Budget and start saving money today
If you've been putting it off, you've come to the right place.
Figure out how to reach your financial goals. In the Budgeting 101 video course, Tonya Rapley, State Farm® Agent Kameren Nelson and financial coach Eric Joynt equip you with easy-to-follow money management tools, support and education.
Budgeting 101 is a simple and reliable resource for starting and sticking to a sensible budget. Watch and listen to the conversation to learn how good it can feel to shed unwanted debt and lead a healthier financial lifestyle. Then download the Budgeting 101 worksheet to help keep you on track for achieving your goals — no matter how big or small.
Breaking down Budgeting 101
This course is divided into six shortened segments. So, make some time to enjoy each when you can. Here are the topics we cover:
Chapter 1 — What is a budget
Chapter 2 — Goals vs. aspirations
Chapter 3 — Budget breakdown
Chapter 4 — Current spending habits
Chapter 5 — Changing spending habits
Chapter 6 — Automating spending habits
What are you waiting for?
Dig in and create a personalized budget that sets you on the right path for your financial wants and needs.
From financial woes to budgeting like a boss
Ever find yourself wondering where your money went when you look at your account balance after the weekend? You're not the only one.
But, no one is born with the talent and know-how to handle their personal finances. So, we pick up some tips and try to form new habits to help ourselves figure out a budget and plan that works.
The beauty of setting up a financial budget is you learn how to put your money to work for you. If you can relate, Budgeting 101 is an excellent starting point.
Budgeting tip: Start your allowance on Monday. You'll likely be mindful of your spending during the week to ensure funds are left for the weekend.
Budgeting starts with your financial goals
Think about where you want to be in a few years, or even what you want to do in the next few months. A budget could be your game plan to help you make your goals happen.
Be realistic and make a list of the things that are important to you. Then, put your money where your priorities fall. Whether it's simply keeping the lights on, eradicating burdensome debt or traveling, a budget may help you save the money to get you where you want to be.
Budgeting tip: Writing down your goals and aspirations are key to achieving them.
Learn the ins and outs of budgeting
After you've set your goals, hit the ground running and figure out what it'll take to make them happen. Collect and spread out your paychecks, bills and other expenses so you can figure out where to align the money you have coming in.
Download our budgeting guide to help you map it all out.
Budgeting tip: Decide on timelines for your goals and revisit every six months to check on your progress.
Take a closer look at your spending habits
Take honest inventory of where you like to spend money. Does your shopping put the squeeze on what you've set aside to cover your fixed expenses?
Try giving yourself a weekly or bi-weekly allowance – straight out of your paycheck. This will help you protect the money you've assigned to cover fixed expenses while leaving you a specific amount to spend on you.
One way to keep your money organized is to set up separate accounts that handle your different expenses, spending and savings. If you decide this would work for you, be flexible and willing to make adjustments as you need so these accounts support your plan the way you need them to.
Budgeting tip: Make sure you review your system any time there's a change: a raise, job loss, wedding, etc. Remember, automatic transfers will try and pull the money whether it's there or not.
Your budgeting 101 checklist
- Watch the Budgeting 101 video.
- Download the Budgeting 101 Worksheet.
- Make time to get a better handle on your personal finances.
LET’S START TODAY PRESENTS “BUDGETING 101”
INSPIRED BY NEXT DOOR / STATE FARM
17:01:08 TONYA: Check it out all you folks afraid of finances, we’re about to tackle that budget you’ve been putting off. Let’s get started!
OPENING TITLE SEQUENCE WITH MUSIC, GRAPHICS AND TONYA RAPLEY AVO:
”I’m Tonya Rapley. Welcome to a new series from State Farm and Let’s Start Today. This is where you’ll find the tools, support and education you need today - to reach your financial goals for tomorrow. These helpful courses are inspired by an ever-evolving learning lab known as Next Door / State Farm…”
13:11:39 TONYA: And speaking of Next Door, I’m here with Eric, financial coach at Next Door / State Farm and State Farm Agent, Kameren. Thank you guys for joining me.
13:11:47 MS: Thank you.
13:11:49 TONYA: So we’re going to dig into “Budgeting 101”. We’re going to discuss the “B” word. And during this conversation, we’ll cover…
(SUPERS: 1. WHAT IS A BUDGET?
- GOALS VS ASPIRATIONS
- BUDGET BREAKDOWN
- CURRENT SPENDING HABITS
- CHANGING SPENDING HABITS
- AUTOMATING SPENDING HABITS)
What is a Budget?, Goals versus Aspirations, a Budget Breakdown, Current Spending Habits, Changing Spending Habits, and Automating your Spending Habits. Are you guys ready to dig in?
13:12:05 BOTH: Let’s do it. Sounds good.
13:12:06 TONYA: All right, so let’s start with the basics. What is a budget?
(SUPER: 1. WHAT IS A BUDGET?)
13:12:10 KAMEREN: The way I define a budget, it’s a priority list for your lifestyle. It’s not necessarily a “Stop Doing” list or a “Here’s what I’m going to sacrifice list.” It’s more of a gauge to determine whether or not your actions match what you say is important for you and your family.
13:12:30 ERIC: Yeah, absolutely, I agree. I think it’s just a game plan for your money. So if you have a strong budget, it’s a way to tell your money where to go rather than wondering where it went.
13:12:42 TONYA: Yeah, a budget shouldn’t prevent you from spending, it just shows you how to spend your money properly so that you’re accomplishing your goals.
13:12:45 ERIC: Right.
