I love budgets! My husband and I create a unique zero sum budget every month, based off of the previous month's income. However, budgeting has not always been my forte. My first ever attempt at budgeting went a little something like this.
I had just finished my junior year of college, and I was driving a friend to the airport. I then proceeded to rear end a car while driving (I kid you not) three miles per hour. We were at a stoplight, on a hill, and I partially lifted my foot off the break and just kind of rolled into a truck.
I pulled off to the side of the road, and assessed the damage. The truck appeared to be fine except for a paint nick.
Using the savvy trick my dad taught me, I exchanged insurance information, but asked that she call me personally to see if I could pay for the damages out of pocket. She told me that would be fine, and she drove off.
Meanwhile, my car (a 1980 Mercedes Benz with some functional parts) appeared to have sprung a leak. I don't know a lot about cars, but that didn't seem good. I called AAA to tow my car to a nearby shop, and we called another friend to drive the other friend to the airport.
Then I went over to a friend's house to crunch some numbers and cry.
God, What am I supposed to Do?
Even though I was pretty flush with cash (I had received my last paychecks from my on campus jobs, had sold a few things, and had been tutoring and babysitting like crazy), I didn't think I had enough to cover car repairs and my next step in life.
I was planning to drain down my savings throughout the summer as I lived with a few friends doing a ministry internship. My earning plan was to work part time minimum wage job (covering food, gas and incidentals and maybe part of my rent). So I felt that I needed the money. My parents had made clear that they would support this choice emotionally, but not financially.
For the first time in my life, I was in a financial crunch with nowhere to turn, so I prayed. At first, I thought God told me to read Numbers, but I'm pretty sure he actually told me to make a budget which is what I did that evening with the help of my friend's husband, G. This is how it went down:
Okay, How much money do you have?
G asked me how much money I had. It took me a while to figure this out because I had to run (literally run, my car was broken) back to my dorm room to check how much cash I had there (I got paid in cash for tutoring and babysitting, and I didn't usually deposit it).
I think starting with how much money you have is a great place to start. For me the answer was close to $8K
Now we'll prioritize the spending
Next, I had to do an extremely difficult task, which was prioritize how that money would get spent over the course of the next four months (when school started back up). Normally, when people budget, they do from either month to month or pay cycle to pay cycle. Thankfully, G understood that my income over the summer would be so negligible, that it would be worthwhile to pretend I wasn't going to get paid. Even though I'm very smart, I was a complete financial beginner. It's much easier to think about money as static than to consider the complexity of monetary velocity (which at the time I could model, but not apply to my personal life). Cash flow was off the table, we were just going to pretend my money was fixed.
G asked me a very important question, which is, "What is the most important thing to spend your money on?"
I thought for a while and I determined that the answer was the other person's car. G reluctantly agreed (he was reluctant because he thought rent or food should come first).
After googling the price of a Truck Painting job, he grabbed a piece of paper and wrote:
"Truck - $1500"
Then he asked me what was next. I debated between my school fees (rent, meal plan and books that wouldn't be covered by my scholarships/job as an RA), and rent for the summer. He convinced me that summer came sooner, so I should probably prioritize that.
Rent $1200 (This is 3 months rent split 4 ways including utilities)
Next we debated food. I thought I could probably get away on about $15 per week, but my friend suggested the $50 might be more realistic (after all, I was also going to be training for Cross Country). We ultimately compromised at $480 for the next 12 weeks, and I would bank on having food available during RA training. Finally, we wrote down the school fees
School Feels $4200
After all my basics were covered I had just $620 leftover, and I had not touched my car. G suggested that $620 was not enough to fix the car, and that I needed to keep it parked for the summer.
So, how did it work?
Well, my car was already at the shop, and I wouldn't have the money to repair it, so I called the shop and asked them not to look at it. Too late. He had looked at it, and estimated that the total repairs would come to just over $3K, well over the value of the car. However, he was a collector of old cars and would buy the totaled car for parts for around $500 less his labor thus far (valued at apparently $22).
I spent the summer bumming rides from my roommate (to and from work mostly), and long boarding or walking to get groceries or to get to some of the activities for my internship. I spent closer to $50 per month on groceries, and I also spent $120 on gas repayments (I gave $20 every two weeks), but at the end of the summer I had plenty of money to pay for my school fees (actually, I had more than enough because the paint job was only $460 and two weeks ahead of time, I learned that I had earned an extra scholarship that I thought was a lost cause).
How did budgeting feel?
I felt empowered by my first budgeting activity. I wasn't rich, but I knew that I could cover the basics and still cover the activities that I wanted to do. From that point onward, I always did a quarterly budget activity that was also mixed with some earnings goals. First semester of my senior year, I made a goal of earning $5K to cover my last semester's fees and to have money to buy a car when I graduated, and the next semester, I made a goal of earning $3K.
I certainly know that I lacked rigor in my early budgeting activities; I didn't take into account cash flow, and I didn't have goals such as an emergency fund (which I clearly needed), but I did make sure that I was spending money that I already had. Even though I only had to cover my very basic living expenses during college, I was really proud that by my senior year whether or not I could cover it wasn't a guessing game.
This type of budget, I think, is perfect for young adults who need to learn to control their money, but don't yet have to pay for everything. It's an activity that I hope to do with my own kids before they start driving.
Do you remember your first budget?
I'm a wife, a mom, an employee, and a personal finance nerd who is devoted to spreadsheeting my way through life.