Many people know, deep down, they need to do a better job of budgeting their money. Yet, we all come up with tons of reasons why we can’t do it THIS month…. You’re too busy, an odd expense just came up, you want to pay off that little credit card bill first…. STOP. The real reason why folks choose not to budget it because they think it’s hard to do, and they think it will reveal some ugly truths about their spending that they would really just prefer not deal with.
I get it. Budgeting seems like a long, tedious process that simply results in you having to pass on going to drinks with your friends, cut back on that starbucks habit, or eliminate some other important part of your life or routine that you would rather keep.
In truth, budgeting your money is LIBERATING. Imagine a world where you are able to go buy new clothes, go to dinner, or head out of town without the guilt of blowing money you shouldn’t have! This is what comes with the power of a budget. Budgets help you to prioritize what means the most to you, and helps you clear the clutter from your spending so that you can do the things you want and remain financially responsible with the things you have to tackle.
First, understand that tracking what you spend is not the same as budgeting. Tracking what you can certainly helps you from overspending every month. Whether you simply check your bank account regularly, or at least have a good mental handle on what your bills are every month, you are at least aware of what leaves your account. This is a great start. After all, how are you going to budget without knowing how big your bills are?
Here is the key difference between “tracking” and budgeting: When you track your money, you are figuring out where it went after you spend it. When you budget your money, you are figuring out where it goes before you spend it.
Believe it or not, when I talk to people about starting a budget, I almost always tell them to start by tracking their spending for three months. While tracking is not the ultimate goal, it is an important component and helps folks become more aware of what they spend the most on (and nearly EVERY SINGLE PERSON is shocked by how much they spend eating out). There are lots of good online tools to help with this, like tools at your bank or credit card company.
Once you have tracked your spending for three months, you should have a fairly good idea of what you spend in an average month on things like groceries, restaurants, car maintenance, gifts, and the like. Next, if you don't know already, figure out your monthly income.
Now, using what you know you make, combined with what you know you spend, start deciding at the beginning of every month where you want each dollar to go. Every dollar you make should be allocated to something, even savings. When you are done deciding where your money should be spent over the next thirty days, there should be zero left over. This is called “zero-based budgeting”.
I know this sounds tedious, and it can be at first. Even if the process is fast, I can promise you that you will make mistakes and be WAY off on your first attempts to figure out where you spend. It’s ok. As with anything, it takes some time to settle in and figure out the flow of things, but budgeting becomes really easy and really powerful once you get the hang of it. You’ll find yourself paying down bills that have been lingering, saving money that you have had a hard time saving, and spending money guilt-free on the things that are the most important to you.
Of course, the internet age has created some really cool tools that can help with this, and in my next post I’ll cover some of the old-fashioned tools, as well as some online tools, that can help you make your budgeting process faster and easier than the old pencil and paper.