13:12:48 TONYA: Which we’ll dig into a little later. And so, most people, you know, the thought of budgeting confuses them so let’s say over a high-level view, how do you create a budget?
13:13:02 ERIC: You add up all your expenses. You subtract them from your income. And what you’re left with is money for your goals, right? So that’s a budget -- income minus what is going out, your expenses equals what’s left over.
13:13:14 KAMEREN: Yeah, that’s the simplest way to put it. When you say how do you create a budget? I would probably start with -- you know, I’d probably work backwards and do it. Start with what my goals are, what do I want to accomplish? And let that, you know, be my priority list. And then apply what Eric is saying about your expenses and your income.
13:13:38 TONYA: Yeah, definitely. And you guys work with people every day and I’m sure that you see quite a few challenges and barriers to people living within their budget. So what are a few obstacles that you think people face when it comes to budgeting?
13:13:50 KAMEREN: You know, not to sound like a broken record, but one of the first things I hear is “Let’s review my budget.” And I say, “Okay, let’s start with your goals and what you want to accomplish.” And they say, “Okay, Kameren, I don’t want to do all that. I’ll get to that later on tonight. I just want to get to categorizing and looking at my expenses and then, you know, allocating money.” And that's one of the challenges. You can’t skip setting your goals, whether they’re one-year, two-year, three-year, whatever they are. Setting your goals is creating a budget. Those things are one and the same.
13:14:31 ERIC: And why is that important, right? It’s because your goals ultimately are the things you’re going to look to when you’re having a hard time sticking to your budget, right? When you want to go out to dinner with your friends, but you know that your dining out budget is growing thinner and thinner, right? So the goals are what are going to keep you motivated to succeed and stick to your budget. So I agree with you entirely, it’s important to start there.
13:14:54 KAMEREN: Right.
13:14:55 TONYA: Absolutely.
13:14:56 KAMEREN: And once you hit your one-year goal, you hit your two-year goal, you hit your three-year goal, after that we come back and say, “Okay, you said you wanted to buy a house next year. Then we start putting money towards the house. You say you want to go on spring break to South Beach next year? All right, good, now we start putting money into it.” That’s how we start the process and start allocating money towards your goals, which creates your budget.
13:15:26 TONYA: Absolutely, so basically, take your income, subtract expenses, that’s primarily your budget. And then the money you have leftover, that’s for your goals.
13:15:34 ERIC: That’s right.
16:23:21 Tonya: So we’ve established what a budget is and how to create one. Let’s take a look at what we’ve learned…
(KEY TAKEAWAYS BULLETED WITH SUPER ON TV SCREEN)
(SUPER: 2. GOALS VS ASPIRATIONS)
13:15:37 TONYA: Okay. So now that we’ve kind of gone over what a budget is, let’s talk about goals because we’ve mentioned that quite a bit, but there’s a thing called aspirations I think that people use aspirations and goals interchangeably, but they are different. So do you want to talk about the difference between a goal and an aspiration?
13:15:53 KAMEREN: Sure, I think aspirations are more general. They’re more vague. You can aspire to be a business owner or you can aspire to be debt-free. Where goals are a lot more specific, a lot more measurable and timely. Saying, “I want to be debt-free” is one thing. And then saying, “I’m going to pay off this Macy’s card before Christmas.” That’s more of a goal. That is working towards that aspiration.
13:16:25 TONYA: Definitely.
13:16:27 ERIC: Absolutely. I think it’s -- one way to think about it is aspirations are like your hundred level, your intro goal setting marks to hit. They’re general like you said. It’s “I want to buy a house one day.” Goals take it that step further. They’re like your 200 level course or your intermediate. You try to get specific. You attach a dollar sign or a deadline where you can. It’s great if you can do both.
13:16:52 KAMEREN: Well, you have to do both. You have to put a deadline. And since we’re talking about budgeting, you’ve got to put a dollar sign on it.
13:16:59 ERIC: Right.
13:17:00 KAMEREN: Otherwise you’re not serious.
13:17:01 ERIC: Yeah.
13:17:02 TONYA: And so someone says, “You know what? I never thought about that. I don’t have any goals.” What would you say that they do? Where would you say they start at?
13:17:08 KAMEREN: I would start with -- they have goals. They’re just not -- they just haven’t articulated those goals.
13:17:12 ERIC: Yeah.
13:17:16 KAMEREN: You have to write it down. There’s real power into taking that time, grabbing a pen, grabbing a piece of paper, and writing down those goals. Eric and I were talking a little bit earlier and you were saying you’re budgeting, regardless of whether you’re aware of it or not, right.
13:17:34 ERIC: Yeah, totally. I mean, I think whether you track every transaction like in a spreadsheet down to the penny. Like every cup of coffee you ever bought, right.
13:17:40 TONYA: Mm-hmm.
13:17:43 That’s one end of the spectrum. That’s like very detail oriented. The other end of the spectrum is probably you check your bank account every few days to make sure you’ve got enough money left.
13:17:52 TONYA: Mm-hmm. That’s okay.
13:17:53 ERIC: So everybody budgets, right? Everybody’s on that spectrum already. I think that can help overcome some of the intimidation that I think gets associated with budgeting is that everybody is doing it already with the choices that they’re making with their money today.
13:18:06 TONYA: Yes, whether you’re intentional about it or not. Absolutely. And it’s kind of like the bucket of water, right. It’s like you’re filling up a bucket of water. I know we were talking about it earlier and you had such a great analogy for it.
