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Money Management

What to Prioritize: Debt Payoff or Saving?

What to Prioritize_ Debt Payoff or Saving_

This post may contain affiliate links. Check out my Disclosure Policy for more information.

This is a huge conversation in the personal finance world and one that really has to be personal when it comes down to it. If you’re a Dave Ramsey follower, then you know what the answer would be. But, if you’re someone that has made your own path navigating your finances, then it can take a bit more thought.

I personally come from a view of creating long term goals and then short term goals to reach those goals. I know for me, following the baby steps just won’t get me to my long term goals. Not as fast as I’d hope anyway.

My end goal is to reach FIRE, not necessarily to retire, but to have the freedom to do whatever work I want, regardless of pay. Right now I’m stuck at my job solely because of my debt and grants I received from my undergrad and grad studies.

These are the steps I followed in order to create a plan for myself in regards to paying off debt or saving.

1. Create long term goals.

Think about big picture, where do you want to be in 20 years? When do you see yourself retiring? Where do you see yourself working? Do you have any goals you want to reach that are impacted by your financial status?

Once you know your goals and have them written out, it will make it so much easier to figure out your financial plan based on those goals. Everyone has different goals, so everyone’s financial plan should look different. This is why I don’t really agree with the baby steps. Yes, his steps work, but only if you have that specific goal in life and you’re life aligns with the steps.

For me, I had $200k in student loan debt and I’m in my 20s. You’re crazy if you think I’m putting off saving and retirement for as long as it’s going to take to pay off my debt. This is why it is so important to think about your specific goals and what helps you to reach those goals.

2. Create short term goals.

Once you have your long term goals mapped out, create short term goals to reach your long term goals. For example, my long term goal is to reach FIRE. My short term goal I am working on is to pay off my private student loans and then my high interest Federal student loans. Once that is done, I will be increasing my savings and retirement contributions, while I pay off my lower interest student loans.

You have to think about what you need to do to reach your long term goals. Depending on what your goals are, everyone’s short term goals will look different. Take the time to really think about what makes the most sense for your long term goals and don’t be afraid to change them as you get closer to reaching your long term goals. For example, originally I wanted to pay off all of my debt, but then I realized that some of my debt has such a low interest rate that it would do better in a retirement account.

You just need to make sure that your short term goals are realistic to reaching your long term goals. As you move through the process, make adjustments as necessary. Life changes and things happen that we can’t expect. It’s important to make adjustments in the ever changing seasons of life.

3. Adjust your budget to reflect your goals.

Once you have your goals written out, you need to update your budget to reflect your goals. No matter where you are in your journey, you need a budget to reach your goals. Without a budget, you won’t know where your money is going or where to send it. What I mean by this is, even if you have no debt, if you don’t tell you money where to go for investment or savings goals, it will just sit in your account. If it’s just sitting in your checking account it isn’t working for you when it could be.

Create your budget to align with your goals, I would suggest zero based budgeting to make sure you are accounting for every penny. I have Google sheet templates available to purchase, if you need help with this!

Personal finance is personal and you ultimately need to decide what is best for you.

There is a one size fits all answer for this. I am definitely not saying debt is good, but depending on the interest rate and your long term goals, it may be mathematically smarter to contribute more to investing and less to debt. You need to take the time to really think about what your goals are and what you want for your life. Once you have that figured, you can create a plan that gets you there.

Money Management

How to Budget on a Variable Income

How to Budget on a Variable Income

Utilizing a budget is something that can make your everyday finances much more manageable and allows you to see exactly where your money is going. When a budget isn’t being used, money “disappears” without you knowing it. This ultimately can lead you down a path of overspending. Everyone’s situation is different, so everyone’s budget is going to look different.

When it comes to budgeting, you need to find a way that works for you. This takes time and I promise the time you spend finding a way that works is totally worth it. If you try to use a method and you despise spending time working on it, then it probably isn’t a good method for you.

Some people have extremely extensive budgets that they spend time making pretty and Instagram worthy. I’m just not that girl! I love my simple Google sheets and Mint app used together to make my finances work.

Everyone’s budget is going to look different because everyone’s situation is very different. People are paid in so many different ways and most 20-somethings no longer have one single job with a salary, but more of a variable income. The norm is switching to having more than one job with many different ways of being paid.

With that being said it can be tricky to budget when you don’t have the same amount coming in every week or every month. After having a variable income the last few years, I have found a way that works for me and have helped a few of my clients apply the same steps to their unique situations.

