What’s the point of all that budgeting—tracking expenses, paying off debt, negotiating interest rates—if you’re not having fun with your money?
For me, there are two big rewards for being more conscientious about your finances. One is peace of mind. No more tossing and turning to wonder if your bills will be paid or if you can afford to investigate that “check engine” light. But the other part, the one that will help motivate you when you do the less exciting parts of budgeting, is using your money for the big things you want out of life.
If you’ve been following this newsletter since the first week, you’ve already created “one-day funds” for mundane things like car repairs and medical bills. And hopefully you’ve started saving for those, or at least have a plan to start with. But this week, we’re going to talk about setting bigger and more exciting goals than “having enough in my bank account to cover a brake job.” I’m talking about vacations, weddings, back to school, even a down payment on a house. Everything that makes tracking your expenses and managing a budget worthwhile.
Can I save for great things while I pay off my debt?
I think so. As I’ve said before, some personal finance guys think the only way to be serious about debt is to make it all-consuming. But many of us have a lot of debt. You are young and you want to have fun. Budget for it.
I think having a financial goal in mind makes the mundane aspects of budgeting easier to swallow. Like, sure, you have to stretch your grocery budget this month and say no to the Hollywood Bowl concert that all your friends are going to, but you’re going to throw the craziest 30th birthday party they’ve ever seen. If you have to eat frozen pizza multiple times to fund it, who cares? Load that bad boy up with hot sauce and think about the options for the mimosa sea bass you’re going to have.
Here is my example: My “budget trip” started in 2017. In 2018, my whole extended family decided to take a big trip to London for the holidays. We decided that at the beginning of the year. It was not an experience I wanted to miss. Instead, I restructured my budget to save and didn’t take on any more debt. The whole trip was paid for when our flight took off.
Has it pushed my debt-free schedule forward? Sure. We could have been completely out of debt a few months earlier if I had said, “No, thank you. But for me it was worth it.
Break down a big goal into manageable pieces
How many weddings can you afford? How much can you really spend on your big trip? A down payment is how much in this market? Instead of guessing a big number, break your goal down into necessary components.
Take my international travel as an example.
What I like to do is create a new spreadsheet (yes, more spreadsheets!) and estimate what I’m going to have to pay. There are the big chunks: plane tickets, hotel rooms, money for food and tours (museum tickets, walking tours, ride in the giant Ferris wheel tourist trap). But also the little stuff: passport renewal, how you get to the airport, car rental or transit costs at your destination, snacks at the airport, souvenirs, a last minute trip to the pharmacy because you forgot to pack sunscreen and toothpaste. (In our case, the airline lost our luggage for the first two days, so we ended up at Marks & Spencer to buy underwear and pajamas.)
It turns a large expense into small pieces. Now, instead of thinking, “This trip is going to be very expensive and I have no idea how I can afford it, so I’m just going to close my eyes and put it on a credit card,” you can say: “Here’s exactly how much it will cost, and I’ll make a plan to make sure it’s all paid for when I leave for the airport.
It also made it easier to plan the trip. We didn’t have to stay in the cheapest hotel we could find – we planned to splurge and stay in the cute option right next to the extremely luxurious place where most of the family stayed. Instead of feeling guilty every time I wanted to do something extra, I could check my vacation budget and say, “Yeah, I’d like to do Christmas tea at the Ritz.”
How to build savings into your budget
Saving up for something that seems expensive is easy if you have enough time. I treat my savings goals like any other item in my budget. We decided we were a ‘yes’ for London in March of that year, and we had until December to save up. It was time to break it.
Look at your total cost for the trip. Now determine how many times you are going to get paid by then. Divide the total cost by this number. This is how much you should set aside each paycheck.
I prioritized these savings before funding my regular fun categories. When I was saving, I cut a few extra subscriptions and reduced my monthly restaurant budget. Saying “no” to a fun night out with friends was a whole lot easier when I could tell myself it was either that immediate reward of a few drinks in our normal Hollywood bar, or the sight of the Crown Jewels at the tour of London with my parents and my sisters.
Also, once the trip was over, I was able to reallocate the monthly layaways I had made for London into my fun categories.
Don’t go into debt anymore
When you have a big purchase in your future, resist the urge to take out a personal loan or open a new 0% credit card to pay for it, and don’t use any of those “split that into four easy payments that make the total sound less scary point-of-sale financing services These are, financially speaking, pitfalls.
In a previous edition, we talked about things like 0% credit card balance transfers as a debt repayment strategy. But that’s for the debt you incurred in your previous life as a non-budget conscious person. You’re not making a responsible financial choice if you’re buying things with more debt right now. The only exceptions are debts such as mortgages, auto loans, and medical bills. You have to live somewhere, move around and take care of your body. You don’t need to go to Tulum.
If you can’t afford something by saving and budgeting, you can’t afford it, period.
I don’t know what your big dream is. I hope it’s something great, something that motivates you to say, “OK, I’m going to sit down and file all my expenses today, next week, and the week after.” Like your emergency fund and your auto repair fund, even if you can only budget a few dollars to reach your goal right now, it’s a few dollars you weren’t spending on it before. Celebrate this victory!
Next week we’ll talk about protecting your money and planning for your financial future. See you later.
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