A lot people avoid thinking about a budget, and I usually do too. It’s scary! We don’t want to see our money tell us we can no longer grab brunch or indulge in bottomless bloody marys… 🙁
But it doesn’t have to be that way. An effective budget is actually more of mindset than a chore. Yes, there are some tangible aspects (spreadsheets, post-its, money moving, whatever), but I want you to think of budgeting as an ongoing mental snapshot of your bank account. Did I lose you already? Let’s break it down from my overwhelmed mommy-mind.
What is a budget?
Super basic, but here goes: My favorite synonym is “a financial plan”. In more words, it’s your hopes and dreams for your money! Sooo inspiring right? It is! You have the power to control where your money is spent, but you gotta plan for it to go to the right place.
Want a $30,000 wedding? You can plan for that! Want a $300,000 house? You can plan for that too! Or you can find other things that you’d rather work hard for, and decide what is worth the effort of setting aside money.
An effective financial plan will lay out how much of your income you want to spend on things like rent/mortgage payments, car payments, groceries, and leave room for entertaining things too. With those amounts in place, you can easily recognize if you need to cut back on certain things or add to your income to make room for more!
Why you need a budget
A budget is nothing but GREAT! Especially for our generation. Millennials have more student debt than ever before, higher costs of living, and lower starting salaries. We need to be very intentional with our money if we hope to get into our dream home and send our kids to college one day.
The right budget mentality will also keep you from racking up too much debt or purchasing a car you can’t afford.
Where do I start?
I would start right now, with a pen and a piece of paper.
Now write out your monthly fixed expenses. Fixed expenses being the costs that don’t change every month, like housing, car payments, insurance payments, phone bills (in a perfect, unlimited data kind of world), daycare, cable, internet, and general debts like credit cards or loans.
Then estimate how much you spend on variable expenses every month like groceries, power, water, gas, or anything else.
Add it all together, and subtract it from the money that goes into your bank account every month (your paycheck minus taxes and insurance).
Do you have money left over? Good! You can assign that to savings*, restaurants, entertainment, and miscellaneous expenses. There are a lot of places for that money to go, but this is just a basic rundown!
If you don’t have as much money as you hoped, then all you need to do is look for room to reduce. It could be as big as your rent payment. Just keep that in mind!
Do you have a negative number? This just means you need to look at where you’re overspending. And ask yourself where you’ve been getting that money from. Considering I didn’t even mention those fun expenditures like brunch and pedicures, But you’re a beginner, so don’t be too hard on yourself!
That is all for a different post, but I hope you realize that this is all it takes to start budgeting. Going through this exercise a couple times is the skeleton of basic budgeting. It will help you see how much you need, and how much you have to play with.
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What do I do after I know where it should be going?
This is where it becomes your mindset. After visualizing your money leaving your bank account for the necessities every month, you should think about your budget every time you purchase something outside of those expenses.
Ask yourself, “Did I expect to buy this? Do I want to spend this money instead of saving it for XYZ shoes? Will I be happier with this than with those amazing shoes? Can I get it cheaper? Can it wait?”
Ok, maybe not all of those things, but I want you to think about your budget and watch where that extra money does go. It’s an ongoing thought process that even wealthy people do. Unless they fell into a pool of money (which I guess could have happened), then they remain wealthy by properly allocating their extra money.
What if I suck at it?
It’s cool! I like to think we all slip up from time to time. It’s life man! I’m just busy living. As long as your big bills are getting paid and you aren’t adding to your debt, then you shouldn’t immediately beat yourself up.
I want you to think of it as a gradual shift in how you think about spending. You don’t need to keep a running tally every day (unless you want to lol it can’t hurt!). Just keep it in mind and work your way up.
Once you see your potential to save and reach small financial goals, you will be hooked! Like everything, it takes practice. Be bad at it, because you’re only going to get better.
Want more help?
I LOVE Personal Capital because it makes me feel encouraged instead of intimidated. It can be your best friend AND keep your money in check.
Take 20 minutes to draw out your fixed expenses and break down how much is left over for everything else, and you’ve built the foundation of your budget. Budgeting definitely does not need to be as intense as you might have thought. But once you’re ready to take it a step further, you’ll be able to afford more than you ever thought you could. And spend less on what isn’t getting you where you want to be. (Cuba, anyone?)