1. Track your expenses and your income.

It’s so important to do this first. If you are someone that has been using debit cards or credit cards, you can easily pull your transactions and categorize them that way. If you have been using cash, keep your receipts and categorize everything you spend for a month. This will allow you to see where your money is going and create a realistic budget for yourself. You’ll get a free PDF template of my expense template when you subscribe, and my budgeting template.

You also need to look back on previous months and pick up on any trends in your income. For example, for myself as a teacher, I don’t get my salary in the months of July and August, so my income is much less these months. I was able to put a sinking fund in place for this when I got to creating my budget, but I’ll get to that later! See when your income is higher, when is it lower, is that trend something that is pretty consistent annually?

2. Create your budget.

In the most basic sense, a budget tracks your income and expenses. Since you have a variable income, you need to decide what makes the most sense for you. For myself, I only budget for my salary, my guaranteed income each month. If you’re someone that doesn’t have a guaranteed amount each month, I would budget for the lowest amount you have earned in the previous years. I would also recommend having a 6 month emergency fund to help you through those lower months, if something unexpected were to happen.

Another option is to create sinking funds for all your budget categories. This way any extra money you make in a higher month, can be used during a lower month. Ultimately, you need to do some experimenting to see what works for you. What works for one person, may not work for you. That’s why personal finance is personal.

3. Execute your budget.

Since you have a variable income, it is going to be super important to track your expenses closely during your budgeting period. The reason this is important is because if you have a lower income month, you will need to have a plan in place for this. Can you simply cut some expenses during those months? Do you have a sinking fund for your budget categories for these times? Are you using your 6 month emergency fund as a buffer? Personally, I would create sinking funds for this since it’s not an emergency, unless you lose one of your income sources.

As your budgeting period progresses, it is important to update your budget with where you are at in your expenses. This will allow you to make adjustments for the rest of the budgeting period. I personally do this on Sundays, so I know if I need to make adjustments for the upcoming week. Again, you need to determine what works for you, some people balance their budget every single day. It’s all about preference.

4. Continue and make adjustments to your budget.

Your budget is a continuously changing document. It’s not a set and forget. You need to adjust it every budgeting period. Of course, some expenses will always be the same, but things will change as your goals change and income changes. Take the time to reflect on your budget and make adjustments as needed as your life changes. As you reach your goals, your budget should be changing to reflect new goals that you have.

Remember: A budget allows you to gain control over your money, how you do it is completely personal.

Budgeting takes some experimenting and figuring out what works for you and your situation. I encourage you to try new things and figure out what works best for you. It should take time to figure out a system that works and that time spent is well spent in the long run. How do you budget on a variable income?

Money Management

How to Zero Based Budget

How to Zero Based BudgetThis post may contain affiliate links. Check out my Disclosure Policy for more information.

Creating a budget can be a daunting task and I know that it prevents a lot of people from taking control of their finances. But it doesn’t have to be! I promise that creating a budget seems like a hard task to complete, but once it is done, it is easy to maintain.

From conversations that I have had, it seems to be that people are scared of implementing a zero based budget. Creating a budget is one thing, but a zero based budget is intimidating to so many more. I was terrified to implement one at first myself. What if I overdraft? What if I mess up the math? There are so many what if’s, but a zero based budget was the game changer in paying off $105k in 3 years for me. Of course, side hustles and refinancing (use my referral link to get $200 when you refinance!) helped, too.

At first, I had this crazy system for budgeting that would take me so long to do every month. It was too much. I eventually stopped using it and wasn’t really budgeting at all, just cutting my expenses and kind of tracking it in Mint.

This worked, but it wasn’t as powerful as creating a zero based budget that doesn’t involve hours of my life. I now know that I need something simple and easy to maintain, or I just won’t use it. This is the system I created for myself to easily  maintain a zero based budget.

Step #1: Create a buffer before you create a zero based budget.

This is critical to implementing a zero based budget and if you don’t do it, you will run the risk of over drafting on your account, like I did when I got a little too confident. You need to determine what you need to feel comfortable with your zero based budget, some people need a month worth of expenses to feel comfortable, some people need $500. It all depends on what you need to feel confident in your system.

It also depends on your income and if it is consistent or inconsistent. If your income is consistent every month, or part of it is, then you might feel comfortable with less of a buffer. If your income is inconsistent, then I would recommend that you have at least 1 month of expenses as a buffer, if not more.

This might seem counter productive to have money just sitting in your account, but by having the buffer, it will allow you to easily implement your zero based budget. It gives you the peace of mind to zero out your budget every single time without thinking twice. If you don’t have the buffer, you will find yourself questioning your math and your budget every single month. This allows your zero based budget to run more smoothly.

Step #2: Create your zero based budget.

