Most of us associate the new year with a fresh start, new opportunities & resolutions. I’ll admit, I’m a big goal setter because I’m still working on becoming the best version of myself. I have a variety of categories that I base my goals on, and of course, finance is always one of them.
As I’ve visited with friends and family about finance, the topic naturally leads to budgets. I often hear things like, “Budgets are so restrictive”, “I don’t want my money telling me what to do”, etc. I’ve spent a considerable amount of time thinking about these statements. I think we can all agree that wearing a belt cinched too tight is uncomfortable, and eventually gets removed and discarded as do best intentioned budgets. Is it possible to have a budget that doesn’t cut off the circulation? Is it possible to have a budget that gives you freedom instead of chains? I would say, Yes! I would like to let you in on my approach to an empowering budget.
Shortly after my husband graduated college, I was so tired of living the “poor” college life. That was behind us, but we still felt the money just didn’t ever go far enough, and we continued to live paycheck to paycheck. We were slaves to every dollar. We had all these obligations, and there wasn’t money left over for what we wanted to do. I started tracking and categorizing our spending. After a few months, I put together a budget with the approach of what I wanted our money to do for us. Our income remained the same, the expenses remained the same, but within a short period of time, we no longer felt broke. What changed? I shifted my perspective, my money was doing exactly what I told it to do.
If you’re ready to put your money to work for you, may I suggest these 5 tips.
Review your spending from the prior two months. Divide your spendings into specific categories. This will help you identify your spending habits, and allow you to put together a budget that similarly aligns with your spending. If you’ve ever been on a diet and you’ve made several drastic changes, the diet never seems to last long. Budgets are similar.
Keep your priorities as priorities. After reviewing your spending for the past two months, list out your financial priorities. As you put together your budget, keep your priorities as priorities. This is where you can identify frivolous spending, and you may even identify past priorities that are no longer priorities that can be eliminated. Perhaps your priorities are getting out of debt, buying a home, or attending the superbowl. Work towards these even if it’s in small amounts from each paycheck. Occasionally it is necessary to pause in one area to take care of an immediate need, but if you don’t quickly come back to our priorities, i.e., the things that make you happy, you’ll fall back into the trap of money slavery.
Be specific. You’ll find success in the details. My budget includes over 20 line items, and sometimes even more based on my priorities. These detailed categories can include things like: Amazon, eating out, entertainment, clothing, vacation, school lunch, dance lessons, rec sports, vehicle registration, etc.
Open additional saving(s) accounts. Have a place to move money that you’ve earmarked. It’s difficult to track your savings if it’s all going into one big saving account. Having different accounts gives you a visual of your progress and makes for easy tracking. Banks even allow you to name your bank accounts for easy identification.
Give yourself an allowance. Day in and day out you work tirelessly, and it’s difficult when you don’t ever feel like you see the benefit or get a perk for your hard work. When we first started giving ourselves allowances, we each got $10 every two weeks. My husband liked to spend a little at a time, I would save mine for a few paychecks, and then would spend it all at once. There's no right or wrong way. This is guilt free, “do as you please” money. I would strongly recommend getting this in cash for the most satisfaction.
As you can see, a budget doesn’t mean that you have to give up your passion or hobbies. A budget doesn’t mean you can’t do fun things. A budget shouldn’t be a punishment. A budget allows you to do those things intentionally. A budget allows you to save for big purchases and still reap the benefits of your hard work in the short game. That might look like paying off debt faster, eating out regularly, saving for a fishing boat, taking the trip of a lifetime, or supporting a daily habit of a Maverick run.
Budgets aren’t one size fits all. My budget won’t work for you, because our wants and needs are different. A budget should be tailored to your needs, wants, and circumstances, focused on your priorities. When done correctly, a budget will empower you because your money will intentionally do exactly what you intended it to do.