(INSERT BUCKET GRAPHIC ANIMATION)
13:18:17 ERIC: Yeah, totally. Think about like you’ve got this bucket and when you make money, you’ve got income. That’s the water that fills up the bucket, right. But you’ve got some holes in the bucket. And so the bucket doesn’t stay full forever. The water starts to leak out, right. So what do most people think to do when that happens?
13:18:36 KAMEREN: More water.
13:18:39 ERIC: They think, “I need to pour more water in the bucket,” right?
13:18:37 TONYA: Yeah.
13:18:38 ERIC: “I need to make more money.” Well, that’s an option, but another way to think about it is try plugging up some holes in the bucket, right. If you patch up those holes, then your bucket will stay fuller for longer and then you won’t need to worry as much about making more money because you’re controlling your expenses as well.
13:18:54 KAMEREN: You got to do them both at the same time. If you can make more money, plug up the holes, that’s a double down.
13:19:00 ERIC: You’re going to need another bucket in no time.
13:19:02 TONYA: Double down on it.
13:19:03 KAMEREN: Yeah. Right, right.
13:19:05 TONYA: And so, yeah, so we think about goals versus aspirations. They work together, but the difference between them is that your goal is actually something that has a little more structure. You have an identified date. You have an identified amount that you’re working towards. Instead of saying “I want to be debt free,” it is, “I would like to pay off XYZ car by XYZ amount of time.” And that’s really important. And that fits into our budget.
16:25:05 Tonya: We’ve established the difference between goals and aspirations. Let’s have a look at what we learned…
(KEY TAKEAWAY BULLET POINTS APPEAR FULL-UP)
(SUPER: 3. BUDGET BREAKDOWN)
16:25:05 Tonya (CON’T): …So let’s kind of switch gears into understanding how a budget breaks down because debt elimination might just be one part of your budget, but there should be other elements of your budget. And so we have our fixed expenses; we have our variable expenses. Eric, do you want to cover that? Because I know you probably work with people on that all the time.
13:19:45 ERIC: Yeah, absolutely. I like to think about three different categories of expenses. So fixed expenses, that’s like the bills, right. That’s the stuff that happens every month, the amount doesn’t change. You can probably start rattling some of these things off like clockwork.
13:19:58 KAMEREN: Yeah, your mortgage.
13:19:59 ERIC: Exactly.
13:20:00 TONYA: Car payments.
13:20:00 KAMEREN: Car payments.
13:20:01 TONYA: Student loan payments.
13:20:03 KAMEREN: Your utilities.
13:20:04 ERIC: Yep, cell phone bill.
13:20:06 TONYA: Health insurance.
13:20:06 ERIC: Maybe gym membership. Any monthly subscriptions you have. So pretty straightforward stuff, right. You probably know exactly when they happen, exactly how much they cost. It’s not rocket science at that point.
13:20:16 TONYA: Yeah.
13:20:17 ERIC: So those are fixed expenses. But think about variable expenses, those are things that happen every month too, but the amount that you spend on them tends to fluctuate, right. An example that’s pretty common for people is groceries, right.
13:20:29 TONYA: Mm-hmm.
13:20:30 ERIC: So I know that some people out there tend to be really creatures of habit. But it would be pretty rare if somebody’s grocery bill was the exact same every single month, right.
13:20:38 KAMEREN: Right, right.
13:20:39 TONYA: They are structured.
13:20:41 ERIC: Right, absolutely. So it’s those things that you know are going to happen every single month, but it’s not always the same amount. Groceries, like I said, dining out’s a big one.
13:20:50 KAMEREN: Your entertainment budget, whether it’s going to the movies or coffee, your ride share. I have a customer that her son uses a ride share company every day from school. So that's a variable expense, but in her mind that might be a fixed expense. So when you’re going through your budget and you’re looking at what are fixed expenses versus variable expenses, I mean, now is the moment of truth. You have to scrutinize that really carefully so you don’t have those in the wrong categories.
13:21:33 ERIC: You know, I think a clear takeaway when you’re thinking about how to categorize fixed or variable expenses is if it happens every month and the amount does not change, then it’s a fixed expense.
13:21:41 KAMEREN: Right.
13:21:42 TONYA: Yes.
13:21:45 ERIC: If it happens every month, but the amount fluctuates, variable expense.
13:21:48 TONYA: Such as electricity bills.
13:21:49 ERIC: Yeah, yeah. So like electricity, gas, water for the apartment of the house, good examples. Those, I mean, I just tell people “Go with your gut.” If you feel like they’re stable from month to month, maybe they’re more fixed expenses for you. If you feel like they fluctuate wildly, then choose to call them variable expenses.
13:22:06 The tricky thing with variable expenses though, Kameren, is how do you know how much to estimate for your groceries or your dining out? So a tip that I can give people typically is “Go back and look at your bank statements, right. Get a three-month average of what you have been spending, specifically on those variable expenses. The bills are easy, right. Those are the same amount every month. They may not be easy, but they don’t change in terms of how much they cost, right.
13:22:31 TONYA: Yeah.
13:22:33 ERIC: But if you get a three-month average on what you typically spend on dining out, then if you decide later you want to make any changes, you know, “All right, what’s a reasonable goal I can set for myself about how much I can reduce spending?”
13:22:46 TONYA: Yeah, I’m happy you pointed that out, Eric, because it is important. I think that that’s what confuses some people about their budgeting process. I know what my fixed expenses are, but what about these expenses that change each month? How do I plan for that? And then we have something else, which is the non-monthly expenses. So do you want to go into that?
