New Year, New Budgeting Strategy

Today we’ll take a look at a useful post for those looking to focus on budgeting in 2023. This post is provided by veteran and former infantry officer, Carl Rios. We hope that you enjoy it as you look to a new year in 2023!

It seems that for the better part of the year none of us can pass a day without seeing a headline about economic doom and gloom.  Although the economy already hasn’t been great, and most retirement accounts have seen losses, most experts predict worse to come: an economic recession is forecasted for 2023.  Of course, expert predictions of this have happened so far in advance that it’s like watching a steamroller do a marathon.  Whether it happens or how bad it will be is yet to be seen… but that doesn’t mean that the average person ought to sit back and wait for things to play out.  Besides increasing your emergency savings and other cash reserves, there’s another personal finance system that you should reevaluate: your budget.  Yes, of course you should regularly look at your budget, minimally once a year or when your financial situation changes significantly.  Let’s reflect on how to make a budget and, importantly, follow a budget.

Making a budget is a straightforward process with simple math required.  Take what you make (salary and all income), subtract all expenses (rent, loan payments, etc), and with what’s left over allocate to savings goals (retirement, 20% downpayment on house, 529s, etc.).  There, you have a budget!  Now if you’re finding that you don’t have enough money left over for your needs, wants, and savings, and your budgeted expenses are less than your income, then you’re off to a great start!  However, a budget is a plan, and even the best plan can’t ensure a successful execution.

This was certainly the case for me.  Having a budget was great, but after all of my expenses and my automatic savings deposits and transfers, I would have problems with some of the budget items – flexible spending, groceries, and eating out.  My first attempt to solve this was by tracking all of my spending manually at the end of the month.  Although most of my spending is not done in cash and can be tracked online, I have different lines of credit and debit for different purposes.  This made manually consolidating and categorizing all my spending very tedious.  I simply couldn’t keep up with it.  

As a way around this, I thought that I could just try to be more aware of my spending and have my wife share that same awareness with me.  My wife and I have shared accounts, so I thought that this would be simple to do.  Even with what we thought was sufficient communication, we’d still end up spending over budget.  We still lacked visibility into what we were spending.  Then we’d wait until something like tax returns or a federal stimulus check came along to help us pay off some of the extra credit card debt.  This got me to think that there had to be a way to increase the visibility into my spending in real time and create consistency in our spending, so that we could actually stick to the budget that we’d made.

I wanted a system that could help me to automatically track my spending as reasonably close to real time as possible.  This would introduce a feature to my budget that is not often discussed – a feedback loop.  Usually, this feedback loop comes from pain – building credit card debt or having to turn down outings with friends because you’re tight on cash until next month.  But I was determined to find a tool that would help me be more proactive with my finances, not reactive.  And lastly, I wanted some type of feature that allowed me to actively share this information with my wife so that she could track as well since our finances are a team sport.  

Fortunately, my wife is really good at searching on Google and found out that there are several apps that provide all or part of the solution that I was looking for.  These are some of the benefits of an app that I’m using:

  • Collects all of my transactions across multiple banks and accounts.
  • Provides automated categorizing (i.e. groceries, eating out, home and utilities, etc)
  • Provides options for custom made categories
  • Allows multiple users to use the same subscription so that they can view their own or shared accounts (this allows my wife to see my accounts and spending and vice versa)
  • Simple dashboards that give you good information about month-to-month spending
  • You can put the budget limits from your budget sheet into this tool as a limit on your spending per category, that way you can actively monitor how much you’ve gone through in that month

Now, instead of taking almost two days of collecting all of my transactions on a spreadsheet, I casually check my app to see my progress.  If I see a weird transaction. like an unexpected recurring subscription, I can make a comment on it and ask my wife about it and then we figure out who has to follow up on it.  With regards to my relationship with my wife, it has drastically reduced financial blaming of “you spent more than me” and “no I didn’t, you did” to now having proactive and healthy discussions about how well we’ve done in one month and occasionally how we can do better as well (which is a very normal thing).  

And now the feedback loop comes into play.  When I do my monthly personal accounting, I take a pulse on my actual spending in the app and compare it to my planned budget in my spreadsheet.  Here I’ve learned a lot about my budget and have corrected unrealistic budgeting, rebalanced out planned expenses and goals, and “found” money that I can then add to new or current goals.  This system, consisting of specific budgeting apps, my spreadsheet, and my accounting habits, allows me to keep a sharp eye on my spending with less time and effort spent on it.  

I have the feedback loop in my budget that I was looking for that allows me to realistically execute my budget plan, make my goals, and save more.  It has also unexpectedly saved me stress from contention over money and spending with my wife, while also making her feel more involved with our finances.

At the start of the pandemic, there were a ton of Wall-Street-Bets-types and YouTube finance influencers that were sharing Tweets and videos on how to make money using RobinHood and other commission-free and investing platforms.  A lot of this advice came from sources who ignored or have not experienced a recession and only have financial investing experience from a bull market.  That reckless optimism with the market is long gone.  With the New Year fast approaching, I certainly recommend you do the basics and take a look at your budget given the financial gloom that seems likely for the next year, and apply all or some of the aspects of budgeting with a feedback loop in order to make financial discipline less difficult.  

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