Like most people who have entered the workforce in the last decade or so, my fortunes have gone up and down. I’ve had some well-paying gigs in various tech booms, and I’ve been laid off in a couple of busts. For a long time, I made the mistake of spending exactly the same way during good times as during bad. When I was flush, I could put everything on my credit card—meals, travel, entertainment—and pay off the entire bill, automatically, from my bank. There always seemed to be plenty of money left in my accounts at the end of the month—even some to save.
In 2003, my employer started flirting with bankruptcy. Everyone’s salary was docked 25%. I tried to spend less; I stopped dining out as often, buying too many clothes or gadgets, and so on. But my savings still dwindled, and fast. I had to fix it quick or face financial ruin.
Where Did the Money Go?
In desperation, I sat down with a calculator and an open Excel spreadsheet. I created columns for each of my expense categories: rent, utilities, food, transportation, clothing, tools, fun. With the help of my bank and credit card statements, and the best of my hazy recollection, I input what I had actually spent in each category over the past month into a row. I summed the row in a cell and input my now-modest income in the cell below. Then, I subtracted the expenses from my income. I was hundreds of dollars in the red.
After some painful cuts and some tweaking here and there, I worked the difference between income and expenses back in black. Now, the hard part was to implement this regimen. I cheated a little for the first month and exceeded my budget. I needed a better way to enforce my system. I decided to enter every single expense I made on my spreadsheet every day, and to subtract it from the alloted budget. Once I got in the habit, it wasn’t so hard. The toughest thing was not spending more in a given category once I’d hit zero. Sometimes, the last week of the month was notably less fun than the first.
Just Like Grandma Used to Make
What I created amounted to a virtualized version of the time-honored envelope budgeting system. It’s something your thrifty grandma might have used: Take a few envelopes, write things like “groceries,” “entertainment,” and “clothes” on each one, fill them with a modest sum of cash at the beginning of every month, and you’re done. No refilling any envelopes before next month!
The best time to be wise with your money is when you have plenty to spare. So don’t wait until times get bad, like I did. Consider Simple’s Safe-to-Spend or some other version of the envelope budgeting system right now. With a minimal upfront investment in time and attention, it’s a solid way to save and spend. Safely. Before applying, make sure you have everything you need to open a bank account online.