Being a software developer pays well. Salaries range nationally from around $50k to $130k with a few lower and a few higher. Anyone working in this industry for a few years will be making close to six figures. What are you doing with that money?
I've met plenty of developers who are brilliant with their surgical precision in technology but live paycheck to paycheck. I've met others who have acquired financial advice and follow none of it and live paycheck to paycheck. According to CNN, 71% of Americans are in debt. Fifty-six percent of Americans live paycheck to paycheck, and 10% of those making over 100k are also living paycheck to paycheck.
The bottom line is that anyone in this industry is smart enough to avoid this problem. Unfortunately, we are also just dumb enough to fall into this trap at the same time. A key tool to staying out of crippling debt and not living paycheck to paycheck is to have and use a budget.
Budget + Behavior = Wealth
If nothing else, take that as the main message. Making a budget isn't that tricky or even a lot of work. Following it is. Most of the people I have worked with on their budgets can't follow them and give up.
So prepare yourself, committing to following a budget will not be easy at first. In time, though, your budget gets more and more dialed in and you become more comfortable with making the choices that keep you in check.
Budgeting is about behavior more than anything else. A spreadsheet isn't going to help you if you continue to ignore what it tells you.
Your First Budget
The name of the game here is a zero-sum budget. That means that money in - money out = 0. That doesn't mean you are spending all of your money, but it does mean you have planned for all of your money to have a job. Some will go to bills, some to debts, some to food, and some to savings. Every dollar is accounted for. There is no surplus. If you leave wiggle room, you'll find that money will wiggle away every single month.
To make your first budget I think it helps to simply account for your last month's spend. Later we'll take that, and create a new budget for the upcoming month. So get ready for the boring part.
You can do all of these calculations using anything you want. I recommend a paper and pencil. Get fancy with spreadsheets after you have this pretty well practiced if you want.
Put your monthly take-home pay at the top. Take-home means exactly that, its what you actually get after taxes, insurance, etc. Mark it as income so you know what it is. Everything else will be subtracted from this.
Start with the easy bills. Rent and utilities. Don't lump them up. Do a quick check. How much money do you have left after rent and utilities? This might already be a tough lesson. You may have a sinking feeling you are paying too much in rent, for example.
Now, let's go for some other easy things. Factor in all of your debt payments. Student loans, credit cards, cars, mortgage, etc. Do another quick check. How much extra money would you have each month if you had no debt?
Time to slog through the rest of the things you've bought. Pull up your bank account for the month and start adding things up. At this point, I recommend lumping these together. Some categories people find helpful are: Groceries, Eating out, Bars, Recreation, Personal, Transportation, and Medical. The main thing is to account for everything you spent this month.
Time for your final check. Did you spend less than you made this month or more? More than likely seeing it all written down like this is giving you a pretty strong idea of some changes you'd make. Lots of people find they eat out too much.
At this point, you have an accounting for your spending. To turn it into a budget you will essentially do the same thing but instead of looking back on how much you spent you will decide how much you will spend. This is where you are making a commitment to change your spending habits. Decide how much you want to spend on food. Decide how much you want to spend having fun. Decide how much you want to save for a vacation each month. Decide how much to give to charity.
Next Steps
If you've followed this guide you have a budget, and that means you have made decisions about different choices for your life and money. You may find you budgeted too much in one area and not enough in another after the month is over. That's fine, adjust your budget and keep going. You'll find the right balance.
Lets now take a step back and talk about some things you can do to get the most out of your money now that you have a budget.
Have Fun
When it comes to money there are spenders and savers. A budget will quickly show you which you are if you weren't sure. You have permission to have fun with the money you make.
Emergency Fund
Shit happens. Putting money aside for when that day comes is a lifesaver. Start with $1000 and over time grow it to 3-6 months of living expenses. Do this as soon as you can.
Stacks of Cash
This one generates quite a bit of debate, but I recommend you carry cash instead of your cards. The reason is really simple. You will literally behave differently if you are giving up physical money instead of doing math in your head. Let that reinforcement help you change your behaviors with money.
The most common objection I hear to this is around having your money stolen. Great, so someone stole your money. They didn't steal your identity or credit card. You'll get more money in a month. You don't have to call a fraud department, cancel cards, audit spending, check your credit report.
Get Out of Debt
My opinion is simple, so I'll put it here. Many people will reject it. Get out of debt! Stop making car payments, you are paying more for something that is losing value. Stop using your credit card. Yes, you can pay it off each month and, "Win." If you are one of the rare people where that is unfalteringly true, great. If that isn't what you are doing every single month then stop using that card and pay it off. Have student loan debt? Crush it.
Lifestyle Goals
Now its time to dream. Dream about what you want and when. Look at how you can change your budget to make your money available to start saving for it. Ever take an international vacation without a single penny of debt? Buy a car in cash? With your budget, you can now start taking steps towards any goal you want. Be wealthy, be happy, have the life you want.
Top comments (4)
Even if you’re not keeping a budget I highly recommend doing some basic bookkeeping. plaintextaccounting.org is a good resource for basic double-entry accounting principles and tools. Something like Ledger, or one if it’s many forks and derivatives, is a really easy, portable, understandable, yet still very powerful tool for tracking your finances.
I also have to disagree, in general terms, about using cash instead of a credit card. In many situations cash is simply not an option (online or otherwise remote or subscription services
) and using something like a debit card instead can put your entire bank account at risk (assuming US laws and regulations). If you think having some fraudulent credit card charges is a pain then just wait till someone’s drained your checking account and it takes the bank a few weeks to sort things out. Using a credit card also allows you to float a month’s worth of expenses. Another thing to keep in mind is that just because you don’t have a credit card doesn’t mean than your identity can’t be stolen or other lines of credit can’t be opened and abused in your name.
Every merit you have listed on using a debit or credit card is absolutely right. Online shopping is one that is hard to get around, and paying for gas is really obnoxious too.
Many people though will struggle in their budget by continuing to use cards. Its the behavior piece that makes this work. If you are someone who can use their cards in a way that doesn't break the budget, go right ahead.
When people fork over bills their brain responds with pain. When people swipe cards, no such reaction happens. For people trying to adopt new behaviors around spending and a budget, this is a powerful tool.
At least if you live in USA. In other countries like Spain, it's sadly a lot different. But anyway, the idea of having a budget is the same. Nice post!
Thanks, Ryan. Basically, you have just described the concepts of YNAB (You Need A Budget) application. Check it out.
I have been using it for a few years and find it useful