This is my favorite part when I first start working with clients. Everyone’s situation is difference, but a simple template can work for everyone. At the most basic level, a budget should have a spot for you to track your income and expenses. That is the most important aspects to any budget. If you subscribe to my newsletter, you will get a free budget template and expense tracker! Based on your pay periods and what works best for you, you will need to create your weekly, pay period, or monthly budget. I personally use a monthly budget.

The only difference from a budget to a zero based budget is that at the end of your budgeting period, you will have zero dollars remaining, or your income and expenses will be the same amount. The key with a zero based budget is that you are telling every penny where to go. This includes savings, paying off debt, or building sinking funds. This doesn’t mean that you are frivolously spending every penny.

Step #3: Implement your zero based budget.

Once you have created your budget, it’s time to implement it. I still use Mint to track my expenses because I use credit cards to earn cash back and other rewards. I only recommend this if you know you will pay your card off in full each month and never carry a balance, otherwise you should just stick to cash or a debit card. By tracking my expenses in Mint, it makes my zero based budget easier to maintain.

Every Sunday I quickly update my budget with my expenses from the week. This means that I subtract any expenses I had in whatever category that they are from. For example, I budget $250 for gas every month and I typically fill up once a week. On Sunday, I subtract that number from my budgeted amount to see what the difference is. This allows me to see exactly how much I have left for the rest of the month. I do this for every category that I had any expenses in for that week.

Step #4: End of the budget with a zero based budget.

At the end of every month I zero out my budget. The reason you need to do this is because you may have not spent all of your money in a certain category and you need to determine what to do with that left over money. If you don’t, that money will just sit in your account and will get “lost.”

There are many things you can do with leftover money at the end of the month, it really depends on where you are in your financial journey. If you are paying off debt, you might make an extra payment. If you know you are going to need more money in a certain category the following month, you might roll that money over. If you are saving for something specific, you might put that extra money towards your savings goal. If you are investing for your future, you might throw that money in an investment account.

The point is that you need to zero out your budget at the end of the month and determine what to do with any leftover money that you didn’t spend, if there is any. I always have money leftover because I would rather budget more and have leftover, then not budget enough and be scrambling to find the money.

Even though I am focusing on paying off my debt right now, my monthly budgeted debt payment isn’t very large because it is based on just my salary and I have other expenses. At the end of the month, I zero out my budget and determine my extra debt payment based on leftover money and money I earned from my side jobs.

Step #5: Readjust and repeat.

Once you have created your zero based budget, it can usually be re-used again and again. Of course, you need to adjust for certain things, every month is going to be slightly different. However, the overall bones of your budget you should be able to reuse. This allows you to save time once the budget is created, you just need to adjust each month and then take the steps to maintain it.

Remember: A budget isn’t made to restrict you, but to empower you.

Your budget is meant to give you the power over your money and where it goes. Determine what you value and what your financial goals are and budget your money to fulfill them. It takes time to figure out budgeting and get into the routine, but once you see your habits changing and the system working, you will feel empowered by your budget. How has a zero based budget changed your finances?

Money Management

Why You Need a Buffer When Zero Based Budgeting

Why You Need a Buffer When Zero Based BudgetingThis post may contain affiliate links. Check out my Disclosure Policy for more information.

We hear it all the time in the personal finance field, zero based budgeting. It’s an incredibly powerful tool and I know for me, it has been the tool to help me pay off $100k in student loans in 3 years.

If you don’t know what a zero based budget is, it basically means that your budget equals zero by the end of your budgeting period. Basically all money that has come in, then goes out by the end of that budgeting period.

I’m not saying you spend all your money by the end, but that you have sent your money to start working for you based on your goals. My long term goal is to reach financial freedom and my goal right now to get there is to pay off my student loans. This means that at the end of my budgeting period, I do monthly, all my extra money goes to my debt.

It takes some time to incorporate and I know a lot of people are scared to use this model of budgeting, which I totally get. I was nervous to since it means all my money I earned goes somewhere else by the end of my month.

I’ve been utilizing a zero based budget for 4 years now, and I made a mistake this month. I wasn’t anticipating my old student loan provider would pull a payment since my loans were paid in full by Earnest once I refinanced (Use my referral link to refinance and get $200!). However, out went $621 on a zero balance loan and caused me to overdraft.

I acknowledged the mistake and immediately started creating a plan so this doesn’t happen again. You see, I am in a unique situation where I live at my parent’s house while I pay off my debt. My bills are minimal because of this. I also kept a $500 buffer in my checking account and assumed it would be enough since my bills are so low.

However, the perfect storm brewed up in early September (checking account at exactly $500 since I’m a teacher and had used my entire summer sinking fund by then and a payment withdrawn on a zero balance student loan I wasn’t anticipating) causing my entire system to fall apart.

