Did you make some New Year’s Resolutions this year? Some of the most popular New Year’s Resolutions are about exercising, eating better, and saving more money.
For many of us, financial resolutions work like exercise resolutions. We’re at the gym every day in January, but later in the year our willpower has run out and we hope nobody asks how our resolutions are going.
But it doesn’t have to be that way.
We’d like to suggest one key principle and three simple steps to budgeting.
Key Principle: You control the budget, the budget does not control you. People often fail at budgeting because they see it as a constraint, not a tool for helping them meet their goals. When you see a budget as a constraint, you feel guilty when you fail to keep it, which can often lead to more overspending. When you see a budget as a tool, you celebrate victories and learn from overspending, adjusting your budget numbers and your spending both at the same time.
Step 1: Write down your priorities
Don’t limit yourself. What do you need and want? A better house? A lower house payment? To pay someone to clean your house? A certain kind of vacation or retirement? To travel more on a fixed retirement income? Private school or college savings for your kids? Here’s another popular resolution: to get out of debt! The first step of making a good budget is to write down your priorities and goals. Working for what you actually want your money to accomplish for you can be very motivating.
Step 2: Does your current spending match your priorities?
Celebrate where it does, decide you’re going to change where it doesn’t. We suggest taking at least three months of history (but six+ months is better) and add up all your spending. Many banks have services that will do this for you on a simple level.
Step 3: Create a plan
Now you have to look at your priorities and create a budget that brings your spending into alignment.
We think one excellent tool for budgeting is YNAB because they share our values of proactively giving every dollar a job and seriously tackling credit debt. But there are many other tools, including Mint, Quicken, or what you may already have access to through your bank.
Begin by listing your dreams and long term goals. Then write your budget starting with static bills (for example, mortgage, utilities, cell phone) and finishing with your dreams and long term goals. If you’re like most people, you’ll have to adjust numbers here and there to make it balance. Bonus tip: hold everything loose, especially monthly subscriptions, entertainment, and eating out - all of which are simple places to spend less so you can spend more on goals and dreams.
Interested in learning more? We'd be happy to meet and help you create a budget that works toward your financial life goals. Click here to contact us and we'll get in touch with you.