Many think, “Ugh, what an awful word…’budget.’” To many, it is synonymous with the word “restriction.” And no one likes to be restricted. Though budget may seem like a bad word to many, it is kinda like the vegetables your parents forced you to eat as a child. You may not like it, but it’s necessary. Ironically enough, budgets are the right choice just like those vegetables that we eat today, because your parents were right.
In any case, budgets are necessary for people who have and don’t have money. It’s nothing more than a plan on where your money needs to be placed or spent in order to give you a solid financial future. If you have a poor mindset, you probably don’t have much money, and the word budget is like eating your vegetables as a kid. But if you’re rich, you love the word budget because it helps you know where to put your money so you can grow it and make it last.
Budgets are necessary and only takes 3 steps to make them work. Let’s look at the 3 steps…
1. Create the Budget
There are many ways to creating a budget. You can use an online service, download a budgeting template, or even create your own in Microsoft Excel or Google Sheets. All you have to do is create a list of all the categories where your money is spent. An example list can include: Bills, Loans, Savings, Credit Cards, and Entertainment. Do the best you can to have a category where you can capture where every dollar goes. Don’t worry if you can’t think of them all. You will discover more in Step 2.
You also need to estimate how much money you believe you should be spending in each category to be successful. Again, don’t worry if you’re not 100% accurate here. You will make changes in Step 3.
2. Track Every Dollar You Spend
You need to record where every single dollar you spend goes. Every spent dollar should fit into a category you created in Step 1. If you discover a new category, add that category to your list and start tracking your money. Be sure to track what you spend on a weekly basis.
I like to set an hour aside every Saturday to take care of all my financial concerns. I pay my bills, check my accounts, and track where my money is going. When you track where every dollar goes you can ensure you’re putting your money in the right places. You can quickly determine if you are on, under, or over budget when you check your spending weekly. This is where Step 3 comes in…
3. Reflect and Make Changes
Review where your money went and if you have over or under spent in any categories. Were you over budget in any categories? Were you under budget in any categories? Based upon this, what do you need to change? Perhaps you need to tighten the purse strings and NOT spend so much on Entertainment. Or maybe having three cars for a two-car family is not necessary? What do you need to change to make sure you fit in budget next month? Do you need to change any of the amounts you allocated to any category? Answer these questions and make the appropriate adjustments. This is an iterative process, so feel good that you’ll get better at this each month.
The Takeaway
Whether you see the word budget as a good thing or bad is really dependent on where you are financially today. Rich people don’t mind the word, whereas people with a poor mindset tend to hate it. A budget is necessary if you want to attain and maintain financial stability. You need to know where your money is going and what changes you need to make to ensure you’re moving in the right direction. Ignorance is NOT bliss here. Stay on top of your finances with a budget and you will be well on your way to financial stability.