13:23:03 ERIC: Yeah, yeah, absolutely. These are tricky. Sometimes I call these “Budget Busters” because we know they’re going to happen, but most people don’t plan for them, right.
13:23:12 KAMEREN: Right.
13:23:13 ERIC: So these are the things that don’t happen every month, as the name suggests, right? But they tend to be larger expenses and you know they’re going to happen. So an example might be you’ve got to save the date for wedding that you’re just going to be attending in six months. You start thinking about all the different costs that are going to factor in that you’re going to need to save up for: Hotel, maybe airfare, if you need any new clothes for the wedding, a gift, of course.
13:23:40 TONYA: Yeah, you can’t show up emptyhanded.
13:23:42 ERIC: Exactly, yeah. But it all starts to add up.
13:23:44 KAMEREN: Right.
13:23:45 ERIC: So if you start to add up the numbers and you realize, okay, “I’m going to need $300 for this wedding and it’s in six months.” Pretty simple equation -- when it comes to non-monthly expenses, I always tell people, “Take the total amount you need to save, divide it by the number of months you have to save for it, and there you have the number that you should be setting aside for that expense every single month.” It doesn’t happen every month, but you want to save for it like it does.
13:24:10 TONYA: Yeah, definitely, because you’re spending that money some way or another. The money is being spent. Now whether you allocate it in your budget or not, that’s another thing.
13:24:18 ERIC: That’s right.
13:24:19 KAMEREN: Vacations and holidays.
13:24:21 ERIC: Yeah.
13:24:21 KAMEREN: Especially Christmas. We know Christmas is coming every year, that doesn’t necessarily have to be a budget buster if you prepare for it.
13:24:29 TONYA: It catches some people by surprise.
13:24:30 ERIC: Yeah.
13:24:32 KAMEREN: Right. It’s not a non-monthly expense, but it’s a yearly expense we should put into the budget.
13:24:38 TONYA: Yes, absolutely.
13:24:39 ERIC: Totally. So if you think about, all right, maybe an exercise to go through, reflect on how much you spent last year on Christmas gifts, right? There’s no hard and fast rule that says you’re going to spend that same amount next year on Christmas gifts, but it might be a good starting point to think about. So if you know how much you spent last year, take that number, try to save up for it. Divide by the number of months you have left until Christmas and there you go.
13:25:02 TONYA: There you go.
13:25:04 KAMEREN: How much did you spend last year? No, don’t answer that.
13:25:06 ERIC: I got easy overhead. You don’t see a ring on my finger.
13:25:10 KAMEREN: Okay, don’t ask me.
13:25:11 TONYA: The ring changes everything.
13:25:14 ERIC: That’s right.
13:25:13 KAMEREN: My little boy turned -- he’s three, so we went pretty hard last Christmas. So my budget’s going to have a little break this year.
13:25:21 TONYA: And actually, my husband and I, we were moving across country, so the year prior we said, “We’re not going to exchange Christmas gifts this year.” Well, last year, that was last year, but this year we exchanged Christmas gifts and I felt like we had some making up to do for last year. We spent a little more than normal, but we had to plan for that and we had to make sure that we were including it in our budget.
13:25:40 KAMEREN: I was going to say, was it in the budget?
13:25:41 TONYA: Yes, because --
13:25:42 KAMEREN: Well, then there you go.
13:25:42 TONYA: You know, you spend more money on one end, then it has to come from somewhere.
13:25:45 ERIC: Yeah. I often think about like all your expenses is like a long balloon, right?
13:25:51 TONYA: Yeah.
(INSERT BALLOON GRAPHIC ANIMATION)
13:25:52: ERIC: There’s a certain amount of air that’s in a balloon, whether it’s evenly distributed or whether you’re squeezing one end of it and the other end’s getting fatter, it’s at the end of the day, it’s the same amount of air, right.
13:26:04 TONYA: Yeah, it is. It’s a lot of money.
13:26:06 ERIC: So whether you have a big Christmas budget and you choose to cut back on dining out to save for it, at the end of the day, as long as there’s the same amount of air in your budget, you’re spending the same amount, that’s what’s most important.
15:36:24 TONYA: So we’ve spoken about fixed expenses, variable expenses, and non-monthly expenses -- but what about the emergency fund?
15:36:31 ERIC: Yeah, emergency fund, very important goal I think everybody should have right? So you think about what it is, it’s just a separate savings account that you have set up to protect you from those things that you really can’t anticipate. So four big ones that I like to think about: job loss, unexpected medical expenses, unexpected car repair, and unexpected home repair right.
15:36:55 So those are the big reasons why you need an emergency fund. In terms of a dollar amount, it really you want to look at it in terms of what your monthly spending looks like. So six to nine months of essential spending right? So that might not include all the dining out, all the ride sharing stuff, but it definitely includes keeping the lights on, keeping a roof over your head, making a minimum payment on all your debts, things like that, right?
15:37:22 TONYA: Yeah.
15:37:23 ERIC: So you figure out what that totals for a month, multiply it by anywhere from six to nine months and that is your goal to shoot for, for the emergency fund. Because what we’ve been talking about with fixed, variable, non-monthly expenses, these are all things that you can kind of foresee and anticipate. But you know there are some things that you can’t anticipate.
15:37:42 TONYA: Yeah, life just happens sometimes.
15:37:44 KAMEREN: Right.
15:37:44 ERIC: It’s almost to the extent, you don’t know, you may not know when an emergency is going to happen but you know that something’s going to come up.
15:37:52 TONYA: Yeah.
