocate your budget based on your income. Based on the 8 categories above, my post tax cash was distributed in the following manner:

  1. Savings – it is imperative to pay yourself first each time you get a paycheck. I believe you should be saving at least 20% of your post-tax earnings and probably more when you’re in your 20s. I was still able to accomplish this goal last month even with higher spending than normal. May savings: $800. $3200 remaining.
  2. Rent and Utilities – $950. This is my cost for living in a small studio in a great part of Chicago. If you want to find a deal bad enough, you can, no matter where you live. $2250 remaining.
  3. Gym Membership – $90. I currently belong to an awesome gym with all the bells and whistles that I probably don’t need – nothing beats a steam room after a great workout though… $2160 remaining.
    Web Hosting – $30. Small expense that won’t change. Need this to keep my site and my clients’ sites running. $2130 remaining.
  4. Food and (a bit too much to) Drink – $800. This is a category that I will focus big time on cutting back on. Though it’s fun to have great meals and go out with friends, we all know how much a weekend of being hungover drains your productive energy and your bank account. $1330 remaining.
  5. Golf – $180. Not bad. Since this is a major hobby for me, I try to play once a week at $50 or less per round. I only got out 3 times, but at more expensive courses so I came in under budget. $1150 remaining.
  6. Transportation – $200. This includes all Ubers I take and commuting to and from my Chicago office. My saving grace in this category is that my company pays for most travel during the weeks if I am going to a client site. All in all I’m not too upset by this figure – it will likely rise as I stop traveling for work next month. $950 remaining.
  7. Miscellaneous expenses – $950. After accounting for all of the categories above, that means that I spent $950 on a bunch of other stuff that is largely unnecessary. This is a category that can be heavily influenced to bump up my figure in category 1 next month. For example, miscellaneous in May included over $150 in clothes, $200 on 3 pairs of shoes, and more on several sporting events. In the past, I have been good about not going overboard on these categories and will look to get back to that trend next month.

Now that I’ve seen how I allocated my money in May, I can make an actionable plan for allocating my money in June.

  1. Savings – $1600. In reality, my goal has always been to save 40% of my post tax dollars. $2400 remaining.
  2. Rent and Utilities – $950. Unchanged, but will be lower in July. $1450 remaining.
  3. Gym membership – $90. Unchanged, but will also be lower in July. $1360 remaining.
  4. Web Hosting – $30. Unchanged. $1330 remaining.
  5. Food and Drink – $600. I should be able to cut this by 25% easily. Part of this decrease will include bringing lunch to work 3 days a week and only going out one night per weekend. $730 remaining.
  6. Golf – $200. Happy with this budget even if it goes slightly up next month. $530 remaining.
  7. Transportation – $250. Expecting this to increase as I won’t be traveling on the company’s dime for work in June. $280 remaining.
  8. Miscellaneous – $280. This will be a massive cut for the month of June. I will need to be diligent about tracking my expenses in 5-8 so that my budgeting will eventually come naturally.

As you can tell, I will need to make some lifestyle changes over the course of the next month to achieve my budgeting goals. But I’m a firm believer that the hardest part of the process is understanding the areas where it makes the most sense for you to cut back on your spending. Once you understand where your money is going, you can change your behavior to address the problem areas. It’s common sense, but so few of us do it and it’s easy for the habit to slip even if you have done it before as was the case for me.

How does your budget look right now? Do you agree with the way I have structured my budget and go about approaching a re-evaluation of my spending habits?

Posted by CoffeeForTheBuzz