Practical Tools - Budgeting, saving, and tackling debt

I. Data Analysis

To create a realistic financial plan, I first needed to understand exactly where my money was going and identify my spending habits. If I built a plan with numbers far removed from my actual habits, sticking to it would be incredibly difficult, and I knew I’d likely abandon it quickly. I wanted to avoid that. While I anticipated this journey would be challenging, I believed that progress, no matter how slow, was still progress, as long as I kept moving toward my goals.

I realized the key was to create a plan based on my current spending patterns and gradually adjust it over time. This approach felt much more sustainable. It’s like dieting: quitting carbs cold turkey would be unbearable, but slowly reducing them made the change more manageable and easier to integrate into my lifestyle for the long term.

Initially, I assumed most of my money was going toward big-ticket expenses like rent, insurance, and debt payments. While these were significant, digging into the details revealed something surprising—the smaller, everyday expenses added up far more than I expected. This was a real eye-opener.

To get started, I downloaded all my credit card and bank transactions, going back as far as my online accounts allowed—typically about 24 months. Then, I categorized each transaction. Every entry fell into one of three categories: income, savings, or expense broken down by type. This process provided me with a clear, honest view of my financial reality and a solid foundation to build from.

Here is a basic example of how the categories and types looked like:

• Income

• Paycheck

• Expense

• Rent

• Gym

• Phone

• Eating Out

• Groceries

• Shopping

• Auto Insurance

• Auto Registration

• Disney+

• Netflix

• Amazon Prime Membership

• Costco Membership

• Debt Payment towards credit cards

• Debt Payment towards auto loan

• Debt Payment towards friends/family

• Savings

• Savings Account

All the data was saved in an Excel file and I structured the data monthly (Jan, Feb, Mar, etc.) for clear month-over-month financial visibility. The goal of this exercise was to be able to see my actual spending month-over-month and investigate the following:

1. From the first month to the last month, how much have I saved or gone into debt, and at what monthly rate was I saving or going into more debt?

• Total Change = (last month’s total value) - (first month’s total value)

• If this number is negative, then I have been going more into debt.

• If this number is positive, then I have been saving money.

• Monthly Rate of Change = ( (total change) / (total number of months)

2. Where were my biggest expenses and why?

Here is what I learned from my spending in 2020 and 2021:

• 2020

• Total change = -$725.80 (going into more debt)

• Monthly rate of change = -$65.98

• Biggest expense: little things from Amazon that slowly added up

• Monthly rate of change in savings account = $121.64

• 2021

• Total change = -$6,441.14 (going into more debt)

• Monthly rate of change = -$536.76

• Biggest expense: brand new car, so I could give my partner my old car

• Monthly rate of change in savings account = -$66.35

2020 Analysis

Amazon was a huge surprise for me. I was unemployed from March to November 2020 due to the COVID pandemic. From January to August, my average monthly spending on Amazon was $402.60. However, starting in September, my spending skyrocketed to over $1,000 each month for the rest of the year. While I expected higher expenses in November (Black Friday sales) and December (Christmas shopping), what shocked me most were September and October.

Even though my savings account balance was increasing, my credit card debt was growing even faster. This made saving cash in my account feel pointless because my net worth (assets and cash minus liabilities and debt) was still negative. On top of that, the high interest rates on credit cards only compounded the problem, making it even harder to pay off the debt. By the end of 2020, I had spent a staggering total of $9,672.00 on Amazon alone.

2021 Analysis

Why did I buy a brand-new car in 2021, knowing full well I was already in debt? When I started a new job in December 2020, the offices were still closed due to COVID-19, allowing me to work from home. This also meant I could drive my partner to and from work since they didn’t have a driver’s license.

In February 2021, my company announced plans to return to the office in September, and we needed a solution for my partner’s commute while I was at work. I told them that unless they wanted to rely on public transportation, they had to learn to drive and get their license. Daily rides with Uber or Lyft weren’t financially practical. While they worked on getting their license, I decided to buy a second car. This allowed my partner to use my first car, while I upgraded to an SUV—something I had been wanting for a while. It felt like the perfect excuse to make the switch.

The only silver lining was that the auto loan came with 0% interest. My parents had always emphasized looking for 0% interest loans when buying cars, and I followed their advice for both this car and my first one.

However, the financial reality was clear. The data showed this purchase had a significant impact on my finances, including dipping into my savings—a troubling sign. On a positive note, my Amazon spending improved in 2021. I spent $8,348.64 for the year, averaging $695.72 per month. That was almost $1,200 less than in 2020, which was a step in the right direction and something I was proud of.

Conclusion

Through this analysis, I gained a clearer understanding of what I needed to focus on and improve. In 2020, I learned how dangerous Amazon can be as a shopping platform. Its convenience and ease of use are exactly what makes it a trap. Small $20 purchases quickly snowballed into $1,000 months. I overspent during sales on items I didn’t need or could afford, and I went overboard on gifts. While I wanted to give my loved ones something special, I’ve come to realize that they would be just as happy with thoughtful, modest gestures.