15:37:53 ERIC: Right, and so that’s what the emergency fund is there for. So I mean it’s key that you have it, start saving for it today, work up to it over time.
15:38:03 TONYA: Let’s start today!
16:27:12 Tonya: We’ve identified your different types of expenses and how to break down a budget. Let’s have a look at what we’ve learned…
(KEY TAKEAWAY BULLET POINTS APPEAR FULL-UP)
(SUPER: 4. CURRENT SPENDING HABITS)
13:26:17 TONYA: So your budget, it contains your fixed expenses, your variable expenses and then your non-monthly expenses. And it’s important to account for all of those when you’re creating a budget, when you’re breaking your budget down. But let’s get into spending habits because we’ve set a budget. Yay, great! We have a budget now. But what about those spending habits because if you don’t take control of your spending habits, then that budget is essentially in vain.
13:26:40 KAMEREN: Yeah, you know, that’s the key, right. Budgeting and tracking your expenses so that you can identify your spending habits, I mean, that’s a big piece of it. You can use any tool you want, whether you are writing it down on pen and paper if you’re using a money management software program.
13:27:01 ERIC: Or spreadsheet.
13:27:02 KAMEREN: Or spreadsheet. There’s got to be a way that you identify what you’re spending your money on. Let me give you an example. I was meeting with a lady and we were reviewing her budget. And so we looked at -- we put our information into this money management program and then we categorized her expenses. Her top three --
13:27:28 ERIC: So like this is dining out, this is groceries, all that stuff.
13:27:30 KAMEREN: Right, right.
13:27:31 ERIC: Okay.
13:27:33 KAMEREN: So what do you think was the number one category where she was spending her money?
13:27:37 TONYA: I know when I’m working with people, it’s food.
13:27:38 KAMEREN: Food, right? Food, that’s what it was.
13:27:42 TONYA: Overwhelmingly.
13:27:44 KAMEREN: In her case, number one was food and dining. And I mean dining out, not groceries, fast food. Number two was cash and ATM withdrawals. And number three was auto and travel.
13:27:59 TONYA: Is this the same person who is doing the ride sharing?
13:28:00 KAMEREN: Right, right.
13:28:01 TONYA: Oh, okay. She’s spending more on food than ride sharing.
13:28:04 KAMEREN: Right. And after that was shopping and then bills and utilities. Those were the top five. But number two was cash and ATM. So we really don’t know what categories they belong to. So when we’re trying to identify her spending habits, you know, one of the hurdles is if you’re using cash, it’s going to be harder to identify. But also now that we’ve got it categorized, we know exactly where to pool from now that we can see it.
13:28:39 ERIC: Yeah. You know, as a financial coach, what I always tell people is, “I’m not trying to stand between you and your lattes. You got your own kicks. You do you. I don’t care how you spend your money. I just want you to feel good about it and end up with some money left over so you can reach your goals too.”
13:28:53 KAMEREN: You shouldn’t spend at your detriment.
13:28:56 ERIC: Right.
13:28:57 KAMEREN: That’s it. I’m not trying to stop you from doing anything, but if it’s hurting you, then we need to make an adjustment.
16:29:46 Tonya: So now that we understand how we’re spending our money, let’s take a look at what we’ve learned.
(KEY TAKEAWAY BULLET POINTS APPEAR FULL-UP)
(SUPER: 5. CHANGING SPENDING HABITS)
13:29:01 TONYA: We need to make an adjustment. So we’ve identified what our spending habits are. And I think that one of the best ways to identify our spending habits is to look through those statements. If you’re not the type of person who’s going to collect receipts and reconcile your accounts on a daily basis, look through your statements because those are telling. But, say we look through the statements, right, so we’ve identified that we need our spending habits, we know what we spend most of our money on. And we’re saying, “Okay, I need to change a few things.” What are some of the things that people can do if they realize they need to make an adjustment in their spending habits?
13:29:33 ERIC: A couple of different ways I typically approach this with people I meet with. If you feel like there’s one or two categories where you feel like you really want to focus on. You’re like, “My dining out and my ride sharing, that’s what I really struggle with, those two things.” Right. Try to give yourself like a weekly allowance. So explain that --
13:29:52 TONYA: Ah, lunch money.
13:29:54 ERIC: Yeah, lunch money, that's right. Taking it back. Old school. If you feel like you spend on average, you did the math on what you typically spend on dining out and you find out it’s $400 a month, right? Break that up into a weekly amount. It’s 100 bucks a week, right. So if you want to make a change, base it off what you have been doing. Because if you don’t know how much you’ve been spending and you set a goal for yourself, it might be unrealistic and that means it’s less likely for you to achieve your goal, which can be a little bit demoralizing. And so when you’re budgeting, when you’re managing your money, you want to try to set up small wins for yourself along the way. A weekly allowance is one way to do that. Knowing what you typically spend on stuff is another way to do that.
13:30:37 So think about rather than that 100-dollar weekly allowance, maybe you want to try to cut it back to 70 or 80 dollars, right. And then maybe you choose to take the cash out of the ATM every Monday morning, right, and have that go from Monday morning until the next Monday morning. You’ve got 70 or 80 dollars on dining out.
13:30:56 KAMEREN: Only so much cash.
13:30:57 ERIC: Only use cash when you dine out. Don’t use cash for anything else. Don’t put any dining out expenses on the credit card or debit card. It can start to become pretty clear how much you spent, how much you’ve got left. And the weekly timeframe, I think, is key.
