Budgeting. Even the word itself sounds bad. It feels so ... rigid. So constricting. So boring.
I get it. No one likes to talk about budgeting (except, well, me). But here's the thing: You can't get ahead financially if you don't know where your money is going. Period. Budgeting doesn't have to be painful, but it has to be done.
And why wouldn't you want to budget? The thought doesn't have to fill you with dread. Talking "about the budget" with your spouse doesn't have to be a code word for "fight." How you spend your money reflects your values. Taking the time to create a budget is simply a process of thinking about and articulating what's important to you and creating a plan to make sure the way you spend your money reflects what you actually care about.
The good news is that there are lots of ways to budget, and technology is making this so much easier. Of course, how you budget depends on your situation and your personality, but here are some general concepts that I find helpful for most people. If this feels a little vague and nonspecific, great. This is part one of a series on budgeting, so stick around as we dive deeper into these topics.
Step 1: Get Honest About Your Spending
I'm not going to tell you that you need to keep all your receipts or log every purchase, but you need to know where your money is going.
Step 2: Decide Where You Want Your Money to Go
Now that we know where your money is going, tell me something: Is that where you would like it to go? Not quite? Great. You're like the rest of us. Let's talk about values and goals for a minute and decide what kind of spending patterns will most reflect the things you care about. The bottom line is this is your money. This is your life. Spend some time thinking about what's important to you, and create a budget that reflects your values.
Step 3: Put Your Plan on Paper
List all your expenses, their amounts, and the date they are debited from your bank account. Also, write down all your income so we know what we're working with. The goal is that the "Total Spending" column shows the same number as the "Total Income" column.
Step 4: Commit to the Plan
Seriously. If we skip this step, there is no point in going forward. What is going to motivate you to try your best to stick to the plan? Someone checking in on you? Dinner at your favorite restaurant at the end of the month if you succeed? Find a motivator and use it. If you are married, you must both commit to the plan. Upfront. Maybe even in writing. I cannot stress enough how important this step is.
Step 5: Figure Out How to Implement the Plan
What are you going to do differently, now that you have a budget, to make sure your money reflects your values? There are a lot of methods to do this, including "Zero-Based Budgeting," "Pay Yourself First Budgeting," and my personal favorite, the separate bank account style budgeting. We'll cover each of these options in more depth later.
Step 6: Implement the Plan
Let's do this! Remember, you are creating a habit. Habits don't happen overnight. You need to retrain your brain to think differently. It will be hard at first, but it will get easier. Keep it up, and soon being in control of your money will feel easy and natural. Take the time now to create a habit that will help you the rest of your life.
Step 7: Assess How Things Went
Make necessary changes. Give it another shot. You're not going to be perfect at this on your first go. You're going to spend more on groceries than you thought you would or find yourself magically drawn to your favorite lunch spot, even though you finally managed to pack your lunch. Give yourself a break. Be honest about how things went. Change things that simply aren't realistic, and give it another go. The goal isn't to be perfect in your first month. The goal is to get good at this for the long haul. Don't give up, and you'll get there.
Remember What's Important
The point of budgeting is not to make you feel constricted; it's to empower you to be in control of your money so you can spend it in ways that reflect who you are and what you care about. Learning to spend money in a way that reflects what you value takes intentionality and practice. It's a learned skill, and it takes time, but the results will be life-changing.
Stephanie Vail is a member of the Custer Financial Advisors team. She specializes in helping millennials with financial literacy and planning. To learn more about Stephanie and Custer Financial Advisors, visit www.CusterFinancialAdvisors.com or email Stephanie at [email protected].
This article was republished with permission from custerfinancialadvisorsblog.com.