Don’t Get Overwhelmed, Get Budgeting

Budgeting is boring. Fact! 

Who wants to budget when there is the option to point at anything we want and say “I want that one!”.

Our son, Elias, would like a life-sized lightning McQueen car with the wheels in candy red and with matching outfits.

As much as buying this for our son will temporarily make him happy, it will more likely turn him into a more demanding little monster preschooler.

Budgeting helps us exercise self-control, and without it, our financial lives could easily overwhelm us.

Do you currently have a budget? or do you just like the idea of it?

I find that most people fall into 3 camps when it comes to budgeting. They usually –

1. Set goals but don't realise they need a budget.
2. Don't know how or why to start a budget
3. Struggle to stick to a budget

Which camp do you fall into?

For a long time, I struggled with #3 due to not prioritising time to hone in on our finances. And this is given I did budgeting day in day out in the corporate world. 

I just assumed that I sort of knew how much we were spending on stuff. Gradually bills started popping up from everywhere, with little leftover cash to tackle them.

If this sounds familiar, then you really need to get proactive and start knowing your numbers more intimately!

I know quite a number of pretty savvy people earning decent 6-figure salaries, and even they struggle to keep things in balance each month.

So this is a very common problem and budgeting is the way to get in the driving seat and take back control.

What is a Budget?

A budget is a compass.

It's a plan that summarises two things namely how you:

1. Intend to earn and,
2. Distribute your income over a specific period of time.

A budget exists to guide you (if you’re disciplined) to your specific financial goals.

Such goals could include getting out of debt, saving for early retirement or becoming financially independent etc.

Goal setting

This should be the starting point in your financial journey.

If you currently don't have any written down goals that you wake up to daily, it's still not too late to set them.

There is nothing worse than waking up daily, going to a job you probably hate and paying bills just because you have to.

This is drifting and isn't a purposeful way of living as you aren't in control.

[redbar]Goals play such an important role in our lives because at the basic level they give us something to aspire and work towards.[/redbar]

Personally, I get alot of buzz from setting and exceeding my goals, and I have noticed a drastic improvement in my life as a result.

Start setting them today by checking out How To Set and Smash Your 2018 Goals.

Once you've set some financial goals using the framework in the above link, you then need to consider your income and outgoing, which make up your budget.

How to Create a Simple Budget

The initial exercise of creating a budget is time-consuming. I cannot stress enough that this will not happen overnight.

You need to schedule in time to deal with your budget as though it were a doctor's appointment.

Get a childminder, clear some space to sit down with your partner and give yourself at least a couple of hours to get it all done. This is Top Priority!

Now it's time to gather information on your income and outgoings. A good place to start is to download your electronic bank statements for the last 3 months and start categorising your expenses.

You can download these as a CSV (Excel) file for easy of summing various numbers.

This exercise is to help you get an accurate picture of your actual spending patterns ahead of you budgeting for each of these areas.

Budgeting income

Make a list of all recurring monthly income you have made over the last 3 months and take an average of each category.

If you only have one income, then this should be even easier.

Then consider any near future income (e.g. bonuses, side hustles etc) provided it is near guaranteed that income would come in.

As a stress test, I would consider my net income for the related month without that potential income factored in.

Now it's time to consider how you distribute your income:

Budgeting savings and investments

Before you budget your expenses, you should pay yourself first. You deserve it!

The typical order of things is that people allocate their income to various expenses and completely max themselves out without paying themselves.

By paying yourself first, you're winning because you start moving away from a pure consumption mindset to one where you are creating future life options for yourself through savings and investments.

This is extremely powerful for those who one day want to run companies as you'd start to understand the idea of “retained earnings”, which a company needs to invest in itself and pay its shareholders.

Budgeting expenses

All expenses come as essential vs non-essential, and what you decide is essential is completely down to you.

The more realistic you're about this, the more effective budgeting will be for you as a tool.

I would class essential spend as anything you need to survive e.g. Housing costs, food, light, and heat etc.

Read: 7 Non-Essentials Holding Your Future Hostage 

This exercise of grouping your expenses as essential vs non-essential gives you the clarity you need if you need to cut your expenses to the bone.

The thing to remember about expenses is that your actual spend does not have to be directly proportional to your income.

Just because you earn more money does not mean your expenses should rise in proportion!

Once you're done with budgeting for one month, you can either use that same budget monthly, or you can budget for other months if you expect some big swings.

I typically budget for 6 months in one go as we have certain cost items that come out quarterly, which we need to anticipate from a cash flow perspective.

Tools

There are also various apps you can use to start budgeting. Alternatively, you can grab my budget for life, which I have developed in Excel and is perfect for budget haters!

For a simple one-pager, you can download a Free PDF template below to begin budgeting today:

The budget once created then becomes a living document. You should interact with it monthly in order to figure out how your actual costs compare against the budgeted costs for that month.

Sticking to your budget

Time is a big factor here as we all run around from one place to another being busy.

Making out time to review where you are each month in your Actual spend vs Budgeted spend it key.

So schedule it as a recurring event in your diary with your partner and don't miss the appointment.

The other consideration is the need to be disciplined in order to maintain a lifestyle that keeps you within budget.

Read: 15 Tips To Help You Stick To Your Budget.

Other considerations

If you're sticking to budget each month but still find that each month, you barely have any money left over to save or invest, then you should seriously consider other ways of boosting your income.

If you only earn one income today, then I personally challenge you to do something about in this year!

[yellowbar]This ancient idea of earning one income, which has been passed down from our parents must be abandoned fast![/yellowbar]

Check out 85 Ways to Make Extra Money and why not challenge yourself to implement 3 to 5 ideas this year? 

Alternatively, you might need a serious reality check regarding your outgoings.

There is always fat to be found in our expenses and some of the things we deem to be essential spends such as holidays or TV packages, really are not.

Read: 7 Non-Essentials Holding Your Future Hostage

Related: My Secrets to Saving Money

In summary, a budgeting effectively requires financial goals, time commitment, discipline, and routine.

If you find that you're just about getting by each month, then this is something you NEED to start today. Also, feel free to join the Master Your Money course or simply complete the form below.

Do you currently use a budget in your financial life? What is the one thing that you find tricky about budgeting? 

 

Do please share this post if you found it useful, and remember, in all things be thankful and Seek Joy.