13:31:15 KAMEREN: You know, I agree. And everything you said was right. But when you’re talking about changing habits, I mean, that is, you know, kind of a difficult thing to do.
13:31:27 TONYA: For most people, yeah.
13:31:28 KAMEREN: For most people, right. What I found is the best catalyst for changing those spending habits is your why has to be really, really strong for why you’re going to change that habit. The same lady, she wants to get into investing. And so we look at her budget and she’s spending $1600 a month on food and dining. And so we move $1000 a month to her investment account, which leaves her with $600 a month. To your point, $600 a month for dining out, $150 a week. And with her, you know, that’s $22 a day. Can you commit to that, you know, before we move on? And if she has to take away from her dream of investing in real estate or she’s less likely to pull from her dream of investing in real estate to stop by a fast food restaurant.
13:32:39 TONYA: Yeah.
13:32:39 KAMEREN: She’s more likely to reach that goal a) because her money’s already spent, but also it’s spent in a place where it really means something to her.
13:32:51 ERIC: Right. And so you said keep the goals at the forefront, right. Sometimes literally keep the goals at the forefront, right, put it on a Post-It on the bathroom mirror, right. You’ve got your smartphone, you’re looking at it all day anyway.
13:33:02 TONYA: Yeah, definitely.
13:33:03 ERIC: What’s your screensaver look like? Because it should look like your next vacation or whatever you’re saving up for, right. Maybe it’s a graduation cap, you’re saving for the kids’ college.
13:33:13 KAMEREN: I do that. I put it on my screensaver.
13:33:15 ERIC: Okay.
13:33:16 KAMEREN: And it changes. Something motivational or reaffirming.
13:33:19 TONYA: It’s a reminder. Everybody needs reminders every now and again. And everybody needs small wins every now and again. You know, they encourage us to keep going.
13:33:27 ERIC: Yeah. You know, back to a couple of key points on the weekly allowance, just to kind of help explain why that can be helpful is it’s a lot more difficult for me to think about, “Okay, if I go out to eat with my friends tonight, what’s that going to mean for my budget in three weeks?” But if I think about it in a week timeframe, if I go out to eat on Tuesday night, am I going to have enough money left over to go hang out on Friday night with my friends? And so that’s a lot more digestible of a timeframe, right.
13:33:56 And, believe me, start your allowance on a Monday morning, because if you start it on Friday when you get paid, it’s going to be gone by Sunday night.
13:34:01 KAMEREN: Right.
13:34:02 ERIC: I’ve seen it too many times to count.
13:34:04 TONYA: Yeah, definitely, definitely. And I like that fitness reference because financial goals and maintaining your financial goals is creating a new habit, such as going to the gym, working out, eating properly, and so forth. And we see it time and time again when you’re at the gym, you know, you go to different weight classes, you try different things.
13:34:27 KAMEREN: I use that analogy a lot, right. If you are going to -- let’s say I want to change my habits and I want to exercise more regularly because I’m going to feel better about myself and yada-yada-yada. See, that’s the approach already. As opposed to, “In six months, you know, I have a wedding and I’ve got to get ready to fit into my tux.” You know, so now it’s a lot more urgent. It’s a lot more timely. My approach towards working out or eating right is going to be a lot -- I’m going to be more effective in accomplishing that goal because it’s more immediate and it’s more specific. Whether it’s budgeting or finance or health and fitness, changing a habit. You have to have a really strong why to change your habits in my opinion.
13:35:25 ERIC: And what you just reminded me of is what we were talking about earlier, aspirations and goals, right. “I want to start working out again so I could lose weight.” That sounds like more of an aspiration. Fitting into a tux in six months, I need to lose six pounds or whatever it might be, that’s a goal, right. Working closer toward helping you take some actionable steps.
13:35:45 You know, I think about your weightlifting example or going to the gym. One that often comes to mind when I’m working with people is if you are trying a weekly allowance, and, let’s say, your budget for restaurants is 100 bucks a week, and one week you go over and you spend 140 bucks. It’s kind of, you know, you’re not feeling great about it, but at the same time the nice thing is it’s a week, it’s not a month, so you’ve still got three more shots to get it right even in that same month, hopefully, right?
13:36:15 KAMEREN: Right.
13:36:16 ERIC: But if you overspend on your allowance, then what are you going to do the next week? Are you going to try to say, “Okay, rather than spending $100, I’m only going to spend 60 this week.” You didn’t make 100, so how likely are you going to make 60?
13:36:28 KAMEREN: Not likely.
13:36:29 TONYA: Yeah.
13:36:30 KAMEREN: Not likely.
13:36:30 ERIC: That’s like going to the gym and saying, “All right, I’m going to bench press 200 pounds. I’m going to do it six times.” And you get only four reps and that’s challenging. It’s a little bit frustrating, right. “I’m going to go back to the gym next week, I’m going to do 200 pounds and I’m going to do six reps. And I’m going to do instead of 200 pounds, I’m going to do 300 pounds.”
13:36:48 TONYA: Yeah, jump all the way in.
13:36:49 ERIC: That’s crazy, right. You’re setting yourself up for failure when you do that.
13:36:51 KAMEREN: That's not crazy for me.
13:36:52 ERIC: That’s not crazy for Kameren, but for some of us, us mortals.
13:36:58 KAMEREN: For the mortals, I understand.
13:37:00 ERIC: Yeah, absolutely. So that's the key and like don’t be too hard on yourself. Give yourself a fresh start with that same amount the next week.
