In this portion of the “Getting Started” series, where we look at the fundamentals of budgeting so you can start bettering your budget.
Congratulations on taking such decisive action in the first part of the series. Keep taking those steps; keep tending the garden of your life. Mange your money, or your money will manage you! Keep up the hard work! This is already starting to unfold and is working out in your favor.
Click here to read more posts in the “Getting Started Series”.
CONTEXT FOR BETTERING YOUR BUDGET
In this section we’re going to start applying what we covered in the initial part of this series. This is the next step on your journey. If you take the time, engage and get after it, you’re going to get the same level of benefit back. Initially, I struggled with this portion of my personal finances. Quickly, it became clear: if you don’t have a good foundation, the rest of the process will suffer. I encourage you to stick with it, follow the steps and then reflect, you’ll be more than ready for the next portions. This is one of the most powerful tools you can apply.
Bettering your Budget starts with a look in the Mirror
Start with where you are, and then you’ll be able to get to your goals! Which one of these best describes your situation?
- Good: If you’re tackling this for the first time, stick with it! You’re in the right spot. We will get you plugged-in and started. This is a practical section where you can put what you’ve done in the previous portion to practice as you begin bettering your budget.
- Better: For those who find the general concepts familiar, and have already had some experience in managing their personal budget on a regular basis, I recommend checking-in with this material. See if it resonates with you; take what you can use to enhance your process.
- Best: No matter where we find ourselves, there is always an opportunity to improve and get better. If you’re already a budget master, scan this section, take inventory, and then move to the next.
TOOLS FOR BETTERING YOUR BUDGET
Take a deep breath; you’re doing this… This process requires hard work so stay flexible. You’re going to do a couple of passes at this budget; the more you put this skill into practice, the better you’ll become. Keep an open mind, and remember: stay flexible!
Bettering your Budget with Templates
Here is a template I’ve created to help with this step; start with this. The first steps are getting your information “on paper” so we can start crunching a few basic numbers forge a path forward. Print a few copies, or download it. You’ll likely use a few copies to get this first part done. Going forward, once you’ve completed the budget, you’ll create a ‘finalized’ copy.
Collect your Data
Next, I highly recommend you collect the following inputs as you are getting started. Note: I’ve also ordered them to align with my template to reflect priority in the allocation process which we will get to later.
- Any and All Income (Job 1, Job 2, Side-Gigs, Birthday Cash, anything that is “In-Coming”)
- Giving and Charity (It is better to give; give what you can and where you can)
- Pay Yourself (Savings such as Emergency fund, Short-term Savings)
- Expenses and Bills (Rent/ Mortgage, Food, Utilities, Clothes, Student Loans, etc.)
- Living in Luxury (entertainment of all variety: Netflix, Starbucks, Disney+, Restaurants)
THE PROCESS TO BETTERING YOUR BUDGET, PRACTICALLY SPEAKING
The Pro-forma Budget
As we go through this, there are two parts of the Bettering Your Budget process to keep in mind.
The first part is effectively a pro-forma budget. It is what you anticipate to occur at the beginning of each period (Note, in this blog we generally use monthly interval, but you can adjust it to meet your needs). The pro-forma budget is what you are doing when you complete the excel template from the prior step. If you know of certain expenses that are going to occur, plan for those. This is includes the routine items (e.g. rent/ mortgage, saving, giving, etc.) and the one-in-awhile items.
Regardless of the tempo, when you’re aware of the event, write it into the budget. Make sure you allocate all dollars to a bucket. This step is not complete until you have allocated every single dollar to a “bucket” on the spread sheet. Use this as a starting point each month.
The Revised and Updated Budget
This is where your budget evolves throughout the month. It is easy to get frustrated with the budgeting process when you spend a lot of time structuring the pro-forma only to see it dashed on the rocks when something unexpected happens. To avoid that situation entirely, be sure to absorb this step as you continue bettering your budget.
