Personal Finance

Making a budget (and sticking to it!)

This month we're focusing on topics to take into the New Year. Developing a budget that works for your life will help you master life. Below i've listed my advice for developing a budget for your flexible income. I also recommend our article on saving. I'm happy to answer any questions the comments section or via the contact link!



Step 1: Where do you want your money to go?

For most of my life budgets have always made me feel restricted and sad. I realized about a year ago that it was because I was setting IMPOSSIBLE budgets. I would give myself a food budget of $10/day because I knew someone else who lived on that budget. I didn’t take into account that food is the thing I WANT to spend the most money on (soap box: what goes in your body is way more important than what goes on your body). Similarly, there are areas of my life that I skimp on that are a priority for other people. So step 1 - where do you want your money to go? This is easy to do in percentages - for example, 15% savings, 10% transportation, 15% food, 30% housing* , 30% student loans.

*Unless you’re looking for a new place to live, housing is a set expense. For simplicity sake, I take all fixed incomes (rent, utilities, savings, student loan payments, car payments) out of my income first then develop a budget for my more flexible expenses.

Step 2: Where does your money actually go?

This is the most boring thing in the world - initially. You need to track your spending for 6-8 weeks and actually LOOK at where your priorities are. Do the priorities on the page match the priorities of your heart? When I see I’ve spent $40 on Starbucks, that’s not okay because going to Starbucks doesn’t bring me any more joy than brewing Starbucks coffee at home. When I see I spent $40 on gas to see my boyfriend, I'm okay with that. 6-8 weeks is a good time frame because it allows you to factor in purchases that you don’t make everyday - like nail salons, hair cuts, and gifts.

Step 3: Align your lists from step 1 and step 2.

It’s a lot easier to cut out purchases when you have an idea of where that money will go instead. This step allows you to physically see that the $40 spent on coffee = a trip to Atlanta to spend time with the person you love most in the world. I would wake up three minutes earlier to make coffee for that (or invest in a coffee pot with a timer!)

Once you successfully go through these steps once, budgeting will become a lot more fun because you will have increased your joy per dollar spent.

You can of course track these numbers by hand or with your credit card balance sheet. I use mint because it’s incredibly well organized and visually tracts your monthly budgets. I open the app multiple times a day because it’s super quick. Level is also a great app that tells you how much money you can afford to spend each day to stay within your goals. This is a great app to keep your daily purchases from adding up.

Keep in mind that your budget shouldn't be static each month.

It will change based off of vacation plans, need for winter clothing, holiday gifts, significant other birthdays, etc. Don't feel like you're cheating if you bump your budget up one month to cover one of these.

Just be mindful of what you're doing and stay within the limit you've decided you can afford!

I'd love to hear what budgeting tips work for you!

Happy to answer any questions in the comments section.



Understand your credit score

While writing the "maximize your credit score" post, I realized I should first discuss the basics of credit scores! I'm happy to answer any questions in the comments section.



What is a credit score?

Your credit score is a measure of how reliable of borrower you are. It is developed from your credit report using one of several scoring algorithms. There are multiple scoring models developed by multiple companies; your credit score can vary depending on which algorithm a company uses.  FICO develops the most commonly used algorithms, but there are even multiple FICO algorithms. No matter which algorithm is used, the score is only based on information in your credit report.


Who cares about my credit score?

Lenders access your credit report when you apply for a credit card or loan. Leasing companies also use your credit score and payment history to determine if you’ll be a good and reliable tenant. A higher credit score means you are a less risky loan candidate (less likely to default on your loan). A higher credit score will result in lower interest rates and higher loan amounts. A low credit score may prohibit your ability to get approved for an apartment, credit card, or loan.


What is included in my credit report?

TransUnion, Equifax and Experian are the three bureaus that maintain credit reports. I recently requested by credit report from Equifax and these were the main sections included --

  1. Credit summary - your credit accounts categorized by type (mortgage, installment, revolving, other)
  2. Individual account information
    1. Open accounts - including the age of the account, payment history, current status of the account (current, past-due, etc), current balance, and the highest balance you've carried
    2. Closed accounts - positive account information can stay on your credit report for up to 10 years from the date the account is closed (this is a good thing). Negative accounts remain on your credit report for 7 years from the date the account became delinquent.
  3. Inquiries -
    1. Inquiries that may impact your credit score - the number of loan/credit card applications in the last 2 years; it's understood that people shop around for the best rates, so inquiries made around the same time period are usually factored into your credit score as one inquiry
    2. Inquiries that do not impact your credit score - this includes when you or your employer access your credit information and when companies access it to per-approve you for a credit account
  4. Negative Information -
    1. Negative accounts - delinquent payments and late payments remain on your credit report for 7 years from the date the account first became past due.
    2. Collections - accounts turned over to a collection agency
    3. Public Records - bankruptcies, law suits
  5. Personal information - identifiers, address, employment history
  6. Dispute file information - information to report inaccuracies on your credit report


Are student loans included on my credit report?

Yes. Defaulting on your student loans will negatively impact your credit score, but deferring on your loans will not.


What's a good score?

FICO scores range from 300-850. The higher the number, the better your credit - meaning the less of a risk you are to lenders. Here is a general range from

300-629: Bad credit
630-689: Average credit
690-719: Good credit
720 and up: Excellent credit

How do I improve my credit score?

See our article on maximizing your credit score!