The Secret To Smart Budgeting

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How to crush your finances in 2020

The holiday season (and all the spending that goes with it) is over. If you’re one of the many people that’s made a 2020 money resolution: Shannon McLay, founder of The Financial Gym, is here with advice on how to whip your finances into shape. Her New York-based company employs financial advisors to help people reach money goals. McLay chats with Wake-Up Call’s editor Lisa Ryan about how to start budgeting — and if you’re a budget-veteran, she reveals priceless money-saving secrets.

Lisa Ryan: Let’s start with the basics: What are some common money resolutions you see each January?

Shannon McLay: “Spend less and make more” is consistently on the list of top New Year’s resolutions. Especially coming off of the holiday spending season, people are more aware of it. Coming into the gym, number one, always, it’s “I want to be more mindful about money.” Seventy-eight percent of Americans live paycheck to paycheck, and a common thing we hear is, “I don’t know where my money’s going.” So, resolutions about mindfulness around money.

People also say they want to understand their money better. They feel a lot of shame around money and our response is always, “Why should you be better about it?” Well, that’s because you didn’t learn it in school, you didn’t learn it at home, and you don’t learn on the job. Financial literacy is just like any other language: You have to learn… and we’re not getting taught it anywhere. But then as adults, we’re forced to have to manage our money.

You mentioned, “spend less, make more,” which is a really broad resolution. What would you suggest people adopt as their money resolutions? What’s a very attainable one?

You have to set very specific goals, and they have to be personal. Spend how much less? And make how much more? That’s part of what we help our clients understand here. I always say budgets are like diets: No one wants to be on one. They want to have their cake and eat it, too, so to speak. Similar to diets or lifestyle choices, a budget has to be something that resonates with you.

We ask clients about their goals, and many want to pay off student loan debt or contribute more into their 401(k). But those are financial tips you can Google online. So, what is really important to you? When we help our clients figure that out, we find out they really want to travel or get a tattoo or a dog. Those goals don’t have to be big, like planning for retirement or paying off your student loans because that’s going to take some time to get there.

Starting with smaller personal goals is more achievable. It could be, “Have $1,000 saved by February.” And then you take how many days are in January and February, divided by a thousand and you have to save somewhere like $20 a day. When you achieve the smaller goal, then you feel more confident on the bigger goals.

For someone who is starting 2020 and wants to establish a strict budget for the first time, what is one easy thing you would tell them to consider?

What’s important to you? What are the one or two areas where you spend your money that is non-negotiable? For most of our clients, it could be travel, it could be health and wellness, like my gym membership. It could be family or kids. Pick one or two things that are important to you. Then figure out what your first three to six months of your monthly expenses are — that should be your emergency fund.

What are some of your tips for managing a budget? How can people monitor their spending?

You have to find the best budget for you. And if you think about how budgets are like diets, if somebody told me that to lose weight I had to do the keto diet sans carbs — I wouldn’t do it. There are a lot of different ways to get physically healthy, and it’s the same as getting financially healthy. Nothing fits in a perfect Excel spreadsheet. Goals-based budgeting is often the most successful. It’s where you set a goal for yourself and you make that a priority.

And what are some of the most common money issues you see?

The biggest thing is mindfulness around money and not knowing where your money’s going. We hear a lot, “I make money and I don’t know where it goes and I feel like I’m making it, but it’s never there.” Additionally, if you’re living paycheck to paycheck, we sometimes say that maybe the paycheck’s not as big as it needs to be, and people don’t know. It goes back to, “Spend less, make more.” Well, how much more do I need to make? What do I need to make?

What do you tell people who buy lunch every day, or have other daily expenses like that? Should they be swapping that out or is there a different way to handle it?

When you’re looking at your expenses and thinking about next year, it goes back to what you prioritize. Most people don’t say lunches, right? But yet, a lot of people’s money goes to lunches. The number two area usually in people’s monthly budget is food. But you can create restaurant versions of what you want for a third of the cost.

This interview has been edited and condensed.

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