13:37:06 TONYA: Exactly. So when you’re trying to change your habits, you want to give yourself those weekly goals instead of looking at the big monthly goal because sometimes it’s easier to tackle your weekly goal when you break it down into something that’s a little more digestible. And giving yourself kind of that runway to work into your goal instead of setting up this goal that you might not be able to reach and then feeling like a failure, feeling that it’s unattainable rather than setting something that’s closer to your reach.
13:37:32 ERIC: Because what happens when you fail at something?
13:37:35 KAMEREN: You can get demoralized.
13:37:36 ERIC: Yeah.
13:37:36 TONYA: Yeah.
13:37:37 ERIC: And what happens when you get demoralized?
13:37:38 TONYA: Or you’re discouraged.
13:37:38 KAMEREN: You’re more likely to just give up.
13:37:40 ERIC: Disengage, right.
13:37:39 TONYA: Yeah.
13:37:41 ERIC: And so --
13:37:41 KAMEREN: And that’s not what we want.
13:37:41 ERIC: -- how often do I see that with people I work with when I’m doing coaching. They’ve had a string of failures in the system they’ve set up for themselves.
13:37:47 TONYA: Yeah, definitely.
13:37:50 ERIC: And then after a while, they’re fed up with it. They don’t want to continue to feel bad, right?
13:37:54 TONYA: Yeah, and always --
13:37:55 ERIC: So you want to try to eliminate that. You want to try to create successes for yourself along the way.
13:37:59 TONYA: I always remind people you don’t have to be perfect, you just have to be committed. You just have to be committed to your financial goals.
13:38:02 KAMEREN: That’s a good point.
(INSERT WEIGHTLIFTING GRAPHIC ANIMATION)
16:07:22 Eric: So, I like to use this weight lifting analogy, right. So, if you go to the gym and you’ve got a goal to bench press 200 pounds and you wanna do six reps of it, right, you go through and you start your set and you can only get like four reps; it’s just too much, you’re not ready for it yet, right. So, when you go back to the gym the next week and you’re trying to continue to get better at it, are you going to add 50 pounds to the barbell and try to get another six reps?
16:07:50 Kameren: Right. No.
Eric: No, because that wouldn’t be setting yourself up for success.
Eric: So in that same sense that’s how you want to think about your weekly allowance. Don’t try to play catch up.
Kameren: Good point.
16:31:11 Tonya: So now we’re all fired up and ready to implement these changes. Let’s have a look at what we’ve learned.
(KEY TAKEAWAY BULLET POINTS APPEAR FULL-UP)
(SUPER: 6. AUTOMATION)
13:38:03 TONYA: So we realize we have to change these spending habits. We’re changing our spending habits. Is that enough or do we need to automate? What do you guys think about automation?
13:38:15 KAMEREN: I think it comes down to personal preference.
13:38:17 TONYA: Okay.
13:38:18 KAMEREN: I am a fan of automation. I think that -- I try to automate as much as possible for a couple of reasons. I think it gives you -- I think you can leverage your time, right, or I’m leveraging technology so that I have more time. I do things like my bills, my gas bill, my water bill, my insurance -- a lot of these fixed expenses are definitely automated. And I try to -- let’s say I’m going to have a shopping budget that’s $200 a month. I will go so far as to automate a scheduled transaction to my shopping account so that there’s only $200 in there.
13:39:04 ERIC: Are you talking like a separate bank account?
13:39:06 KAMEREN: Mm-hmm, sure.
13:39:07 ERIC: Okay.
13:39:08 KAMEREN: I’m saying I want to spend -- I’ve set up my budget, I’ve hit my goals. I’ve got $200 to spend for shopping. I’m not pulling it from my account. I’m setting up a different account and I’m moving money automatically from my account each month to this separate account. And I’m only using this card for shopping.
13:39:24 ERIC: Yeah.
13:39:24 KAMEREN: So once it’s out, it’s out.
13:39:25 ERIC: Right.
13:39:25 TONYA: It’s gone, it’s gone.
13:39:27 KAMEREN: That’s my preference.
13:39:28 ERIC: No, I meet with a lot of people who like that system, setting up different accounts for different purposes. Maybe you’ve got one account where your paycheck comes into and some money stays there. Maybe the money for the bills stays in that account.
13:39:42 KAMEREN: Right, right.
13:39:44 ERIC: But then you have a separate account that’s like your fun money for the things like dining out and ride sharing and things like that. And then maybe you’ve got a retirement account or a savings account for emergencies, things like that. So having multiple different accounts for different goals can be helpful. Because otherwise what happens? You see your savings account. If you’re doing a good job at saving for your goals, it’s starting to grow, it’s getting bigger. But you just see one big number, right.
13:40:10 KAMEREN: Right.
13:40:11 ERIC: And what does that mean to you?
13:40:13 KAMEREN: If it’s not allocated right, if it says “New Home” on it, that means something different than just savings.
13:40:20 ERIC: Right, exactly.
13:40:21 TONYA: Just money, just savings account. Yeah, but you haven’t given it a job to do yet.
13:40:25 ERIC: Yeah, you give yourself more insight into how much progress you’re making on all your goals when you decide to give your account a nickname or set up separate accounts for different things.
13:40:34 TONYA: Yeah, I mean, automation for some people -- I know that I prefer to do things manually. I just like to be hands-on with my money. But I think that automation actually sets some people up for success. You know, it’s one of those things that helps insure that they use their money towards what they said they wanted to use their money towards.
13:40:53 KAMEREN: So you do the old-fashioned pen and paper?
