The Principles of Budgeting

2/20/2024

Creating a budget is a great way to track spending and get your finances in order. A budget helps you track where your money goes each month and can make it easier for you to achieve financial milestones. While the task may seem daunting, it’s not difficult to create a budget. Everyone can benefit from having a budget, no matter their age or income. How you manage your money dictates how you live your life, and it will either hinder or help you to reach your dreams.

A budget gives you the freedom to be in control of your finances and allows you to know where your money is going each month.  Having that control helps you feel confident enough to conquer your financial goals. Budgets can be used in any stage of your financial journey. Whether you’re trying to save, pay off debt, or trying to understand what is coming in and going out each month, a budget is a good tool to help you be in control of your money each month.

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Do I need to track my expenses before starting my budget?

If you’re able to track your expenses before you create your budget, it’s very helpful because it gives you a starting point. However, if you haven’t tracked your expenses before, but want to establish a budget, don’t feel like you can’t get started.

Jump into creating your budget by pulling your last month’s bank statement and conduct a statement autopsy. You can do this by going line item by line item to help understand where and when you’re spending your money. You could also, if you’re motivated, pull the statement from the month prior as well to get an idea of how much you spent. This will give you a goal line to start working towards.  

Read More: Blueprint to a Stronger Financial Foundation

If you’ve never examined your spending before, doing this practice might be eye opening. You might realize you’re spending more than you thought you were on recurring items every month and will help you understand what really needs to go into your monthly budget. You might find auto-withdrawals you aren’t aware of or have simply forgotten about. Cancel any unnecessary recurring charges including subscriptions that you’re not using.  You can remove these from your budget and put that money towards your savings instead.

Creating a Realistic Budget

There is no cookie-cutter budget that will be the same for every person. This is because there isn’t a cookie-cutter person. Just as the months and the years change, so should your budget. You have a pretty good starting point for your budget with the items that remain the same every month, but there are some months that will be different than others. That’s why re-evaluating your budget monthly will help keep it realistic.  You will have months where you have multiple weddings to attend, birthdays, or a vacation. This will alter your budget from the norm because you now must allot a certain amount of money for these events.

When creating your budget, make sure you’re taking care of your four walls. Those four walls are your rent or mortgage, utilities, transportation, and groceries. These are the top four items you need when creating your budget. From there, you can start to build out other items. 

Read More: Budgeting for Every Dollar

To keep your budget realistic, and make sure your budget works for you, you need to work your budget. Don’t try to cut out all of your unnecessary spending at once. If you notice you’re eating out 5 times a month, start by cutting back to eating out 3 times a month. This way you’re not completely altering your lifestyle by cutting out that category altogether. This will allow you to keep your budget realistic while still saving money.

Don’t forget to save

Put your savings in your budget right after your four walls, making it the next priority. To ensure you’re saving each month, include your goal savings amount in your budget as a line item each month, essentially paying yourself.  At the end of the month, if you’ve stayed within your budget and there’s money left over, put that money in your savings account to help it grow.

Budgeting as a couple

Your budget will change once you have a partner. As mentioned earlier, not every person is the same, so no one has the same budget. Additionally, not every person thinks the same. So, having open communication with your partner when creating your budget is crucial. You might think certain items go under one category whereas the other person might prioritize that item differently. How you have things laid out in your budget and how you label items is important.

Outside of discussing how you’ll create your budget, talking about your goals is also necessary. Whether it’s paying off debt, saving, or purchasing a home, just having those talks about your financial goals will help you set realistic expectations for your budget. Keeping your goals in mind will also help you to hold each other accountable.

Being open and having good communication will help you make compromises. If there’s one spender and one saver in the relationship, have one person create the budget and hand it over to the other partner. Then, the other partner can make edits and changes. By doing this you’re gaining insights into what each other’s priorities are and can help start the conversation. Create a plan of how often you and your partner will meet to discuss your budget, goals, and overall finances. This will help hold you both accountable and foster understanding.

Read More: The Surprise Benefits of Budgeting

What to do if you’re struggling

Creating a budget is easy, but sticking to it might not be. If you’re struggling with sticking to your budget, give yourself grace. Budgets can be overwhelming, especially when you’re first starting out. The first several months of budgeting are really learning and understanding a lot about yourself. You’re learning where, why, when, and how you spend your money. Seeing all of this will help you determine how to make changes. Getting to know yourself and your spending habits will help you start creating new habits and lifestyle changes to make your financial goals happen. 

Creating and sticking to a budget comes down to being realistic and finding out what works for you. The key to long-term budgeting is finding the best system for your personality and your needs. A budget is the foundation of your financial life, it’s there to help you build good spending and savings habits. Whatever your goal is, use it as a motivator to keep you going in the direction you want to go. You’re guaranteed to make a mistake or two along the way, but sticking to your budget will pay off in the end.

 

 

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