When you have the Pro-Forma Budget complete, that is the starting point for the month. Then, as the month unfolds, track your progress, and adjust the budget accordingly. For example, if you originally budgeted $500 for Groceries and $100 for Clothing and then spend $120 on Clothing, you must now adjust down the $500 Grocery budgeted amount to $480. (These are just examples but the situation could occur across any budget category).
When this happens, and it will especially happen at the beginning of your budgeting career, do not throw-away the first version of the budget (that is your Pro-Forma Budget). Simply adjust the Revised and Updated Budget accordingly, and keep moving forward. All along the way, make sure you have allocated all dollars to a bucket. Don’t leave any un-allocated money on the side and you’re well on your way to bettering your budget.
The Circle of Budget Life
Now that you made it through the month, you will likely have noticed the Revised and Updated Budget looks different from the original Pro-Forma Budget at the beginning of the month. At this point, you’ll want to prepare the next-month’s budget. I recommend starting this about 5 business days out.
Take your current place on the budget, and adjust your Pro-Forma Budget to reflect the more-accurate spending patterns and allocations you have detected within the month. That way, you’re starting the next month at a more-accurate position. If there are one-time expenses, you do not need to adjust the Pro-Forma for those, but keep a careful eye on what becomes a routine “break” from the Pro-Forma. You should always try to keep on-track and hit the targets that you have set on the Pro-Forma.
GETTING ORGANIZED – PUTTING IT ALL TOGETHER
Molding the “Better Budget” Clay
Ok, let’s check-in: at this point you should have all the inputs, the template, and the material from the previous blog (i.e. a few financial goals you are trying to accomplish). We have also reviewed the high-level process of starting with a Pro-forma, which is the one that aligns with your goals and is your best-guess and anticipation of the month’s expenses. As the month unfolds, you track the actual progress on the Revised and Updated Budget. Remember, this is not an excuse to punt the Pro-forma when you find something shiny and new to buy (I’ll be quick to say, this was a hard step for me). However, through this process you’ll get an ever increasingly accurate Pro-forma to start the next month with. It will also take less time as you hone the skill. Continue on the path of bettering your budget!
Approximate Allocations – Targets
As you apply yourself to this exercise, you may find that there is a sense of imbalance in the budget layout. Once you start documenting the expenses as part of the previous steps, it could shine a light on some high-spending categories. You may also begin to notice that you’re not dedicating enough cash to another bucket (like savings, for example). Good news – that’s exactly what is supposed to happen!
I recommend the following general percentages for each category; use this to get started:
- Mortgage/ Rent ~25%
Are we there yet?
This process will take a little time to get it off the ground. However, the process, if done well and correctly, will take less and less time. If you keep with it you’ll soon be a pro and get it down to 15-20 minutes each week. My wife and I try to meet every Friday to quickly review the Revised and Updated Budget, refresh the recent transactions, look for anything that is off or missing, and make sure we’re generally on track. The closer we get to the end of the month, the more we incorporate a discussion on the next-month’s Pro-forma. That way, we try to be as proactive as possible.
BUDGETING BENEFITS TO ANTICIPATE
It gets better with Time
As you become an expert at managing your budget and thereby empowering yourself to accomplish what you set out to do, it will get easier. As habits develop and you start to see your money matters fall into line, you can confidently address the budget each week without having to make a monumental effort. Stick with it!
Once you’ve picked a goal and accomplished it, allow yourself and your family to celebrate. That doesn’t mean you have to spend a ton of money or go into debt for a vacation. Just make a point to reinforce the positive progress you’re making by setting aside time and maybe a little money to memorialize the accomplishment. As an example, if you’ve paid-off the car as one of your goals, maybe go out to eat at a favorite restaurant.
Stabilizing Your Retirement
One huge benefit to getting your affairs in order is that you’ll be able to take bite-sized chunks out of your retirement goals/needs by automating your savings plan. Like watching a wreck in slow-motion, failing to plan for your retirement can come back to cause a lot of pain and trouble later in life as your money-making years draw to an end.
I’m not saying you should prioritize saving for retirement above living a fulfilling life now. But you can and should make sure you are at least chipping away at it. By that, I mean to aim for at least 10% of your income. Check out more on this here. At least as a reminder, just consider that the time-value of your money is a powerful tool in your kit. Saving a little on a regular basis for a longer amount of time is better than saving farther for far less time later in life. Just do it!
