I’ve never been good with money in my life. I did okay. I did not have any debt apart from two credit cards although I’ve never carried a balance and always paid them of in full every month. I was making my bills. I’ve never been late on anything.
Last year and the years before that it was like this:
I did have some savings ranging between the €1500 – €3000 mark. Every month, I put something in savings. But my checking account was always relatively low on funds after the big ticket items like rent, utilities, electricity etc. were withdrawn at the beginning of the month. Most of the time there was still enough left for groceries and gas plus some other little things. But almost every month, something “unexpected” came up, like an insurance premium, some household repairs or an annual subscription fee for things like Amazon Prime that I had totally forgotten about. So I transferred the money back from savings into my checking account.
I was living paycheck to paycheck despite having a good salary as a software engineer in the publishing business. Most of the time, I did not think about it but sometimes, reality hit me and I got scared. I was making ends meat but I did not get ahead. I was treading water and I seldom had more than €2000 margin between me and a financial disaster.
On March 25th 2015 my checking account was overdrawn by about €150 and my two credit cards had a balance of around €360 combined. I was a little over €500 in debt before the end of the month. I also had just over €2300 in savings so at least I had more money then I owed but still: I had enough! I’ve never been so “deep” in debt before in my entire life and it made me very uncomfortable. I feared that I might go down hill from here very fast. So I decided it was time to change something going forward. The following day, I got on a budget.
I am interested in personal finance and economical topics so even back then I listend to Dave Ramsey’s podcasts daily (go figure) and I still do today. If you don’t know him: He hosts the third largest talk radio show in the US and is all about helping people getting their finances in order. He has these revolutionary ideas like:
“If you have no debt and spend less then you make you’ll have money”
No sh*it! It is a simple concept but it is hard to do if you never learned how.
To achieve this goal, he tells you to live on a written game plan: The zero based budget. You have to assign every dollar of your paycheck a task on paper on purpose every month before the month begins. So you write down what you need to buy short term like rent, food, transportation and so on. Also, you need to look ahead for larger, less frequent expenses like that annual insurance premium. So you divide those by 12 and put that amount away every month. When you are done with your plan, you are supposed to have zero dollars left to assign. The idea is: When EVERY SINGLE dollar has a task, then none of them will “wander off” and you won’t wonder where they went.
A software that implements this concept really well is YNAB. I found it thanks to German podcaster Holger Klein (thank you so much!!) who mentioned it on his WRINT podcast when he was talking how the software has changed his life. YNAB also comes with its education and its rules to live by. Those rules are very close to what Mr. Ramsey teaches.
I am not affiliated with YNAB or Dave Ramsey in any way. But I can safely say that the concepts they both taught me as well as the YNAB software to help implement them have changed my life since then.
You might think that a budget is restrictive because it makes you spend less (and it does). But it is not restrictive – it gives you permission to spend. All you need is a look at your budget to see whether or not you can afford to buy something. In December 2015 I spent over €4000 on general living expenses, christmas presents, the 32C3 conference and a large utility bill (that alone was over €700). I barley felt it. Why? Because I planned for all of that back in March and every month I put money aside for all of that. I had the cash. A year earlier that would have totally destroyed my finances.
The budget has become a tool that I never want to live without again. It puts me in control of my spending, my finances and ultimately my own fate. It feels awesome to set savings goals and achieve them! (Hello new 128GB iPhone 6S Plus) It is great to know that should I ever loose my job, I can make it up to three months on my own even if I don’t get any unemployment benefits (which you do get in Germany unless you lost your job due to own negligence like stealing from your employer).
Being on a budget has also changed me in many ways: It taught when to say no and when to say yes, how to aim for something and than achieve it. Since I am no longer broke I have lots of room for charitable giving in my budget. Giving the Pizza guy a €20 tip when they usually get nothing or maybe €1 – €2 makes them very happy. And making people happy is awesome! Giving more of my money has taught me how to be humble, how to serve people around me, how to be excellent to my friends, family and colleagues. If you are not budgeting you should try it. Done right it WILL change you forever.