How to start a budget (when you’ve barely looked at your bank account)

April 15, 2018

The most common complaint I hear from clients is their lack of time or money to invest in the things they truly love. So before allocating numbers in a budget, I ask my clients to write out their values.

Knowing our values can help anchor us when we lose sight of what really matters. It helps us define the purpose money and time truly serve in our lives. For example, you might lose sight of your values if you are a competitive person and you see someone buy something that looks impressive to others. In that moment, you might forget that you don’t really care about expensive restaurants, clothes, handbags, cars, whatever. But because someone else does, you end up allocating resources to it.

Let’s look at my values for a second: health, family, marriage, traveling, friendship, and comfort at home. These values might translate into short term goals such as eat organic food, buy property/own a home, visit Japan, adopt a dog, or attend my friend’s wedding.

So why is it that when I look at my statements from the last year, I see dinners out, drinks out, coffee out, ordering in food, last minute travel bookings, expensive (uncomfortable) shoes, ATM fees, random cosmetic purchases, etc. You get my point. Most of these items have no positive impact on my goals whatsoever.

Realizing that every cent I spent instead of saved was a lost opportunity to invest in my values was a game changer for me. It isn’t just that it adds up, it’s the opportunity cost, or cost of a lost opportunity.

“EVERY SMALL, INSIGNIFICANT PURCHASE IS A LOST OPPORTUNITY TO INVEST AND MAKE WAY MORE MONEY OVER TIME, OR TO INVEST IN SOMETHING THAT TRULY MAKES YOU HAPPY.”

In the coming weeks, I’ll talk more about investing. For now, just looking at your habits and marinating in that will have a huge impact on your decision-making going forward.

Marcella Kelson's tips on creating a budget | marcellakelson.com


Next Steps

What are three-five SMALL things that you could cut out or back on today that would make a big impact on your budget? For me it was things like, ordering in, taxis and coffee.  I chose these, although there were many bad habits to choose from, because all of of these expenses come from one of the deadly sins: sloth. Knowing that, I realized that trying to be a little more productive actually save me a ton of money and may even help boost my self esteem.

 

Let’s say that I was ordering in food 3 times a week. Let’s say that I was taking a taxi to work 6 days a week (and it’s not considered a work expense). Let’s say that I was buying coffee 6 days a week. Just to get an idea of what that looks like:

  • Daily coffee (@$4.50): $126 per month
  • Daily taxi (@$20): $480 per month
  • 3x Weekly ordering in (@$30): $360 per month.

These three little habits add up to around $1,000 a month. So even if you kept up these habits, but gave in to them HALF as much, you’d be saving about $500. Most likely the alternative to these habits (i.e. making coffee at home, taking public transportation, and supermarket purchases) would run you at most $150 per month.

 

Using your apps, take a look at the things that worst habits you have. Look at the last 12 months for reference.

 

Here are some other things you might be spending unnecessarily on:

  • Last minute flight bookings
  • Shopping trips, sales, outlets
  • Online shopping (AMAZON!)
  • Bar tabs, buying rounds for friends
  • Cigarettes
  • Water bottles (the planet will thank you for discontinuing this habit)
  • Gas

Once you are clear on those 3-5 habits, make a goal to spend HALF as much as your previous average. Plug it in to your Clarity App or Mint and track this CAREFULLY. Remember, for now you are just focusing on this one tiny baby step!

Next up: The time value of money and perks of investing.

Comment below if you have questions or feedback!

HOW TO CREATE A BUDGET (WHEN YOU'VE BARELY LOOKED AT YOUR BANK ACCOUNT) | marcellakelson.com

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