Financial Coaching for 20-Somethings: Day 3 of 5
It’s time to get your money in order.
Here are all the things we won’t do today:
1) Tell them exactly what you shouldn’t spend money on.
2) Spend some time calculating how much a daily latte or a weekly avocado toast might cost.
3) Shame on you for not working on the side.
Here’s what we’ll do: try to get you to think as much about what a budget represents as about any numbers it contains.
The first principle of budgeting remains the same. Spend less than you earn if you can. If it’s an emergency that requires spending more, no shame, no guilt – but ask your more sensible friend or family member for advice if you’re deeply in debt.
The second principle, however, is… well, we’re just stating the second principle here: a budget is a statement of values. Think about the annual federal budget exercise. The President makes a proposal and many of the things contained in it often have little chance of actually happening.
Federal budgets are a political exercise. But they are also about positioning: “These are my priorities. This is how I want things to be different next year. Here’s what I hope to do less and less.”
Your budget is positioned the same way and an exercise can help you see how. If you spend most of your money on a debit or credit card, log into your accounts and look for all your purchases from the last 12 months or 2023. Most major financial institutions can categorize purchases for you with the tap of a button. Some of these tools are not great, but they are good enough for this purpose. (Or you can quickly manually add up what you spent in the 10 categories where you spent the most money.)
Now, take a look at these 10 numbers and rank them by the total dollars you spent. Then, subtract the expenses that were mandatory, with basic food and shelter and other things that were necessary.
See what’s left. (I understand it might not be much if you’re just starting out, but the sooner this practice becomes a habit, the better.) How does that make you feel? Are your spending a reflection of the things you enjoy most? How much pleasure did you get from your spending? If the rankings and numbers are good, then your budget reflects your values.
And if not? You are not a sinner in need of financial repentance. You just need to spend less on things that don’t matter and more on things that bring you the most joy.
When I was 20, I had no choice but to understand this quickly. I immediately realized that drinking in bars and wearing more expensive clothes wasn’t adding much to my life.
I also created a game to see how many meals I could get someone else to pay for through work, while also counting pennies to pay for expensive restaurants every now and then. In 1994, I spent my own money (when I had it) at the excellent East Coast Grill in Cambridge, Massachusetts, where its big hot-sun flavors changed the way I ate and cooked.
At age 50, my analysis changed. During the pandemic, I realized that I didn’t miss more expensive restaurants so much. Once they came back online, I discovered I was competing with robots for bookings. Who needs hassle?
What I missed, however, was live music. With my eldest daughter, I made a list of the best concert halls in the United States that I hadn’t been to yet and we decided to go to them all. So far, we’ve conquered Red Rocks in Colorado. Still to come: the Hollywood Bowl, First Avenue in Minneapolis, and the Greek Theaters in Los Angeles and Berkeley, California. As I was writing this, the algorithmic gods delivered Neal Francis to one of my feeds. I’m not sure I’ve ever gone so quickly from “Let’s check it out” to “I’m buying tickets to a show right now.”
Your business could be fashion, hiking, home decor, or music equipment. I don’t care, and you shouldn’t judge me either. Your values are not mine, and as long as yours do not cause direct harm to me or others, I cannot criticize the things you value most, as evidenced by your spending.
So, once you know what’s important to you, how do you control the money you have to work with?
Maybe you don’t need an app for that. The traditional approach – a force mechanism, really – is to pay for everything in cash. You start each pay period or month with a set of envelopes for each category and the right amount of money in each. When it’s over, it’s over.
If you want digital assistance, start with a few questions about what’s most important to you in a tool. Some apps are better at things like managing debt or tracking your net worth than they are at tracking your spending.
Some readers may remember Mint, a budgeting tool that took the world by storm about 15 years ago. It’s gone now – Intuit acquired it and ended up phasing it out – but I recently made a guide to some of the alternatives.
Most good apps cost at least some money. If you don’t want to pay for budgeting help, you can try any app that offers a free trial; see which features and categories appeal to you; and then try to recreate them in your own spreadsheet or in some of the free spreadsheet-based budget templates that are available online.
What if it all seems like too much? Maybe choose the three categories you spend the most in and just track those numbers every couple of days against whatever goal you set. Or choose just one, since you have to start somewhere.
As you can see, we are aggressively neutral when it comes to shape, forms, format, formatting, all of it. But we are quite fierce about the need for some kind of practice.
Do something and see if it creates a habit. There’s a good chance that paying more attention than you did a month or a year ago will leave you feeling better than you did before.
Action Items
Ask your friends how they track their spending. And if they don’t, ask why, while emphasizing that you’re coming from a place of genuine curiosity and not judgment.
Think carefully – without looking at your own spending – about the three things that brought you the most joy last year and that cost you at least some money.
Then think about the things that felt like a waste or didn’t bring you the happiness you hoped for. Is it easy to avoid these products or services in the future or spend less on them?