In 2021, I learned a different lesson. While some might see my decision to buy a new car as an act of being a supportive partner, financially, it was reckless given my circumstances. In hindsight, my partner and I should have worked together to find a better solution instead of putting myself deeper into debt. It’s important to note that my partner and I weren’t married—our relationship didn’t legally bind us financially. Every debt I incurred was mine alone.

This reality hit hard after we broke up. I was left with the financial burdens, while they walked away debt-free. My decision to take on these responsibilities stemmed from the belief that, since my job paid more, I could handle it. That mindset, however, was incredibly damaging and took me years to recover from financially.

II. Budget Planning

With a more precise grasp of my spending habits, I could use the numbers from my analysis to create a budget plan to control my spending and start reducing my debt. To keep things manageable, I decided to structure the budget monthly.

Using the data I had gathered, I listed all my recurring expenses, such as annual memberships and monthly subscriptions, along with their most recent costs. But what about non-monthly expenses? To incorporate those into a monthly budget, I calculated their equivalent monthly costs. For example:

• Auto insurance (billed every 6 months): total cost ÷ 6 months = monthly cost

• Auto registration (billed annually): total cost ÷ 12 months = monthly cost

I applied the same principle to my income. For a salaried job, the math was straightforward: annual salary ÷ 12 months = monthly income. For contract work, where my pay depended on hours worked, I estimated my average monthly hours and multiplied that by my hourly rate to calculate an approximate monthly income.

This approach gave me a more accurate picture of my financial situation and allowed me to build a budget that reflected both my expenses and income on a consistent, monthly basis.

The rules I applied to this exercise were the following:

• Always include tax in all transactions to account for them in your expenses

• Round up for expense categories, round down for income

• For subjective expenses, use the monthly average from the actual data

Here are some examples of how I set up the values for expenses. Some prices may have changed since this was posted.

• Netflix = $23 + tax ~= $25 / mo

• Amazon Prime Membership  = $139 + tax / yr ~= $155 / yr = $155 ÷ 12 mo = $12.92 / mo ~= $13 / mo

• Auto Insurance = $823.89 ÷ 6 mo (includes tax) ~= $850 ÷ 6 mo = $141.67 / mo ~= $142 / mo

Once I had a list of my expenses and income streams, I used an Excel spreadsheet to calculate the potential savings with this formula: Monthly Savings = Monthly Total Income - Monthly Total Expenses. This was where the real planning began. My primary goals in this exercise was to establish a plan that would allow me to save for emergencies while aggressively tackling my debt.

Some financial experts recommend prioritizing saving for emergencies until you have $1,000 set aside before focusing on paying down debt. However, I felt that the interest accruing on my debts couldn’t be overlooked, even for a short time. The interest charges weren’t just money I spent - they were additional amounts the lending institutions were taking from me because I had borrowed from them. During my analysis, I noticed interest charges as high as $100 per month, and I was determined to eliminate them as soon as possible.

My strategies:

• Goal 1: Cut down on unnecessary expenses

• Determine if an expense is a necessity or a luxury. A necessity would be items such as rent, food, and electricity. A luxury would be items such as eating out or going on international trips.

• Goal 2: Save for emergencies and pay off interest charges

• Save $100 per month (up to $1,000) and pay off all interest charges (not the entire balance) each month.

• If I didn’t have enough money to cover all the interest, I would reduce expenses where I could to allocate extra money toward the interest payments.

• If cutting back in other expenses wasn’t enough, I would prioritize paying off the highest interest charges, not the highest interest rates. For example, if one credit card had an interest rate of 16% but a $10 interest charge, and another had a 12% interest rate but a $25 charge, I would pay off the $25 interest charge first, since it would have a bigger impact on reducing future payments.

• If I had any extra money after covering expenses and saving $100, I would put that toward the debt with the highest interest charge to lower next month's interest.

• Goal 3: Continue to save for emergencies and pay off debt

• Once I reached $1,000 in savings, I would continue paying off all interest every month but reduce the savings amount slightly. The extra money from the reduced savings would go toward paying off the debt with the highest balance. This approach would allow me to keep building my emergency savings while still gradually reducing my debt.

I have to admit, this strategy was a bit nerve-wracking since I hadn’t yet reached that $1,000 in emergency savings. However, I lived a relatively uneventful life, and emergencies didn’t happen as frequently as interest charges did, so I decided to focus on balancing both saving for emergencies and reducing my debt at the same time.

