Have your heard the term “building a nest egg”? It’s not just for chickens.

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It wasn’t until my late 40s that I really started budgeting. I’ve always been pretty good with money. I started working at 15 and bought my first house four years later. I don’t have a financial degree but whenever possible I’ve attended financial classes, webinars and always paid close attention when our 401K advisor did his yearly in-service.

When our boys had moved out of the house with only our daughter at home, I was feeling pretty comfortable with our financial situation. The reality of being half way through our careers made me realize it was time to re-evaluate our budget. I wanted to put more money into my 401K and also build up our short-term savings. My oldest son was really into budgeting and sent me a spreadsheet to get started.

Did you know that only 30% of couples budget consistently, which means seven out of ten people aren’t. More than 75% of people live paycheck to paycheck and only 1/3 of people can pay for an emergency expense of $1000 without using their credit card.

If you fall into one of these statistics, it’s okay. You can make a change today.

First, identify what your goals are

Do you want to get out of debt? Save more for retirement? Put money aside for a vacation? Or maybe just not live paycheck to paycheck?

To get started, you need to determine where your money is going. if you aren’t using a checkbook program or budget app, you’ll have to go through your bank account and credit card statements. I recommend at least one month to evaluate your spending habits, but three months would really give you a better picture.

Break down your purchases into categories.

Here are the ones I use:

• Housing / Rent
• Utilities
• Car
• Phone
• Credit Card
• Food/groceries
• Dining out
• Clothing
• Personal care
• Entertainment
• Gifts/Holidays
• Other

Now, evaluate all your purchases. Be honest! Don’t leave anything out. If you go to Starbucks five times a week, write it down. If you have a manicure or pedicure every three weeks, record that under personal care.

Once you’ve done all this, evaluate where you can save money.

I immediately cut down to one trip a week to Starbucks. That’s a $20 savings per week, $1000 per year. My husband evaluated our cable/tv expense and was able to save $100 per month. That’s another $1200 per year. I love going to the movies but when I take the kids, it’s $100 easily. We were doing this several times a month. Now with my new goal, we only go for a special occasion. What else can you cut out? Be careful to save some money to splurge with or you’ll be miserable and return to your old habits.

What should you be spending where?

One of the in-services our 401K rep did was based on Elizabeth Warren’s  50/30/20 plan . 50% of your take home income should be spent on your household expenses or “needs”. That includes your house payment, utilities, phone, car payment, insurance, etc. 30% is “wants” which would be groceries, dining out, entertainment, gifts, clothing, and personal care. The remaining 20% is for savings and paying down debt. Now some people say groceries are a need and a cell phone is a want, but because grocery expense is not a fixed amount and can vary, it goes under wants.

Where are you with your budget?

A friend asked me to evaluate her monthly expenses. Her living expenses were 66% (they had two car payments) and she was swimming in debt. Actually, I wouldn’t say she was swimming, it was closer to drowning. My first recommendation was to sell one of their cars and purchase a reliable used vehicle. She had a large SUV, no kids at home, and her job was within two miles of her house. This was a good option to free up some money.

Hopefully, this is not your situation and you’ve identified some extra money.  But if it is, we can address that too.

So, let’s tackle what to do with the 20%

Short term savings

One of the best things I did years ago was set up a savings account at a separate bank. I chose a bank where the closest branch was 10 miles from my house which made it inconvenient for me to withdraw money. Since there’s an ATM on every corner, I didn’t sign up for a debit card and opted out of online banking. If you are not disciplined, I highly recommend this strategy. Then, I set up a $200 payroll deduction with my employer and within 3 months, I had over $1200 saved.

Retirement Account

If possible, take full advantage of any employer sponsored retirement account. Some employers will match dollar for dollar up to a certain limit and others will match 50% of your contribution. With the latter, you generally have to contribute more personally to get the full employer benefit. The formulas can get confusing. Take advantage of your 401K rep and have them help you. They have a degree in finance and deal with this every day.

How much should you contribute? With traditional 401K plans, the contribution will be pre-taxed which will lower your taxable income. I haven’t heard anyone complain that 3% made a huge impact on their take home pay. Start there and increase as you can.

Debt

Alright, so we all have debt and there are many strategies to paying it down. My thought is do what makes sense to you. If you have multiple credit cards, one strategy is to pick the one with the lowest balance. Make the minimum monthly payment on the other cards and pay as much as you can on the first one. I’m a results-oriented type person so this works for me. Once I paid one off, goal met! I had a sense of accomplishment and it helped to keep the momentum going. Now, time to tackle the next one. Some people like to choose the card with the highest interest rate. The quicker you pay it down, the less you are spending in interest.

Other tips to help with your budget:

A good tip my son had, once I knew what was required for my “needs,” was to establish a separate checking account for my “wants.” I set up an additional payroll deposit to cover the “needs” and the remainder went to my new account for “wants”. Once the money was gone, it was gone until the following payday. This really helped me to stay in budget and made sure my bills were paid.

In addition, set your bills up on auto-pay. Knowing your bills are paid on time helps relieve some of the stress of budgeting.  Getting billed a late payment fee is the WORST! Who wants to be charged for something and receive nothing in return?!

One of the most important things to do, is quit using your credit cards.

Most importantly, only use money that you have on hand. I use cash whenever possible because of the psychological aspect. There’s a small pain I feel when giving up a $100 bill that I don’t feel when swiping my card. I do carry a credit card with me in case of an emergency like a flat tire or my car won’t start, not an emergency Starbuck’s run (although there are days this could be justified). Any other cards stay at home in the safe.

You may need to evaluate why you’re spending money. Getting out of debt requires you to change your behavior. Are you an emotional shopper? Have you had a stressful week and feel like you deserve a treat? That’s fine as long as it fits in your budget, but if it doesn’t find a better way to deal with it.

So, what if you and your partner are not on the same page financially?

My husband and I have separate bank accounts for our “wants”, which cuts down on a lot of arguments. While we do have the same goals for our family, we have different ways of getting there. One thing that works for us, he doesn’t complain on what I spend my 30% on and vice versa (although I have to bite my tongue sometimes).

It took a while but now I have 3 months income in savings. When I started down this road, I was very committed. My family got tired of hearing “That’s not in the budget.” But after a while, they were on board too. You can do this! Start with evaluating your expenses. Stay focused, celebrate successes, and remember why you started. Time to put your plan to work.

If your ready for the next step, read my blog article on saving and setting up your budget. It even includes the downloadable spreadsheet I use.

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