13:40:57 TONYA: I’m old-fashioned when it comes to my money. I like to touch my money.
13:41:01 ERIC: Yeah, there are studies that show you write stuff down and it sinks in a little better.
13:41:04 TONYA: It commits to memory for me.
13:41:05 ERIC: It’s tactile.
13:41:07 KAMEREN: You know, the best plan is the one that you use. So if it works for you, good.
13:41:15 TONYA: And that's what’s important. There’s really no right or wrong way to do it as long as you’re doing it. But I definitely did want to -- for people who say that automation isn’t for them and so forth, I think that it’s wonderful that you mentioned setting up a separate account that the automated funds come out of so it’s not coming out of the direct account tied to what you’re spending money from regularly. So the automated bills might not come from, you know, your dining out, the account you spend for dining out and so forth. And that’s important. But it’s kind of like you have these barriers. Automation also sets these barriers up for you.
13:41:45 ERIC: Yeah, absolutely. A couple of key things I want to hit. I think I know where you’re going here. A couple of key things I want to hit about automation. It can be very valuable. It can save you a lot of time. It can simplify your financial life. Don’t automate a habit that you’re not happy with though.
13:42:00 TONYA: That’s true.
13:42:01 KAMEREN: That’s a good point.
13:42:02 ERIC: If you feel like you spend too much money on dining out, don’t automate a transfer for the amount you normally spend on dining out.
13:42:09 KAMEREN: Right.
13:42:10 ERIC: Because you don’t want to spend that much on dining out.
13:42:13 TONYA: Yeah.
13:42:14 ERIC: Don’t automate until you’re happy with how you’re spending your money. And then the other key thing to understand is an automatic transfer can be valuable because if your rent or -- maybe rent’s a bad example. But let’s say that your water bill is due on the 10th of the month, if you have an automatic transfer set up to pay it, the money is going to get pulled from your bank account whether it’s there or not.
13:42:34 TONYA: Yeah, set a reminder.
13:42:37 ERIC: So it’s good in the sense that you’re not going to miss your bill payment, but you need to make sure you’ve got the money in your account too.
13:42:42 KAMEREN: Right.
13:42:42 TONYA: Yeah.
13:42:43 ERIC: So those are the keys. But where I think you’re going here is automation is a tool you can use to make it more likely that you’ll achieve your goals.
13:42:51 TONYA: Yeah, definitely, that’s where I was going, Eric.
(BEGIN BOWLING PINS GRAPHIC ANIMATION…)
13:42:53 ERIC: We’ve always got a lot of goals, right. And if you think about your goals as like pins at the end of a bowling lane. You’re in a bowling alley and there are pins at the end of your lane. And, I don’t know about you guys, but I’m a subpar bowler so I’m not going to –
(PAUSE BOWLING PINS GRAPHIC ANIMATION…)
13:43:06 KAMEREN: What is subpar?
13:43:08 ERIC: Subpar is in the hundreds. Two hundreds would be like a dream.
13:43:12 TONYA: I’m decent. You know, I don’t think anyone’s going to draft me for their bowling league, but I’m decent.
13:43:15 KAMEREN: Well, I think we should go tonight and find out.
13:43:18 TONYA: Yeah, we should.
13:43:20 KAMEREN: All right.
13:43:21 ERIC: Let’s see how it actually turns out, right.
13:43:21 TONYA: Okay.
13:43:22 KAMEREN: Sure, sure.
13:43:23 ERIC: Let’s see if you can back up that 300-pound bench press talk.
13:43:25 KAMEREN: Listen, man. We’re going to derail this conversation and start talking about how I’m going to whoop you in bowling.
13:43:32 ERIC: No, no, no. Tonya’s got the bumper rails up for us.
13:43:35 TONYA: Yes, I do. Bumper rails, guys.
(RESTART BOWLING PINS ANIMATION)
13:43:36 ERIC: All right, so check it out. You’ve got your lane, your pins at the end of your lane. Those are your goals. If you don’t have bumper rails up, what can you do when you roll the bowl?
13:43:46 TONYA: Gutter ball.
13:43:48 ERIC: You can hit a gutter ball or you can hit a strike, right.
13:43:51 KAMEREN: Speak for yourself.
13:43:52 ERIC: Well, that’s me, right.
13:43:52 KAMEREN: Okay.
13:43:53 TONYA: For me it’s the gutter.
13:43:55 ERIC: But if you put the bumper lanes up, then what does that do? It makes it way less likely that you’re going to get a gutter ball, right. You’re not going to strike out. You might get a strike, but you’re going to hit something.
13:44:06 KAMEREN: Yeah, you’re definitely going to hit something.
13:44:09 ERIC: And so when you automate some transfers, when you set up a weekly allowance, when you write your goals down, these are key things that you can do to make it more likely that you’re going to knock down more pins at the end of the lane.
13:44:19 KAMEREN: That’s a good analogy.
13:44:21 ERIC: Thanks, it’s yours for the day.
16:35:11 Tonya: Automation can help make things simple. Let’s have a look at what we’ve learned…
(KEY TAKEAWAY BULLET POINTS APPEAR FULL-UP)
16:37:15 Tonya: We could talk about budgeting all day long, but we don’t have the time. So, Eric, Kameren, thank you so much for sharing your expertise.
BOTH: “Thank you, Tonya / Thanks for having us.”
(CLOSING SEQUENCE WITH MUSIC, GRAPHICS)
Tonya: ”Make sure to check out all of our tools, support and education – and don’t forget to explore all of our courses. See you next time!”