My spending habits in college became a part of life post-grad: eating out almost every night, shopping on the weekends, buying unnecessary arts and crafts materials for DIY projects I never do.
All the small purchases added up on my credit card bill, which most of my money went to pay off. I was essentially living paycheck to paycheck.
Limiting my spending never really crossed my mind, but I really hoped to start developing habits to help me get rich. I finally decided to try to manage my budget.
I downloaded Mint, a personal finance app for budgeting and money management. It tracks my spending, sets budgets for different categories of spending, and even gives advice on what I can do to maximise savings. I connected all my credit card and debit card accounts to get the best overview of my spending as well as my student loan debt: my total net worth. I was at -$17,552.
After using this budgeting app for a month, here’s how it changed the way I looked at my money:
Just because it's there doesn't mean it should be spent.
It was great linking all my accounts with this app, but at first, seeing that number made me think I had more money than I really did.
The app combined my available funds from different bank accounts and it gave me one large number, which was essentially all the cash I have available. Seeing this number was overwhelming, and it made me want to spend. I'll admit it -- I caved and went on a small shopping spree. Some of the transactions delayed in syncing with the app, so the numbers were not accurate until the next day, or whenever the transactions were processed.
Over the course of the month, I was able to keep from another spree as I considered the debt and bills I had to pay. I realised just because the cash amount 'available' is large, it's not truly how much I should or could afford to spend.
I spend way too much on food.
Mint provides a pie chart of your spending summary for the month. The purchases get categorized into the basic budgeting categories: home, education, food & dining, education, entertainment, health & fitness, personal care, shopping, or un-categorized. You can also add your own categories if you need to.
With this feature I immediately saw one major problem with my spending. A chunk of my money was going to one category: food and drinks.
In February, I spent over $411 on food and dining through 26 transactions -- a combination of restaurants, coffee shops, bar tabs, groceries, and alcohol. That's an average of $14 a day for the 29 days in February (this year was a leap year).
After seeing the shocking numbers on much I was spending on food and drinks alone, I had to cut back.
Going forward, rather than buying lunch for the day, I'll shop for the week and prepare meals. I'll limit eating dinner at a restaurant to once a week, and I'll bring cash rather than credit cards when going out. Maybe I'll even try eating on $2 a day like Business Insider reporter Kathleen Elkins did.
I wasn't making nearly enough progress on my debt.
Before using this budgeting app, money went where it pleased. I didn't have a goal to save towards, so I was -- once again -- going paycheck to paycheck. I paid off student loans this month, but it was a random amount since I didn't know how much I should pay. I was on the income-driven payment plan, so I didn't have required monthly payments. I just paid what I figured was enough.
I found out later the amount I paid was not enough to make even the smallest dent in my debt.
I logged on to Mint.com, a tricked-out desktop version of the app, to create a goal for my student loan debt to be paid off within seven years and less than $2,000 in interest. Other goal options offered were to pay off credit card debt, save for an emergency, save for retirement, buy a home, buy a car, save for college, take a trip, improve my home, or any custom goal you want to create.
After connecting my student loan debt account to Mint, I was able to configure the amount I wanted to pay relative to how long I wanted to take to pay it off. The app also showed me how much interest I would be paying within that time frame. I realised that if I wanted to pay off my debt with a reasonable amount of interest in less than 10 years, I had to pay almost double what I was paying before.
I didn't have a realistic idea of what I've been spending.
Mint automatically creates a budget for your account based on your spending for the past 30-90 days. My budget was $440 for the month of February.
Since most of my transactions go towards food and drinks, Mint gave me a budget of almost $300 to spend on that category alone. It included alcohol and bars, coffee shops, fast food, groceries, and restaurants. I thought that was too much already, so I went in and changed some of the budgets around, lowering the amounts to how much I thought I should be spending.
Unfortunately, as you probably already know from the $411 dollars I spent on food, I ended up spending over my budget. Clearly, I didn't have a realistic idea of how much I actually spend each month.
I'm going to have to make some changes in the way I spend.
After using this budgeting app for a month, I realised that seeing my spending, savings, and debt laid out was eye-opening. I might have been tempted to spend at first, but after the transactions showed up in the app, I was in shock at how fast my funds were depleting.
I definitely became more aware of where my money was going, and the habits I needed to change to really reach my goal of saving, and maybe even one day becoming rich. I also learned that you need to give your money direction, allocating it where it's necessary and limiting it elsewhere.
I know that results aren't going to be immediate, and will take a lot of time and self-control. But I do admit it's rewarding to see my debt decrease, and my net worth increase, as I go.