Why Budgeting is A Powerful Tool Everyone Must Have

I’ve mentioned in my previous posts how I neglected my finances for a long time. The funny thing is I budgeted for years before I got serious about my financial situation. You would think I knew what I was doing, but I had no idea.

Back in 2015, I started my first professional job out of school and I got a pretty decent salary ($50k).  I was delighted. Growing up in Colombia, I never dreamt of making that kind of money. I told myself that it was time to get my life together, but I also wanted to live life like never before. That alone was a bit conflicting. 

The summer before I started that job I took 3 months off to focus on the CPA exam and racked up a lot of debt to support my expenses during that time. The thing is, I lived rent-free with my boyfriend at the time, and before quitting, I was making $20 per hour as a full-time property manager. I could have saved up to cover my expenses during my time off. I was irresponsibly spending money on massages, hair, nails, and eating out. 

In 2015, I had $60k in debt between the car loan, student loans, personal loans, and credit cards. I felt like I was drowning and needed out so I began budgeting. I used the Mint App to set up a budget and began tracking my expenses. I became more aware of my spending habits and made some significant changes. I also rented an apartment on my own, so budgeting became the tool I used to make sure all bills were paid. I began attacking the debt and it was great. I would make extra payments each month and slowly paid off some credit cards and personal loans. 

However, I did have a “Misc. Expenses” budget item where I would dump random expenses. I remember the budget was $300 and actual spending was  $500-$600 per month. I would still go on shopping sprees pretty often and eat out quite a lot. Ross was my biggest weakness. I would always spend a couple of hundred dollars buying random items, shoes, and clothes each visit. Buying a lot for cheap is my kind of thing, except it adds up real quick 😖. If I had just put that towards paying down student loans, I would be closer to paying them off. 

By the end of 2017, I paid off all personal debt, except for my student loans. I had moved in with Ryan which allowed me to decrease my household expenses by 1/2.  This accelerated my debt pay-down.  Once I paid off my car loan and eliminated card debt, I had an extra $300, and instead of paying off my student loans, what did I do?! I slowly started drifting back into the shopping sprees, massages, etc. 

It wasn’t until late 2018 that it finally hit me. As newlyweds, Ryan and I were talking about finances and I realized that he was already set with a good amount of investments. On the other hand, I was already 27 and had nothing to my name. Our wedding was financed with a credit card which added to my debt and I had also gotten a new student loan to start my MBA program. This got me really depressed. I was disappointed in myself for all of the bad choices I had made until that point. That’s when it all changed. I have since improved my financial picture and the way I think about finances. It took a while, but the important thing is that I did. 

What I did differently in 2018 vs 2015: 

  • Set specific goals 
  • Figured out why these goals were important and how they would get me closer to my ideal life
  • I envisioned (and wrote it down) a life where I had my finances in order and how great it would be
  • Created my net worth statement which detailed what I owned minus what I owed. (I was negative $58k and that was painful!) 
  • Made a flexible plan to build my wealth 
  • I continued to keep myself accountable and got an accountability buddy.

My main goal was to save money to buy an investment property. All I needed to do was reduce discretionary spending. Bye-bye to Misc. Expense Category! 

Before 2018, I was budgeting so I could pay my bills and pay down debt. I wasn’t thinking about the future Katherine. Truth be told, I didn’t even understand how retirement accounts worked or the importance of having one until I was offered the option at my job after college in 2015.

I lacked commitment to my financial well-being.  This is why after paying $40k in debt, I managed to get myself right back up real quick. 

Nowadays, when I budget, I am focusing on building a sustainable lifestyle that will allow me to live the best life while securing a better financial future. As you can already tell from my blog, I am obsessed with building my wealth through real estate investing.  

Budgeting is a means to an end and once I attached meaning to it, it became one of the most powerful tools in my personal finance journey. I keep it fun by challenging myself each month. For example, I aim to decrease target spending for one item (currently groceries) and start getting creative on how to do so without sacrificing my quality of life. I am definitely not eating ramen noodles every day. 

My financial buddy, Nicole, keeps me accountable when I begin to deviate. For example, earlier this year, she gave me a virtual slap and pep talk when I wanted to finance a new car that didn’t need. We meet every month and talk about our finances. However, we also talk about money all throughout the month. 

I honestly can’t recall the last time I went on a shopping spree. I have now replaced Ross and Victoria Secret with Home Depot and Harbor Freight. I invest more than I spend and it feels way more satisfying. I don’t have to deal with buyer’s remorse anymore.

At this time I only spend 40% of my income and while I am not sure how I will do it, my goal within the next year is to hit 30%.  Let’s see if I can make this happen!

Correction, I will make this happen and budgeting is the tool that will get me there! 

Currently, what I do with the money I don’t spend is pay down debt, save for an emergency fund, and invest. I know my strategy goes against common advice and the Dave Ramsey ideology, but I will talk about why I do things the way I do in a later blog post. 

What about you, do you budget? What is your experience with and overall thoughts on budgeting?

If you want more content like this, please press like below.

Leave a Comment