Christmas Challenge: Post 3
I have always been concerned… well, let’s be honest, obsessed with money. Obsessed about making it, and obsessed about spending it.
Wow, what a turn-off introduction, but I promise you there is a point to this disgusting statement.
My money inflow has always been decent. I was working part-time during my studies, and was privileged enough to receive financial aid from my parents as well as the government (Danish welfare system). Still, my spending got out of control. Just a little and “manageable” bit in the beginning. Then a bit more. Then, I applied for a government-backed student loan…
I was constantly worried and embarrassed about the situation. Not having control over my finances made me feel reckless and immature. For some reason I don’t understand, though, I never seriously tried to solve the problem. I just continuet to ignore it, thinking «next month I’ll do better» – but I never did. Oh, how I wish I could go back and shake myself.
Fortunately, I landed a great job after uni, which allowed me to repay my student loan within the first year. (Yes, I am very much aware of how privileged I am, and eternally grateful to my parents and the Danish welfare.) I was so thrilled to be free of the financial burden, and shame that came with it.
Still, I was concerned about my spending patterns: Am I spending too much on clothes? How much am I actually spending on food… and alcohol? Can I actually afford this weekend trip? Even more worrying, though, was the fact that I was not consciously saving money. Living on a financial month-by-month basis made me feel trapped, and fearful about the future.
Two years into my job, though, I finally had enough of this constant worry. I was looking at apartments with my boyfriend, and seeing what money can buy – if you are smart about them – had a maturing effect on me. Especially, the exercise of calculating our apartment budget and repayment profiles.
The greatest lesson of all came when we actually bought an apartment. This is when I truly started to appreciate the concept of automatic payments. Although I was somewhat familiar with the concept, I had never really appreciated its relieving effect. Yes, it is nauseating to see that big, fat outstanding loan on my bank account statement. However, knowing that it is automatically being taken care of, and seeing the amount decrease is extremely satisfying.
This experience made me realize how liberating it would be if I completely automated my finances. Enter – at last – this years BEST FIANCIAL DECISION! Whoo whoo whoo!
Here are the steps I went through to automate my finances:
- Appreciating my income, by understanding what I actually make, and the possibilities and limitations my salary represents
- Understanding my spending, by categorizing all my purchases in my online bank account (yes, it took several Grey’s Anatomy episodes to do)
- Optimizing my spending, based on my income, current spending, and financial goals (to me, this approximately means 40% on housing and repayment of loan, 20% on savings, and 40% on “me stuff”)
- Automating distribution of my income, by setting up automatic payments in my online bank account for the entire year, based on point 3
Now, I only have available on my account the money I am “allowed” to spend that month. The rest automatically goes to the repayment and savings accounts.
I have set up my system, so the money always gets a bit tight at the end of the month. I find this teaches me a valuable lesson on how I actually want to prioritize my money. In the beginning, it was a bit stressful, because I had yet to fine-tune the automatic payments (I initially tried saving much more, on account of my personal spending). However, now I have optimized and adapted my spending.
Although I guess this system is basically a budget, it feels less restrictive because everything goes on “behind the scenes”, leaving me with a chunk of money I can spend however I like. I don’t know… I have probably not invented the wheel here. But this system works for me, and that I am so happy to no longer worrying about my spending and savings. Thus, this is the best financial decision I have made this year – nay, in my life! 🙂