No, Budgets Aren’t Scary and Yes, You Need One
Many of us hear the word budget and immediately think of a prison sentence but this couldn’t be further from the truth.
At its core, a budget is simply a monthly plan for your money. Furthermore, having one frees you to better enjoy your hard-earned cash 💸
Keep reading to learn how budgeting leads to financial freedom.
Budgeting Helps You Know Where Your Money is Going
Stop number one on the road to financial freedom is getting intentional about your spending. With a budget in place, you tell your dollars where to go instead of wondering where they went at the end of every month.
Doing this starts by assigning a specific purpose to every dollar before it ever leaves your account. A well-crafted budget is the vehicle that makes this all possible.
Having a budget actually frees you to better enjoy your hard-earned cash
Budgeting Helps You Plan For the Future
Knowing what you have to pay for enables you to better plan for the things you want to pay for. This may include fun things like vacations and shopping trips. Ya know. The stuff us millennials LOVE! 🎉
But more importantly, a budget also enables you to plan for bigger things such as saving a down payment for your first home, starting a family, and contributing toward retirement savings.
Creating a Budget is Easier Than You Think
Creating a budget is a breeze once you get into the habit.
I’m challenging you to start right now.
Grab a pencil and paper or pop open Google Sheets, then follow these simple steps to get started:
Step 1: Record Your Income
Figuring out a plan for how your money will be spent is pointless if you don’t know how much income you’re bringing in. Total all the money you expect to earn this month including wages from your job, side hustles, and any other revenue source you may have.
Step 2: Tally Up Your Known Expenses
List ALL of your monthly expenses and the dollar amounts associated with each. I’ve found that dividing the list into broader categories ensures nothing gets left out. Useful categories might include:
- 💸 Bills
- 💰 Savings
- 🍔 Food
- 🚗 Auto/Gas
- ⛔️ Debts
- 🤝 Charity/Donations
- 🌈 Miscellaneous
This list should include not only recurring expenses but also anything you expect to spend money on this month. Does your car need an oil change? Include it in the budget. Need to buy a gift for your best friend’s birthday party? Include that too.
If necessary, use realistic estimates for expenses you’re unsure about. As you progress, you’ll be able to plan more accurately based on totals from previous months.
Step 3: Figure Out What’s Left (or Not)
Subtract your expenses from your income to see where you land. Do you have money left over? If so, CONGRATS! 🎉 Revisit your budget and divide what remains among categories of your choosing until you reach zero. This method is known as zero-based budgeting. When in doubt, allocating more toward paying down debts, building your savings, or contributing to retirement funds is always a good idea. Future you will be thankful that you did.
On the flip side, if you find yourself in the red, you’ve got some decisions to make. Review your budget to identify any areas where you can cut back or look for ways to generate more income (or both!) Whatever you do, never settle for a budget that will leave you with more month than money.
Step 4: Track Your Progress
Whether it’s through the use of an app like Mint or manually with a spreadsheet, tracking your spending keeps you on course.
I personally prefer a more hands-on approach. At the end of each week, I take time to input my weekly transactions into a Google Sheet that I’ve tailored to suit my specific needs. What results is a more complete picture of how much money has been spent in each of my budget categories.
As you track your spending, compare your totals to what you’ve outlined in your budget. If you find that you’ve overspent, don’t fret. Make an effort to dial back spending in other categories and commit to improving next month.
