by Sarah Eadie

Don't Make a Budget Without Reading This

Understanding the Zero-Based Budget, and How to Make One

When you feel financially out of control, the knee jerk reaction is to cut back. But without insight into where your money goes each month, extreme budgeting leads to a harmful cycle.

You feel good initially. You’ve committed to spending almost nothing until you feel in control. A feeling of deprivation sets in as your willpower wanes. You think, “I’ve been so good this month. I deserve to go out tonight.”

Out you go, feeling flush with the cash you saved, to spend way more money than you would normally. The next morning you feel gross, and not just because of your hangover. Maybe you think the answer is to cut back your spending even more.

The cycle continues.

To avoid yo-yo budgeting, you need to find out where you spend your money. You track your finances first to create a budget rooted in your financial reality.

Tracking your finances gives you a baseline to help track your progress. As you retire bad spending habits, you can easily chart how new ones benefit your balance. That positive feedback loop will motivate you to continue building more and better habits.

Why We Don’t Track Our Spending

Discovering where your money goes is an eye-opening experience. I’d go as far as to call it enlightening.

But it can be really scary to be honest with yourself. If you think you’re a responsible person, but discover that you’re spending irresponsibly, that truth is disconcerting.

The worst that can happen is you feel embarrassed for a minute. I give you permission to be morose for a whole day if your habits seem that bleak to you.

After that, you should give yourself some credit, even if you still feel stupid for spending so much on designer socks and 7/11 hot dogs. You now have the information you need to create a budget that helps you save money without feeling deprived. That’s something to be proud of.

Track Your Spending

Most people track their spending one of two ways: as they go, or in regular batches. Both are equally effective, so don’t stress. Choose whichever method you like best.

Track As You Go

How It’s Done: Any time you buy something, take a second to document the total cost, the place of purchase, and the spending category.

You’ll want to save receipts and jot down any cash purchase details in a note on your phone or a small notebook. At the end of each day, transfer this information to a spreadsheet or tracking program.

Pros: Evangelists of this method find that it helps them save money immediately. Recording every transaction makes them more likely to rethink unnecessary purchase like drugstore gum or afternoon coffee.

Cons: This method can feel tedious. Manually tracking every single transaction may freak you out if financial stress already has you on edge. If you feel this way, don’t worry. We’ve got you covered with regular batch tracking.

Regular Batch Tracking

How It’s Done: First, find an online tool to track and categorize your purchases for you. Simple has built-in tools to help users assign transactions to categories. Read more about using Simple to easily track your spending.

Then, set a recurring event on your calendar on a day you’re regularly free. You’ll use this time to check on your account and make sure everything is categorized properly. Personally, I take 30 minutes to an hour every Monday evening to look over my transactions and make edits.

Once you’ve done that, there’s nothing else left to do. Really. Go spend your money like you would normally.

Pros: It’s easy to track your finances this way. Batch tracking doesn’t interrupt your life beyond the quick check-ins.

Cons: You still have to manually document cash purchases, and if you spend from more than one account, set-up and tracking may take more of your time. If possible, commit to using one card and avoid using cash while you track your finances.

How Long Should I Track My Finances?

Tracking your spending for 30 days will give you a good sense of where your money goes each month.

Note: This assumes that you’re spending normally.

Sometimes we have one-off expenses, like car repairs, taking a vacation, or making a big credit card payment. In this situation, it makes sense to track your spending for another month or two to figure out what “normal” spending habits look like for you.

You may find that you really enjoy tracking your finances. That’s awesome! Just make sure you’re using that information to inform your budget and how you spend in the future. Information is important, but it’s not as important as what you do with it.

Tracking your finances for a month is a helpful exercise any time your financial situation changes. Events like getting a raise, adding a member to the family, or kicking off a freelance career will all change your finances enough to merit a check-in so that you can adjust your budget if necessary.

Next Steps

I challenge you to track your spending for the next 30 days. Send this post to someone you trust who will keep you accountable. Let them know that you’re serious about changing your spending habits, and ask them to check in with you periodically to see how it’s going.

As you’re going through the process, I want you to think about what you notice. How do your feelings around money change? Do you experience any immediate changes in your spending habits? How do your friends respond to what you’re doing? Let us know your insights on Twitter or Facebook.

Disclaimer: Hey! Welcome to our disclaimer. Here’s what you need to know to safely consume this blog post: Any outbound links in this post will take you away from, to external sites in the wilds of the internet; neither Simple or our partner bank, BBVA USA, endorse any linked-to websites; and we didn’t pay/barter with/bribe anyone to appear in this post. And as much as we wish we could control the cost of things, any prices in this article are just estimates. Actual prices are up to retailers, manufacturers, and other people who’ve been granted magical powers over digits and dollar signs.

Important! Keep your account safe from fraud

As fraud attempts are on the rise recently — especially related to unemployment funds — help us keep your account safe by following these guidelines.

Use your Simple Account only for your own personal use. Don’t share your account with others or receive funds on behalf of third parties.

Don’t share your username or password with others. Never give out your login information. Simple will never ask you to tell us your password — if any third party makes such a request, it’s an attempt at fraud.

Don’t open an account at someone else’s request. If someone else asks you to open a Simple Account — such as a real estate company, prospective employer, or someone you met online — it is likely an attempt at fraud.

Be alert for unemployment insurance fraud. You may be violating the law and the terms of your Simple Account if you receive deposits of unemployment funds on behalf of someone else. There are state and federal penalties for unemployment insurance fraud (including potential fines and incarceration). If you suspect you are a victim of unemployment fraud, contact the appropriate state fraud hotline listed here.

Don’t receive funds on behalf of a third party. Keep in mind that receiving funds on behalf of a third party violates the terms and conditions of your Simple Account; in such instances, we may restrict and/or close your account and hold the funds while we await direction from enforcement agencies.

I acknowledge that I have read this notice Continue Application