Stop me if you’ve heard this one before.
You’re scrambling every month to bring in not-enough-money. You know enough to know that you should be tracking your expenses, setting aside money for the IRS, and building your business expenses into your hourly rates. (And then, when you get paid, actually USING that money for said expenses.)
It works GREAT…on paper. But in practice? Not so much.
Mostly it feels like a disorganized scramble. Your business and personal expenses are commingled like horny eighth-graders at their first co-ed dance.
You may have every intention of setting aside money each month for your annual liability insurance renewal, but when you run out of contact lenses? That money has to come from somewhere. Mama’s gotta see.
So you borrow from Peter to pay Paul, and then Paul gets pissed and throws something ridiculous your way, like a tire blowout (in a rainstorm, always) or a surprise root canal.
Here’s the thing about “surprise” expenses: most of them aren’t actually surprises at all.
They’re called periodic expenses, and they’re different from monthly expenses in that, well, they don’t come up every month.
These are things like your yearly supply of contact lenses. A 10-class yoga pass. Oil changes.
You’re already spending your money on these things. But when you’re disorganized, they always feel like surprise stress-bombs.
No bueno, mamacita.
If you can plan for these periodic expenses, you can reduce – or even completely eliminate – this constant, desperate struggle to stay ahead of the eight ball.
Now, before I embraced this tool, I had one main objection to any form of budgeting:
“I don’t have any money. The only thing a budget’s going to do is call attention to the fact that I don’t have any money.”
I think they call this denial. But here’s what’s up: when you honestly break down what you’re already spending, and chunk it into monthly or even weekly deposits, you’ll find it’s actually quite manageable. That’s because, like I said, you’re already spending that money anyway.
Here’s how it works.
Take a periodic expense – let’s say a 10-class pass at your favorite yoga studio. Say it costs $100 – that’s just $10 per class. (If you live in a big city I realize that these rates sound adorable. Just go with it.)
Okay, so you go once a week, which breaks down to $10 a week, or $40/month. If you get paid biweekly, you need to set aside $20 of each paycheck for your 10-class pass. Which is much more manageable than a surprise hundred, right?
But at the end of ten weeks, that’s exactly what you’ll have.
And you can buy that 10-class pass with no guilt, no hand-wringing, and no second-guessing. Because that’s what that hundred bucks was for.
Do this with all your periodic expenses and put them into a spreadsheet, with dates down the side and categorized expenses across the top. (This works just as well with a hand-drawn grid and a calculator.)
Each month, when you make a deposit, allocate the appropriate amounts into their respective columns. Keep a running total at the bottom of each column. Then, whenever you make a purchase, subtract that amount from the column.
Be sure to include EVERYTHING you already spend money on. This means, food, going out with friends, buying books from Amazon, gifts, and beauty products.
Your spreadsheet will also include your non-negotiable monthly expenses, like credit card bills, loan payments, and utility bills. You should already know those amounts.
Here’s an example for someone who gets paid every two weeks (twice a month). The total amounts equal how much money needs to go in each category, each time you get paid.
- Credit card payment: $200 per month / 2 = $100/paycheck
- Student loan payment: $280 per month / 2 = $140/paycheck
- Eye exams & contact lenses: $175 per year / 12 months = $14.58/month = $7.29/paycheck
- Yoga class pass: $100 per ten weeks = $10 week / 4 weeks = $20.00/paycheck
- Haircuts: $80 every six months (includes a nice tip) / 6 months = $13.33 per month = $6.66/paycheck
- Going out with friends: $150 per month / 2 = $75/paycheck
Grand total of financial obligations per paycheck = $348.95 (every two weeks)
Here’s what my personal spreadsheet looks like:
The beauty of this particular arrangement is that twice a year, there’s a month with THREE paychecks. And because all your expenses are already accounted for, that third one is bonus time, baby! You can use it to pay down debt, buy a new mattress, or beef up your savings.
This system still works if you get paid randomly, client by client. When I was a server, for instance, I had to break it down to a daily amount.
Check it out:
Take your monthly numbers and divide by the number of days you actually work in a month. Usually it’s about 22. Using the numbers above, divided by 22 days, I get $31.72/day.
So. If you make $85 on Monday (for a private client, say), and only $15 on Tuesday (a poorly attended yoga class), the extra money left over from Monday covers the gap left by Tuesday.
The best thing about the spreadsheet? It helps eliminate frivolous spending.
Instead of a meaningless (or worse – ignored) bank balance, you can see that every dollar in that account is designated for something. So you can’t spend it all on fun yoga tights.
Also? Some months have 31 days, or five weeks instead of four. Little by little you’ll accumulate a bit of extra cash in certain categories…which means you can afford some fun yoga tights, spring for an inside-and-out professional car wash, or take yourself out for a drink.
Here’s the other benefit. Even if you don’t keep up with this system perfectly – you’re super short one week, or you overspend on a fun night out – there will still be some money in the yoga fund.
Which is better than no money.
And when you can pay for the things you need, without fear of overdrawing or coming up short?
That’s called being an adult.