I hate budgeting, so I sat down with my parents and let them show me the budgeting system that helped them retire early and now I'm on track to do the same

By Elizabeth Aldrich

I can be good at limiting my spending and saving money when I want to. However, I am notoriously not good at keeping a budget. Instead of just making a budget and tracking my spending like a normal person, I prefer to create elaborate workarounds, like setting up automatic recurring deposits into my savings account and checking my bank accounts every day.

However, seeing my dad and stepmom retire early in large part thanks to their religious budgeting (they've created a whole system and still have a "budget day" on the first of the month in retirement) made me wonder if following in their footsteps could help me save even more. So, I sat down with them on Zoom and let them explain their whole system to me. Then, I tried it out for myself.

1. I set up a way to track my spending

My parents put all of their expenses, including bills, on a credit card that they pay off in full every month. This helps them earn credit card rewards and makes it easy to track their spending all in one place. All they have to do is log onto their credit card account and download each month's charges to an Excel spreadsheet.

This is what I did, although I have several different rewards credit cards that I rotate, so I had to compile expenses across multiple accounts. However, there are plenty of budgeting tools that help you track your spending. I use QuickBooks, because the self-employed version helps me manage my business finances, but I've also tried and liked both Mint and You Need a Budget (YNAB).

2. At first, I spent as I normally would

"The practice of capturing your spending habits can make you change your behaviors," my stepmom explained. "But try not to let it, because you want to see how you really spend your money."

In the beginning, my parents made no changes to the way they spent money. They wanted a realistic picture of their current spending habits rather than the overly optimistic picture they might get if they cut way back during the first month and then lost motivation or felt deprived later on. They were more interested in figuring out how much money they'd need to save for retirement to maintain their current lifestyle than in reducing their spending.

I definitely wanted to reduce my spending and save more, and I didn't want to wait several months to start doing so. So, instead, I went back and downloaded my credit card charges from the three previous months and used those as the base for creating a new budget.

3. I input my monthly expenses into a budgeting spreadsheet

The spreadsheet my parents use is fairly straightforward. Their spending is tallied up by month and broken up across about a dozen categories, each category with a monthly budget they try not to exceed. Each month, when they input their spending in each category, the spreadsheet totals expenses for the month and then provides a number for how far above or below their monthly spending goal they were. That way, if they go a little over one month, they know to cut back the following month.

I copied the spreadsheet for my own use, tweaked the categories a little, and started by putting in a monthly budget for each category that I felt reflected how I wanted my money to be spent. Then, I went through my credit card statements from the past few months, added up my spending in each category, and put that into the spreadsheet.

4. I analyzed my spending habits

"The hardest part is starting out, because you really don't have a sense of your spending," my stepmom told me. They underestimated their spending levels a lot, and that was true for me as well.

As it turns out, my actual monthly spending was an average of almost $1,000 over the budget I'd set for myself. I did suspect I might've been a little optimistic when I set that budget, but what I didn't expect was how much I'd been spending in certain categories. 

For example, in my "shopping" category — which doesn't include personal care items or gifts, as I have separate categories for those — I allotted $200. I actually spent an average of $800. I realized that I'd been redirecting all the money I've saved this year by not traveling or dining out toward online shopping.

I'm glad that I went through my bank statements to add up my spending in each category manually. It only took me around 30 minutes, and doing this gave me a more detailed sense of why my spending was higher in some categories and lower in others. For example, my grocery spending was about $150 over budget. I noticed while going through my monthly statements that by cutting out alcohol, I could make up for that surplus spending.

5. I set new spending goals that better reflect my values

Rather than trying to squeeze my current spending into the budget I created before going through my expenses, I decided to have the two meet in the middle. While I could hit my original spending goal for groceries by cutting out alcohol, I value having a glass of wine now and then. So instead, I padded my grocery budget a little more while vowing to spend a little less on alcohol.

However, when it comes to shopping, I stuck with my original, smaller number. The reason for this is that spending lots of money on online shopping doesn't align with my values, and I know it doesn't bring me joy the same way that saving that money for when I can travel one day or putting it toward some other financial goal would. 

How I'm using this budgeting spreadsheet to save more and retire early

My parents started this spreadsheet when they were already well into their careers. The first time they sat down and did it, they realized they were spending money on things that didn't make them as happy as retiring early would. This spreadsheet helped them spend below their means and funnel all that extra money into retirement savings. In the end, they retired in their early 50s.

While retirement is still a couple decades or so away for me, I expect that using this budget consistently will help me up my savings rate quite a bit. As it stands, if I stick with the spending goals I've set up, I'll be able to save over 50% of my income and retire in the next 20 to 25 years.

As someone who has always had trouble sticking with any kind of budgeting or expense-tracking method, I was overwhelmed thinking about trying to use my parents' budgeting method. However, all of this took me less than an hour and feels like something I could easily do on the first of each month.

With all the lifestyle changes I experienced this year, a new budget was long overdue for me. Most importantly, my new budget for 2021 does a better job of reflecting my values and priorities in life while also being realistic about how I tend to spend money.

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