The Groundwork for a realistic and life-changing budget
Everyone should have a budget. If you want to be financially successful in life you need one. Suspend your current biases. A suitable budget is not limiting, or fun-sucking. A budget is not just for people living paycheck to paycheck. It’s not just for accountants or engineers. It’s not just for people with a total lack of self-control in their spending. If you spend and earn money it will help you! My aunt once told me, (full disclosure, she is a retired accountant) “If you don’t know where your pennies are going you’ll never be able to keep track of your dollars.” A budget will never leave you wondering where your money went and having nothing to show for it.
The budget that is right for you will include things you love, and fun. If your budget does not allow for that, you will never follow it. It is a waste of time and energy. If your budget feels like you are on a diet then it’s not the right one for you. Now, you may have emergency circumstances that require no fun until you can breathe again, but it would be temporary. A budget that does not budget for life experiences is not a budget, it’s a prison. We don’t want that. We want success, and a life of achieving dreams. So, how does one start?
Most budgeters take the money left over after their regular bills and allocate to different areas like groceries, gas, dining out, etc. This is certainly an essential part of budgeting, but if you don’t do the necessary steps before and after you won’t stick to it. It’s boring, It feels limiting, or after a while you feel like you have a strong grasp on it and don’t need to track it anymore. If you have extra money after all your essentials are covered it’s really easy to spend it, and then wonder where in the heck it all went. To break the cycle of failed budgets you have to change your approach. You have to train your brain to understand why you would bother budgeting. If you don’t know the “why?” behind your budgeting, saving and spending it will feel like punishment to follow it. It has to feel right, and motivating for you specifically. Let me show you how to do that.
First, I want you to have an honest discussion with yourself. What are the things that matter most to you that cost money? I want you to think of your current circumstances, and into the future. Make a list. Now separate the list into things that you absolutely need to have, and things that you want to have. Now rank the wants. If you’re married, this may be tough. Keep gently discussing until you agree. The purpose of this exercise is to gain clarity about what matters to you, and where you would want to put your fiscal energy. If you clearly know what you value, you can create goals around that. Make your goals. I can help you create those if you are feeling stuck. Your budget should be crafted to align with those goals.
Next, you must track your expenses. You know what your goals are. Is your spending in alignment with your goals? This process will shock you. And I mean jaw-dropping shock you! I went through the process on how to categorize and log your expenses in the mid-week basics. You can find that on Instagram @bybfinancial. This process really requires going through your spending with a fine-tooth comb. I said it in the post, and I’ll say it again here. Do NOT use your banks, or credit cards spending tool to do this step. It will not categorize a lot of your spending correctly. It will not tell you where withdrawn cash went. Joint accounts will have weird quirks like only showing your spending, and not your spouses. The tool will be based on their weird statement cycle rather than a full month. AI is not taking over the world anytime soon when it still does things like categorize the child care program at the rec center as a gym membership.
You will learn so much from this process. It’s important to do all the grunt work in this way because you will have strong feelings as you add entries. You will know what makes you feel uncomfortable, and what you would like to change. You will have a strong and lasting will to change because you will intimately know how your spending is not aligning with your goals. It will show you very clearly how much more you are spending than you think because of fake math that you are tracking in your head. I don’t know anyone who actually balances their checkbook anymore. All the digital access to our accounts makes it very easy to check our balance and feel like the world is fine because we get paid again soon. This will show you which categories are overspent in, and which are fine. It will show you if you are consistently spending more than you make, but you didn’t realize it because there is always more money coming in. You are going to know where you can cut back in order to make money available for something that matters more to you.
The knowledge of these two things will prepare you to commit to your budget. You will have more success if you understand what you value, and if your spending aligns with those values. Only after these two things are complete will you be ready to create a budget that is livable, workable, and not suffocating. It will be a budget that you can stick to. It will fit your life and preferences while also taking care of your needed expenses. It will change your life, and make your goals and dreams seem more achievable.
If you are interested in getting help with your budget sign up for the budgeting class on my website. I will walk you through each step, and help you create the budget that will set you on the path to Be Your Best Financial self.