In addition to my credit card debt, I owed money to my younger brother, who had lent me funds during my unemployment due to COVID-19, and to a friend who helped pay off a vacation timeshare that I had foolishly signed up for and couldn’t afford. My brother’s loan had 0% interest, while my friend’s loan carried a 5% interest rate. I made sure to repay them monthly, as much as I could, out of gratitude for their support. I didn’t want to keep them waiting too long for repayment.

As part of my repayment strategy (separate from my budget plan), I also looked into how I could get rid of the vacation timeshare. Although I was no longer paying interest on the loan, the timeshare still came with a monthly maintenance fee, which didn’t align with my financial goals. I learned that I could either return the timeshare to the company with no refund or work with a third-party company specializing in reselling timeshares. I gave myself one year to try to sell it. If I couldn’t, I would simply return it and cut my losses.

I reached out to a third-party company that seemed the best fit for selling a timeshare. We agreed on a price, and they would take a commission for the sale. The timeshare was listed on their website, and we waited. Month after month, there was no movement. I checked in regularly to see how things were progressing. After six months, we decided to lower the price to encourage a quicker sale. Fortunately, this strategy worked, and within two months, we had a buyer. By the time the timeshare sold in 2023, I was debt-free (yay!), and all the proceeds went directly to my friend, who was now the only one I owed.

A significant sacrifice I made for my financial recovery was moving out of my apartment and back in with my parents. This decision saved me roughly $2,500 a month in rent and pet care but came at an emotional cost. My parents didn’t allow pets, so I had to rehome my two beloved cats. I also sold or donated many possessions that wouldn’t fit in my parents’ house. Items I couldn’t part with went into a $250/month storage unit. My parents generously didn’t charge me rent, though I contributed financially when needed.

As a 30-year-old, moving back home felt like a blow to my pride, but I knew it was necessary to prioritize my finances. Thankfully, my cats were adopted into a loving home just 30 minutes away, and the new owners kept an open line of communication, allowing me to visit and receive updates. Knowing they were happy and well cared for made the sacrifice a little easier to bear.

III. Budget Tracking

Tracking

When I first started tracking my spending, I manually recorded every transaction on my phone and later added it to a spreadsheet. While effective, it was tedious and inconvenient. I knew there had to be a better way in today’s digital age. After discussing budgeting with friends, one introduced me to You Need A Budget (YNAB). Like any new tool, it took time to learn, but once I got the hang of it, I appreciated the convenience and insights it provided. YNAB synced my bank and credit card accounts, automatically registered transactions, and allowed me to categorize each expense. I could even set rules for recurring transactions, like automatically assigning Netflix charges to the entertainment budget.

After about a year of using YNAB, I discovered that Mint offered a free budgeting feature. Although I loved YNAB, I switched to Mint to save money. While Mint lacked some of YNAB’s flexibility, it had enough features to meet my needs. However, when Mint shut down in March 2024, I had to find a replacement. During that transition, I noticed frequent ads for Monarch Money on social media and decided to give it a try. Monarch Money impressed me with its features, such as syncing all financial accounts, tracking budgets, providing net worth insights, and offering detailed graphical analyses of spending trends.

By that time, though, my focus had shifted from budgeting to investing. While Monarch Money included many tools similar to my finance spreadsheet, it didn’t provide the detailed investment tracking I wanted, so I decided not to continue after the free trial. This led me to create my budgeting tool using my coding skills, along with resources from Google and my financial institutions. Developing a personalized system allowed me to adapt to my increasingly complex financial strategies.

For anyone new to budgeting or seeking convenience, I highly recommend starting with YNAB or Monarch Money, as both are excellent options. My needs simply evolved to require a custom solution that isn’t yet available on existing platforms.

IV. Forecasting

In addition to tracking expenses, I wanted to forecast my financial progress. It wasn’t enough to simply know my monthly budget—I needed to see the trajectory toward my goals. This meticulous approach gave me greater control over my finances. With an analysis of the past, a budget for the present, and a projection for the future, I felt fully equipped to stay on track. My expertise in Excel, a tool essential in my jobs, became invaluable for building these systems and achieving clarity in my financial journey.

I created a dashboard in Excel that would project what future months would look like and allow me to manage my debt payments month to month. For the sake of clean numbers, here are some generic numbers below to provide an example of what I would do on the first of each month:

1. Starting Balance = go into each online bank account and enter the total balance

2. Pay = based on the budget, enter the amounts into the Pay column.

• I wanted to ensure that I at least covered for the interest

• month’s interest = balance * interest % ÷ 12

3. Ending Balance = Starting Balance - Pay

When I was 18 and just learning to manage bank accounts, I overdrafted my checking account three times in a single day, racking up fees for each occurrence. That experience left me with lasting anxiety, so I now always keep at least $500 in my checking account as a safety buffer. To add an extra layer of protection, I enabled my bank’s overdraft feature, which automatically pulls from my savings account to cover any shortfalls in my checking account.

Here is an example of what my month-over-month forecast look like: