Why budgeting is really worth your time and how it ultimately helps you gain more than you give up.
Budgeting…Why You Should Love It (Trust)
I know what everyone is thinking…”next!”
I honestly understand that sentiment. In the not so distant past, I myself was someone who hated the idea of budgeting. My thought process was essentially, “why do I need to know how much money I spend at the bar?” Pretty sure that’s only going to bum me out.
But…the first step to adjusting any behavior is taking an honest look at where you currently stand. The same applies to budgeting. The more candid, the better!
Budgeting Makes Dreams Come True
Seriously. You can accomplish significant and meaningful personal goals by taking responsibility and control of your finances.
In addition to getting what you want, the budgeting process will also help you:
- Increase overall financial health
- Develop better money habits
- Give you an action plan
Step 1: Awareness
The hardest part of budgeting is taking the time to educate yourself on your on habits. However, understanding and being aware of good and bad money habits is the first step to taking control of personal finances.
It’s important to be brutally honest and to account for everything you spend money on. Don’t be ashamed you spend $100/month on coffee. Own it and all the other things you spend money on.
Going through this process will help you prioritize what’s important in your life.
Step 2: Develop A Plan
Step 1 is done and you are now aware of what money is coming in and where that money is going. Now a plan needs to be put in place.
This plan needs to account for the long-term goals most important to you and then use your budget to achieve said goal. For example, say you want to save for a trip in a year, what can you adjust in your current life to put $100/month away for that trip in a year? Being aware of what you do with your money allows you to make this decision.
There’s a saying that plans are worthless, but planning is invaluable. That’s pretty much the idea here. Knowing where money goes and why it’s going there will empower you to make strategic decisions about what’s truly important to you.
Step 3: Implement The Plan
Plans will change and/or be altered but having structure and a thought process will make sticking to the plan easier. Here are a couple of ideas to make sticking to your new budget easier:
- Automate - Automate your budget as much as possible. If you’re saving for that trip mentioned above, set up a recurring deposit every month to a savings account you don’t touch. Every month $100 goes to your vacation fund, soon enough you’ll have a decent slug of money saved up to go enjoy yourself.
- Consistency – Find 15 minutes every one to two weeks to review transactions and stay up to date. This process will keep you informed of where you stand in the current month.
Step 4: Results
The last thing everyone needs to do with a budget is to monitor it. Set aside time once a week or maybe twice a month to review your transaction and update your budget. By making this a habit, you’ll be constantly up to date on where you are in a given month. This process will help you change your habits and thus get better to sticking to a budget over time.
Tips & Tricks To Help You Stick With Your Budget
To close, here are some ideas to make the budgeting process easier:
- Zero Budget – This means every dollar you have is accounted for and has a bucket. If you make $4,000 in a month, then you’ll have $4,000 worth of expenses. The idea here is to think of savings goals as expenses, any extra cash goes into savings for future goals, whatever they may be.
- Patience – Rome wasn’t built in a day…and neither is your net worth. Budgeting takes time, be patient with yourself and don’t worry if you break the budget every once in awhile. Life happens. The most important thing is constantly getting better.
- Structure & Discipline – Create a plan and stick to it. Automate as much as possible.
- Keep It Simple, Stupid – Don’t create budget categories for every little thing. Keep things simple and at a high level. I think it’s best to create categories for regular expenses. For example, rent and insurance are easy ones; they’re the same every month. But say, for example, you go out to lunch regularly, account for that as a budget item as well. Highly variable/one off type expenses, just throw into a “miscellaneous” category.
- Use Separate Accounts – One of the best things you can do is set up a separate savings account that you never touch. Automate savings into this account. Only touch them if and when you achieve a specific goal.