BOOOOO! TO BUDGETING
Budgeting is my least favorite wealth principle!
Like most people, I want what I want when I want it. As much as I don’t like budgeting, it’s key to your financial stability. You may feel that more money will fix your problems; not a budget. I‘m not saying more money isn’t ever the solution. However, the problem is that far too many of us come to this conclusion before working on a budget. If you can’t tell me how much your expenses are every month, then; you haven’t done the required work to say you need more money. Learning to budget and save can create a large impact on your life and financial standing.
Creating a budget doesn’t need to be complicated. In three steps and 30 days you can come up with a fairly accurate and workable budget.
The first step is to create an estimated budget by gaining a clear picture of your current finances:
- How much money do you have coming in?
- How much are you spending each month?
A quick way to get a record of your spending is from your most recent bank and credit card statements. Even better, the Blueprint by MoCaFi app lets you track all of your accounts and even liabilities in one place and in real-time so you always know where you stand with your finances.
Your budget will include both fixed and variable expenses. Fixed expenses are the ones that stay the same every month, such as your rent and car payment. Variable expenses are those that may vary each month such as food and personal care.
TOTAL EXPENSES $1,516 + $417 + $179 = $2,112
Once you have a total for all of your expenses, add up all of your income for the month (paychecks, child support, alimony) and then subtract your total expenses from your total income.
Hopefully you get a positive number like in our example. A positive number means you are spending within your means. If you didn’t get a positive number, that’s more reason to save.
Once you have your estimated budget, the next step is to track your spending for 30 days. Every dollar that goes out needs to be accounted for. It’s easy to get lazy and sloppy with this part.
DONT!
It’s the most powerful step of the process. Be careful not to forget purchases or change your spending habits because you are tracking them. Without thorough tracking information you can’t create your final budget and determine where you need to make adjustments.
The key to this step is finding a method of tracking that works for you. Pick something you’re comfortable with and can stick to for 90 days. You may decide to track your spending manually, use a spreadsheet or a budgeting app. The Blueprint by MoCaFi allows you to easily connect any type of financial account and see all of your transactions in one place. Learn more at theblueprintapp.com. After you’ve tracked your spending for 30 days, compare your results to the 30 day period before you started tracking. You may realize you have an opportunity to save money by eliminating unnecessary expenses.
Pay yourself first
As you think about your budget, it’s essential to incorporate two things:
1) money to pay yourself first (SAVE), and
2) money to treat yourself (SPLURGE).
A budget without these two is incomplete. Think about it, if you have a family emergency will your internet provider or electric company lend you the money to take care of your family? That’s a hard NO! So why pay them before paying yourself?
Your goal should be three buckets of savings:
- EMERGENCIES
- SHORT-TO-MID-TERM NEEDS
- LONG-TERM NEEDS
You may be thinking dang Manyell, I‘m just trying to save something and now you’re talking about three buckets. I get it, but we have to start with a goal and then back into what makes sense for your unique circumstances — RIGHT NOW. Let’s look at each bucket individually:
Emergency
This should consist of a minimum of 3-6 months of living expenses. 3 months if you are single with a second source of income, married and you both work, married and only one spouse works but there is a second source of income. 6 months if you’re single or married and only one spouse works. When calculating the amount only
include your NEEDs not your nice to have. Exclude all unnecessary expenses such as dining out. In our example, you wouldn’t include anything in the WANTS column.
Short and mid term
This is the money you save for specific goals like vacation, buying a car, placing a down payment on a home
Long term
This is money that you’ll use for retirement. For some this category will be split between retirement and college savings. I like to focus on retirement savings. There are grants and scholarships for colleges but not for retirement. Social Security will help but for most people that won’t be enough. The good thing is that money in this category is held in accounts that already have built in barriers such as penalties and taxes to discourage you from prematurely withdrawing your money. This money should be considered completely OFF limits.
The amount you plan to save in your short to long term savings buckets should align with all your S.M.A.R.T. financial goals.
Small adjustments to your lifestyle can free up money to increase your savings
In the below example, making a few small changes saved $324 a year!
Option 1: Cut spending on “wants”
Reduce wants for a period of time to increase your savings.
Option 2: Cut spending on “needs”
Find cheaper deals, cut coupons and make less expensive meals to lower grocery costs. Take public transportation a few times a week to save money on gas. Some “needs” such as the oil change will not occur every month, but that $20 may be needed for something else.
Option 3: Look for savings on regular payments
This strategy takes a bit more effort, but you could research better deals on her regular monthly payments. In our list of expenses above, locating a free checking account would eliminate the $10 monthly fee listed in our Regular Payment box. Once you determine how much you have to place in your savings; you can finalize your budget and include your savings amounts. Remember you need three savings buckets. Emergency Fund is one and savings for short/mid and long-term goals are the other two. Budgeting helps you sort out your “I want” expenditures from your “I need” expenses. By paying attention to what you buy each month, you quickly can identify any leftover money. Your budget should be flexible; within REASON. You shouldn’t need to make major adjustments too often if you remain honest to yourself. It seems like a lot but if you start with the building the habit of paying yourself first the other buckets will be easy. What’s most important is that you get started saving!
Sign up for the Blueprint by MoCaFi app to set your financial goals and track them with real-time data from all of your financial accounts