Written by Cait Flanders

Friday, April 6th, 2018

Two years ago, I made my final payment on what was once close to $30,000 of debt. I repaid the full amount in just 24 months, which meant I was allocating on average $1,250 of my monthly budget to debt repayment. As I got closer and closer to what I called "debt zero," I began to dream of all the things I'd be able to do with that extra money each month. I knew I wanted some new clothes right away; I definitely wanted to travel more; and I imagined seeing "$10,000" in a savings account.

One year into my new life after debt, I looked at the very small balance of my savings account and realized I was doing something wrong. I'd made "life" a priority, but was still nowhere near the $10,000 balance in my savings account I'd been dreaming of. How was that possible!? Before this, I'd managed to repay $15,000 of debt per year for two years. How could I only have a fraction of that number in savings, after an entire year of not owing a single penny to a creditor?

The short answer: I hadn't made saving a priority. The reason: I was constantly spending money on things that served a purpose in that moment, but which didn't line up with my values and my goals.

It took reviewing an entire year's worth of budgets and analyzing my spending, to come to that realization. I was able to see that, somewhere along the lines, it had become acceptable for me to spend $200+/month at restaurants versus the $50-100/month I spent when I was paying down my debt. I'd fallen back into the habit of grabbing a takeout coffee almost every day. I bought any book I wanted, even though I had multiple shelves full of ones I had yet to read. And I travelled—a lot.

By analyzing my spending habits and my monthly budgets, I was able to see that I'd been making the biggest mistake in the personal finance books: I was spending first and then saving what was leftover, when I should've been saving first. I also didn't have any clearly defined savings goals, which made it difficult to stay motivated or on-track. The following exercise helped me define some new savings goals, all of which I achieved in my second year of life after debt.

Exercise: How to make sure your budget aligns with your goals

• Set a timer for two minutes and write down your financial goals for the next 12-24 months (big purchases, travel, school, savings, retirement savings, etc.).

• Log into all your online banking accounts (daily banking, credit cards, PayPal, etc.) and write down every single penny you've spent/saved in the past 90 days, including what you spent your money on.

• Now, ask yourself: Are your spending/saving habits helping you reach your goals? If not, what are some areas you could cut back on? It should become obvious, when you review your spending.

One of the best things about tracking your spending on a regular basis is that it gives you data you can later look back on. I don't always recognize when I've spent too much in a two-week period, but I love reviewing three months' worth of budgets and seeing where I can make improvements. Financial goals change all the time, as life throws different things our way, which means our budgets have to change often, too. Every few months, perform the exercise outlined above, then do whatever it takes to make sure your budget aligns with your goals.