There are two ways you can prepare yourself for these types of things to happen. You can have a buffer in the account you use to pay all of your bills, like I have used. I would suggest having at least 1 pay period of expenses saved up, which is what I didn’t do.

Or, you can get to a position of living on last months income. I give so much credit to people that do this! I think it’s because I’m so angry at my debt for preventing me from reaching my goals sooner that I can’t let money just sit in my account. I need to send that to debt ASAP.

Basically what you would do is that you would save enough in your account that you eventually are at a point that you are living on the previous months income. It’s an incredible concept and tool, but I’m just not someone that has been able to implement this strategy.

Figure out what works for you, and get that zero based budget into action. I promise, it will change your financial life if done correctly. I’m happy to help you with this, just shoot me an email 🙂 How has zero based budgeting helped your financial life? I’d love to hear about it in the comments!

 

Financial Freedom

Being Cheap vs. Being Frugal

Being Cheap vs. Being Frugal

This post may contain affiliate links. Check out my Disclosure Policy for more information.

There is a huge difference between being cheap, and being frugal. These two words get used interchangeably, when they really are completely different. Yes, there are some things that will cross lines, but for the most part they are very different.

Being Cheap

Cheap means that you never spend any money and watch your money very closely. When you are cheap you spend the least amount of money.

When shopping, you simply are looking for the cheapest cost. When in reality there are many other pieces in play when determining “cost.”

Being cheap is usually driven from a place of scarcity or necessity. You don’t feel in control of your money, so you feel you must hold onto it.

Being Frugal

Being frugal comes from a place of abundance. You have power over your money and know exactly where it is going.

Instead of thinking solely about price, you take into consideration multiple value points. You think about cost, you think about how it helps others, you think about how long it will last.

These are just a few points, but you get the idea. Being frugal is being wise with your money and consciously choosing to be frugal with it.

Being Frugal vs. Being Cheap

An example of the difference between being cheap vs. being frugal that I experienced was bringing water to work. I would buy the cheapest water bottles I could find to refill when I was on the go in graduate school.

I was busy. I worked 8-3 and then had class from 4-7 every single day. I was working full time and attending school full time and making a measly $1,000/month on average.

What I found was that I was needing to buy new ones regularly because they were constantly breaking. I was living in a scarcity mindset because I didn’t have any extra cash each month.

Once I graduated, got my teaching job, and got my finances in order, I was able to move towards an abundance mindset. I no longer needed to live in this scarcity area.

I was able to see the other value points once I moved to an abundance mindset. My low cost water bottles I realized didn’t have much value because they were constantly breaking.

I took this into consideration, along with that they were always made from plastic, and researched higher value water bottles. Now, I’ve had mine for 3 years and it has dents and scratches, but it still serves the purpose of holding water.

This is just one example, but it serves as a reminder that there is a difference between being cheap and being frugal. It is all about the mindset you are currently living from. What are your thoughts about being cheap vs. being frugal?

 

Debt

Mini Series Part 1: How to Tackle Your Student Loans

In this four part mini series you will find all the tips to tackle your student loans regardless of where you are in the process. Student loans affect almost everyone now, which is a very sad reality. From the time a person graduates high school, it’s usually an issue in their life. So, I’m starting this mini series with tips for before you go to college and ending it with tips for after you graduate and have entered repayment.

Mini Series Part 2: While You’re in School

Mini Series Part 3: Before You Graduate

Mini Series Part 4: After You Graduate

Mini Series Part 1_ How to Tackle Your Student Loans
Before I went to college, I had no idea I would end up having roughly $200k in student loans 5 years and 2 degrees later. My parents always told me that I would need to take out some loans, but they were going to able to help me with school. Unfortunately, they couldn’t help me with school as much as I thought. I’m not saying I expected my degrees to be paid for by my parents, I never once expected them to give me a dime, until they told me they would. Here are a few things I wish I had known and done before I began my higher education and student loan journey.

1. Know your financial situation completely

This is the biggest one for me. I did not fully know my parents financial situation and didn’t ask for details about what it meant for them to help with school. Unfortunately, I did not get much financial aid because the FAFSA is filed based on your parents income and finances, not mine. This is why it is so important to understand how your education will be paid for. Don’t do what I did and not ask questions. Be specific with your parents about how this is getting paid for. This is a HUGE financial decision and since it’s all based on your parents finances (usually), it’s important to understand how it will be paid for.

