Audit manager Marcus Garrett learned the hard way about the need to budget. Before the 34-year-old was a personal finance podcast host, he was buried in debt.
At 18, operating without a budget, Garrett opened up a series of credit card accounts. He racked up $9,000 in debt on the usual college student vices: food, drinks and spring break trips.
The downward financial spiral continued until he was in his mid-20s and over $30,000 in debt.
“Credit cards are not evil, I just did not know how to use them,” Garrett says. “Budgeting is difficult, but I never even put a budget together.”
Garrett got serious about budgeting with a goal of paying off his debt by age 30. He consulted an online debt calculator, pulled his free credit report and researched personal finance. He trimmed the fat in his spending, including:
- Cable: At $200 a month, he estimates canceling cable saved him $2,400 a year
- Eating out: Reducing meals out by $100 a month saved him $1,200 a year
- Haircuts: Eliminating $20 a week in trims four times a month shaved off $960 a year
“I think people fear budgets because they see it as restrictive,” Garrett says. “I actually think it’s freeing because it lets me know where my money is going, and it tells me that I have an accurate understanding of where my money is being allocated.”
The budgeting, in conjunction with a significant pay raise and relocation to Colorado from Texas, paid off. Garrett started making enough money at one job to drop part-time gigs he had taken on to keep up with his spending habits. He also made a conscious effort to manage his increased income responsibly.
A few years later, Garrett was debt-free. In 2016, he published a book about his experience called “Debt Free or Die Trying: How I Buried Myself in Over $30,000 in Debt and Dug My Way Out.”
Still, Garrett acknowledges his journey with budgeting is far from over. His next goals are to build out his emergency fund and contribute more to his retirement. Garrett chooses to make money management a lifestyle. Here are five of his best tips for how you can, too.
1. Know your strengths and weaknesses
Garrett says people can be generally categorized financially as spenders or savers. He’s more of a spender.
That’s not an inherently bad thing, though. Being on a budget doesn’t mean you have to lose what you enjoy; it just means you have to adjust your approach. Find a happy medium between spending and saving. If you like shopping, for instance, allow some breathing room in your budget for it.
NerdWallet recommends putting 50% of your take-home income toward things you need, 30% toward things you want and 20% toward savings.
2. Nail your timing
Garrett pays bills early in the month, then allows room for discretionary spending.
You don’t want “more month at the end of the money,” as Garrett puts it. That is to say, don’t spend all of your money at the beginning of the month and have nothing left to get through the last few days.
3. Find a system that works
A self-described late adopter of technology, Garrett acknowledges he employs some old-school tools to track his spending. His most useful go-to aids include a dry-erase calendar with a list of his bills and a note he keeps in his smartphone.
For others, a software program or spreadsheet might do the trick. Whatever the method, the key is to find something you’ll actually use. Creating a budget is easy, but sticking to it can be much harder.
Garrett says he has friends who downloaded popular budgeting app Mint, only to turn off the notifications because they didn’t want to see how their finances were doing. “Creating a budget you avoid is not a budget,” he says.
4. Look ahead
In the midst of his debt accumulation, Garrett says he was guilty of lifestyle inflation. Whenever he’d get a raise at work, he’d go out and buy something — a physical indication of his increase.
Now, he looks beyond the near term. He recommends asking where you want to be in three, four or five years. How much money do you need to get there? “That’s your debt plan,” he says. “Take that allocation and divide it backwards between what sacrifices you need to make to be there.”
5. Change how you define ‘budget’
Once Garrett emerged into the land of the debt-free, it would have been easy for him to think he was done, crumple up his old-fashioned paper budget and go back to his overspending ways. But he soon realized a budget isn’t a one-and-done activity.
He thinks of it this way: A budget isn’t something that happened to you, past tense; it’s something that’s happening, present tense.
“A lot of folks ask me, ‘What did you do? It must be something groundbreaking. Did you find a genie on your way home?’” Garrett says. His answer is simple. No magic here. Just a choice to never again be bound to debt.