Let's say you’re convinced that budgeting matters - so much so that you’re willing to give it a shot! What now?
In this post, we’ll get some clarity on what we mean by the term budgeting, the mindsets we need to go about it healthily, and a few practical steps on how to get started budgeting today. Woo!
First off, when we say ‘budgeting,’ we’re simply talking about keeping track of our money. Everything that comes in, everything that goes out - we’re recording it. Logging it. Just keeping track. Easy enough, right?
And when we say ‘budget,’ we’re talking about the place where those numbers are recorded and displayed. Our mission control center. Our stat sheet. Our data hub that shows us the big picture from all those incomes and expenses we’ve been tracking. Make sense?
The only confusing thing is that many people have differing opinions about these terms. And if you read financial articles often, you already know this. In some circles, budgeting means predetermining exactly how much or exactly what percentage you’ll spend every month - in every area of life - without error and without variation.
… Aaaaand this is why we hate budgeting.
It may sound noble, but this version of budgeting is honestly more fit for jesters. Or perhaps just fortune tellers, mimes, and tightrope walkers.
See, to succeed in this form of budgeting, we need to consistently and accurately predict the future, knowing in advance all that has yet to come. (And that’s not all!) We also need to live with a flawlessly robotic regiment, mimicking our last month’s behaviors with incredible precision. (But wait, there’s more!) For our last trick, we must perfectly adjust for the fact that some months have more days, weekends, paychecks, events, and / or social functions than others do - maintaining our balance on a line so thin it’s barely visible! (*Encore! Encore!*)
Truly, budgeting in this way is a total circus act! And it’s such an impossible feat that I'm genuinely surprised believe people ever try it in the first place.
So we don’t do that.
Instead of trying to pre-mandate how many dollars will go to food, shelter, and transportation, convincing ourselves of what we will do with our money, our main focus in budgeting is simply keeping track - being honest with ourselves about what we actually are doing with our money.
When we keep track of our incomes and expenses over time, we know with full clarity:
And when we have access to that information, some magical things begin to happen! We start making intentional decisions with our money, rather than feeling like our money is out of control. We learn that there are consequences to spending money - namely, that when we overspend in one area, we’ll therefore have less money to spend in other areas. And perhaps most importantly, we become able to distinguish the difference between spending money and savings money; we can look at a rising dollar amount in our bank accounts without giving ourselves a green light to spend as a result.
I can’t possibly overemphasize how important these financial skills are, nor can I overstate how dramatically our financial lives improve when we embrace them! And keeping a budget is precisely how we develop these skills.
What do you need to do to get started budgeting? Easy! All we need is a way to record things and a place to record things.
From my experience coaching others, people budget most effectively when they record their incomes and expenses manually onto a budget that’s accessible online and via mobile. I won’t go into all of the reasons why on this post, but you can take my word for it or not: most people don’t do well on a handwritten or cash envelope system, and most people don’t do well using a budget that automatically uploads their incomes and expenses from their various bank accounts, credit cards, and payment apps. The former is too clunky to keep up with our pace of life, and the latter does a poor job at impacting our financial habits. Manual entry + online access is the way to go.
I’m a big believer that BudgetForLife is the best budget software available on planet earth. It’s absolutely unrivaled in its breadth of features, customizability, privacy and security, cost, and its ability to capture the best of every budget system. We also currently give free ongoing technical support to budget users in order to ensure a smooth experience. But regardless of whether you choose BudgetForLife or another system, today is the day to start keeping track!
For the first 2-4 months, don’t do anything else. No goals, no aspirations. Just record every transaction and gather information about your lifestyle. As needed, take this time to adjust your budget categories in order to properly reflect your spending. Some categories may need to be added, removed, or renamed. It doesn’t matter how detailed or general your categories are; the point is just that it’s helpful for you, the decision maker.
Once you have a few months of tracking under your belt, familiarize yourself with what’s ‘normal’ by looking at your average monthly scenario. Take note of how much you spend in each of your categories, as well as how much you make, give, and save on average each month.
Ask yourself: how do I feel about these numbers? Are they different in any way than what I thought? Is there anything I want to change moving forward? Take note of your emotions and acknowledge any observations you make about your financial habits.
If you make it this far (not in reading, but in practice), you are on the fast track to financial health, freedom, and well-being. Way to go!!!
In light of this financial evaluation, you’re ready to begin setting some goals. Progress! Goals can help us stay motivated to make good choices with our money, especially if we reward ourselves when we meet them. Personally, I recommend you set a monthly goal for what percentage of your income you want to give as well as for what percentage you want to save. There's no need to create spending limits simply for frugality's sake - the focus needs to be on what we are doing with our money, not what we aren't doing. In other words, if we want to get a better grip on our spending habits, we need to be motivated by what we will be able to do as a result - namely, to give & save more. Emphasizing the ends rather than the means is what lead to lasting behavioral change.
Even if your giving goal is just 1% of your income and your savings goal is another 1% a month - set the goals, and reach them. We aren’t saving for something necessarily, nor are we giving because of any particular need. Rather, we save and we give because it’s who we are and what we do - they’re essential elements of managing money well. Saving and giving are both major financial muscles and we won’t thrive unless we work them out consistently.
With that in mind, make your giving and savings goals high enough so that you actually have to think about them and make intentional cutbacks in your spending habits in order to achieve them. If we do whatever we want with our money, and at the end of the month we happen to have $5 left over, we’ve still failed to work out our financial muscles. Ultimately, it’s not about the dollars and cents - we need to challenge ourselves if we expect to continue growing, and that applies to all areas of life.
On the flip side, we don't want to injure ourselves by overtraining. Ensure your monthly targets are reasonable enough based on the couple months you’ve already tracked that you won’t need to penny-pinch or become obsessively frugal to make them.
As you begin working towards your goals each month, evaluate how things are going. If you find that over time as you get the hang of things, your once-difficult goals become easy breezy - step them up! And conversely, if you’re running yourself to the ground to reach them, slow down a bit and smell the roses while you’re down there :)
At the end of the day, regardless of our season of life, we all have some amount of income, which means we all have some amount of financial responsibility. Even if it’s just birthday money, allowance from mom, a summer job, or income from student loans - each of us has money we’re charged with managing. The sooner we can take ownership of those dollars and stop delaying this area of life for ‘one day when ___,’ the better off we’ll be both now and in the long run. Remember: money, and how we handle it, matters!
Eventually, we’ll need to learn more skills in our financial journey, like how to plan ahead for years and decades down the road, what to do with the money we’ve saved, and more, but every financial discipline is built on the foundation of budgeting. We won’t get anywhere until we get this. Budgeting takes time, effort, and deliberate re-evaluating, but it’s so incredibly worth it. If there’s anything I can do to help you in getting started, please let me know. You can do it! I know you can.
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