When people hear the word budgeting, they automatically cringe and think discipline. Is that you?
As with everything else, it’s all about the way that you look at it. Budgeting is how parents have gotten their kids through school, how houses have been purchased and paid for, how dream vacations have been taken, dream cars have been purchased, businesses have been started and so much more.
Budgeting is one of the best tools that you can use. What have you been wanting to do, but can’t afford to? What car have you had your eye on but can’t afford? Have you been wanting to pay off those student loans so that you can raise your credit score? Budgeting is the answer. The purpose of a budget, Gillette says, is to understand whether your money is going toward things that you’re happy with, you’re proud of and align with your values.
What exactly is budgeting? I’m glad you asked that question. According to Webster budgeting is a plan for using money. That is exactly what is, it’s a plan. It is you looking at what you have, what you want and how you can use what you have to get what you want. In some instances, a budget is a way to track your spending habits to show you what you are spending too much money on, or if you can afford to take on a new bill/expense (often used in business).
Let’s understand the budgeting process:
Step 1 of the process is to identify your “Why”! You must know why you are budgeting. Knowing your why will keep you focused is a great way to keep you on track should you want to give up.
Step 2 is to determine how much your income is monthly. Your monthly income includes side jobs, income from business, any consistent income that is earned should be included. All income should be included. The result or the goal is to be able to accomplish whatever it is that you are seeking money for.
Step 3 is to choose a budgeting method. Choose a method or create a method that will work for you. Each person is different, the way to go through the steps of the budgeting process can be as well. Two of the most popular budgeting methods are:
The Envelope System: This is when cash divided in envelopes with labels or digitally with an app or software
50/30/20 rule: a simple framework that allocates 50% of income for needs, 30% for wants, and 20% for savings and debt repayment
Step 4 is to track your progress. There are many ways to track your progress available. Some people prefer apps on their phones, while others prefer the old fashioned excel document. Having a goal and not knowing how close you are or how far you are from reaching your goal is like working for nothing.
The biggest key to budgeting is sticking with it! The first few months are the toughest. It is tough when starting something new. Here are some tips to keep you on track:
1. Know Why You Are Budgeting! Having a goal in mind will help you stay on track. It is a good idea to put a picture or the actual goal in a place where you will see it daily.
2. Use Empowering Language! Using the term “budget” can bring a negative mindset. Using terms like “spending plan” will help you stay motivated.
3. Test Different Budgeting Methods! There are several budgeting methods available. You must use the one that works for you and your lifestyle/business. Choosing the one that is best for you will help you stay focused. The key is to be realistic and find the method that works best for you.
4. Leave Room for Surprises! The reality of life is that things happen. Unexpected situations happen such as car repairs, household repairs, sickness to us and family members, impulse buying and other surprise issues.
5. Automate As Much As Possible. Sometimes when you must make a transfer, try to pay a bill, or even move monies to your savings account will cause you to procrastinate and not do it. Automating does not mean that you are not to keep track of it of your budgeting efforts. Automating is a way to take the load off yourself.
6. Know Your Budget Will Be Different Some Months. Be prepared to alter your budget during months where there are major holidays, birthdays, vacations, life events (school starting/ending), summer camps, etc. Also, there are months income can change as well. Some examples are school employees who may not work/get paid during the summer, babysitting income, dog walking income to name a few. During these months you will have to adjust your spending. A way to offset this is to save a little more during the months income is steadier.
7. Check Your Budget Often. A good rule of thumb is to check it monthly. Checking your budget often helps you to gauge how close you are to meeting your goals. It also is a way to see your spending patterns. Perhaps you can save on an unnecessary expense and put those funds in savings or towards your needs.
8. CELEBRATE YOUR WINS! When you have reached a goal or have made progress, CELEBRATE! (Within your budget of course)
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