2. Seek out advice on filling out the FAFSA

Usually your high school has someone to talk to about filling out the form, but it is best to talk to an expert on how to fill the form out. It’s a pretty straight forward form, but there’s some things they don’t need to know and other things they absolutely need to know. My best advice is to seek out an expert on what the form absolutely needs to have on it because it determines how much financial aid you are going to get. Unfortunately, my mom took responsibility for all of this for me, which at the time was wonderful for me, I didn’t need to deal with it. But once my sister and I received practically no financial aid, we talked to an expert. He quickly told us we provided a lot of unnecessary information, which made our financial situation look very different from what it actually was.

3. Choose your university wisely

If I could go back to when I was applying to colleges, and knew what I know now, I might not have picked the university I went to. It’s very hard to say that after the amazing program I went through. However, it was incredibly expensive and far from home. I could have gone to a closer university and commuted, saving me a lot of money. Of course, I went to a university that has the #1 program for teaching, so would I have landed a teaching job so quickly after graduation had I not done the program, that’s the tricky part. You will never know what will happen in the future, but my advice to you is to avoid having to go into a ton of debt, like I’m currently in.

4. Apply to every scholarship you can find

I made the mistake of not applying to a lot of scholarships because I thought I had no chance of getting it. What I have learned since then is that some scholarships aren’t given out because no one applied to them. That could have been money for my college education. I learned in grad school that you NEED to tell people your situation in order to get the help you need. In our society people don’t talk about their debt or financial situation, but that’s exactly what you need to do. Once I confided in the grad recruiter that I was drowning in debt, she called the right people and within a week I had an email saying I earned a scholarship. Of course, I had done a lot of work for my school in undergrad and my grad studies at that point, which definitely paid off.

5. Take out the maximum amount of federal loans you can before private

Federal and private loans are very different. Federal loans have some loan forgiveness programs, usually lower interest rates and offer a bunch of options for repayment. Private loans have no forgiveness options usually, limited or no payment options, and usually very high interest rates. Stick with federal loans if you can, you’ll be happy you did when repayment time comes along!

The next part of this mini series will explain some tips for when you’re in school. What are some tips you have for tackling student loans before you start school?

Saving Money

Frugal Date Ideas

Frugal Date Ideas

As a twenty something it can be a bit challenging to be on a debt free journey because most twenty somethings aren’t doing anything like this. Most are out exploring new cities, traveling the world, and trying out the newest restaurants. And I’m not saying you shouldn’t do these things because I have totally done this by putting it into the budget or cash flowing a frugal vacation. A really tough area in the budget is finding date ideas that aren’t going to break the budget. I know I struggle with this a lot and I feel like I finally have a handle on ways to enjoy date night without completely blowing the budget.

Frugal Date Idea #1 Go For a Hike

I love being outside and I love being active. One of my favorite date ideas is going hiking because it’s free other than gas and it’s great exercise. I always pack a backpack before heading out with snacks and drinks so we aren’t tempted to buy anything.

Frugal Date Idea #2 Movie Night

It’s so much fun to go to the movies, but sooo expensive. I can’t believe how much they charge at the movies now, it’s absolutely mind blowing. But, it is fun watching the new movies. Of course, you won’t get to see movies as soon as they come out, but having a movie night at home can be super enjoyable. Make lots of popcorn, get drinks ready, and enjoy a great movie together. Even better, you can wear pajamas! 🙂

Frugal Date Idea #3 Cook Dinner Together

Of course it’s always enjoyable to go out to eat, but it can very quickly become expensive for just one meal. It’s so much cheaper to cook a meal at home and enjoy it together. This way you can control the cost based on your budget and control the ingredients. This makes it better for your budget and your health.

Frugal Date Idea #4 Go to the Beach

This can get expensive if you don’t prepare properly. But, pack a cooler full of food, snacks, and drinks and that should make it much more affordable. Also, parking can be very expensive, but if you park a little further, it’s usually cheaper and if you invite another couple to come with then you can split parking.

Frugal Date Idea #5 Work Out Together

Yes, this isn’t the most romantic date, but it is so much fun working out together. Whether it’s a run outside or lifting at the gym, it just feels good to be doing something healthy together.

Frugal Date Idea #6 Free Concerts

My town offers free concerts in the park, check out to see if yours does the same. It’s a great way to get out of the house and enjoy some music.

Frugal Date Idea #7 Go For a Picnic

Pack a picnic and head to a park you’ve both never been to. Then you can explore the area afterwards.

Frugal Date Idea #8 Play Board Games

Get a bottle of wine and your favorite board games from your childhood to play together.

It can be fun just thinking of frugal date ideas or ways to have fun without spending a ton. Surprisingly, most activities can be done for a lot less money if you just get creative with how you’re thinking about it. What are some frugal date ideas you have?