Peace of Mind
Like a beautiful spring day brings that vitality to your soul, having your budget working hard for you and your family will be good for you. You’ll find a peace of mind from having your money matters in order. Practicing Mêtis in this regard is that you free your mental capacity to focus on enjoying life and doing stuff you want to do. Getting this machine up and running, and keep it well-oiled will pay dividends back to you over time.
Just think, if you have taken the time to address these points, apply yourself, establish goals, automate your savings, etc., you can begin to step back a little more. Not in the sense of “forget it”, but rather in the sense that you have a robust plan that will allow you to prepare for your goals and hopefully have a little on-hand for when life throws you a curve ball.
WHEN IT ALL GOES WRONG
How much did that cost!?
One thing you budget will do for you is show you how much your household is spending on certain categories. My wife and I rely on the budget to show us what categories we have trouble with, and helps us establish what we can cut back on.
Take a look at your budget from an annual perspective. Start with your monthly spending, and multiply it by 12 for a rough idea about what you are spending on that category every year. This can be very motivating and has worked to help cut-down spending in a few areas. Thinking through my finances, this process is when my wife and I established that we were spending WAY too much money on our cell phones. What looks manageable on a monthly basis could be alarming when you consider the annual impact to your bank account.
Priorities for when it is all on fire.
When the budget didn’t quite get done this week (for the 3rd week in a row), and life throws you a curve ball expense you didn’t plan for, and you’re just questioning what the heck happened, just take a moment to get a plan together.
Don’t give up. If you’re feeling strangled by the credit card debt, spending, and chaos you’re in a position to make some dramatic moves. Stop spending. Start prioritizing your high-interest debt, and get a fire in your belly about changing your life for the better. While it may not seem like it now, you are the one who is best equipped to help yourself because only you can change your habits that got you into this pit. Tough love.
Even if you’re not drowning in financial quick-sand (and especially so if you are), if you have a particular part of your budget where you find the numbers are always high, consider going to a cash-only approach to that. Dave Ramsey does a great job on suggesting that, and I think it makes sense for “problem areas” in your budget. Take out the cash for that budget item, and when the money is gone you’re done for the month.
Getting back on track!
Start back with the small habits. Re-establish your routines and start cultivating the good habits you were working on. Take a step each day, and don’t dwell on what went wrong. Identify it, address it, and the focus on getting out and getting through the mountain-pass.
Maybe you need a little extra inspiration during this time. Pull-up the budget and visualize the success of getting through the difficult times. Track your progress in smaller increments by setting $100 increments, for example. If you’re paying-off a $1,000 credit card bill, chunk it out by $100 pieces and then attack it with all that frustration and pain you’re feeling by being overwhelmed. Trigger some fight in your blood and get it over with. You can do it! Take charge!
Attitude is everything.
As you can probably see by now, attitude is very important. It is easy to say; another thing entirely to practice when the water level starts rising on you. Surround yourself with positive motivational influences and this will help you a lot as you continue bettering your budget.
As an example, I love music. However, some of the head-banging music that might be great for workout sessions is actually a bit depressing (to me at least). Personally, I have had success by making a conscious decision to minimize/ eliminate that influence by screening some of the tunes before hand. Other areas of focus are food (eat right, it makes a difference), exercise, reading, and movies/ TV.
At the end of the day, don’t make life harder than it already is. By making healthy choices in as many areas as you can, you’ll find a compounding impact of positivity makes it easier for you to tackle problems in other areas. Remember, you’re most likely not alone in the challenges you face. Find some good company, and trim-out the bad. Know this: you are destined for greatness – best of luck on Bettering Your Budget!
Here are a few more posts that might interest you:
- Passive Income Aggressive Retirement: The Secret to Freedom, Flexibility, and Financial Independence | My Honest Review
- Bettering Your Budget
- Establishing an Emergency Fund
THANK YOU FOR STOPPING BY
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