You Might Need A Budget If…
Budgeting…the dreaded “b word.” Just the mere mention of the word is known to give most adults toddler-like fits. Why? Because deep down, no one really likes to be told what to do (especially hard-working, semi-responsible adults) and that’s exactly what a budget does.
It tells you what to do with your money.
Typically, those that can’t imagine the thought of committing to a budget fall into one of three categories.
a) they ‘know’ where their money is going, so they don’t need a budget
b) they don’t think they make enough to budget, or
c) they don’t like the restrictions that budgeting puts on their life. #BecauseYOLO
Any of this sound familiar?
Despite the objections, budgeting works — even if it’s done kicking and screaming.
If you don’t believe me, just bring up the word budget to that friend of yours that’s a financial nerd (we all have one) and listen as they explain what it has done for their finances. Chances are, you’ll learn how a budget helped them get out of debt, reach their financial goals, and reduce their money-related stress.
Simply put, you NEED a budget — even if you don’t yet realize it. In fact, you’re probably overlooking some glaring signs in your day-to-day life that point to the fact that you need a budget ASAP.
Here are a few you might be familiar with:
You get paid on a regular basis, but have no idea where your money’s going.
First off, you’re not alone. According to a study by Bankrate.com, roughly 75% of Americans are living paycheck-to-paycheck.
So congratulations, you’re normal! The problem: Normal is overrated!
How to fix it: Start by pulling out your bank and credit card statements to find out how much you’re spending every month. Once you see exactly how you spend your money, you will probably notice a few areas where small amounts of money seem to disappear, or as I like to think of it, you have spending leaks. These are things like eating out excessively and making impulse purchases.
Oftentimes, spending leaks are the main reason you don’t know where your money is going, so it’s important to pay close attention to these numbers.
Once you’ve identified your monthly expenditures, including spending leaks, you can determine how much to start allocating toward each section of your budget (ex: home, auto, food, entertainment, etc.)
You’ve decided to use your credit card, you know…just in case
It’s almost payday and your checking account balance has been holding strong at $6.39 for the last few days. Tired of ramen noodles and hot pockets, you agree to meet up with friends for dinner at a nearby restaurant. Faced with the decision of over-drafting your account or charging it to your credit card, you do the latter. Because #TreatYoSelf, right?
Short answer: NO! *Not that the other option was any better, but still…NO!
Having a budget helps eliminate these “just in case” moments
How to fix it: The great thing about creating a budget and tracking your spending is that you know how much money you have and where it’s going. That said, you shouldn’t feel guilty about going out and eating with friends IF you’ve accounted for it in your budget. If not, just say no (or find a more budget friendly option — like a potluck).
Your savings plan is “Whatever’s left”
So, yeah…this is pretty much the exact opposite of how a budget works. Although it’s not commonly regarded as such, the second most important rule of budgeting — after tracking your spending — is paying yourself.
A good rule of thumb is to set aside at least 10% of your earnings toward savings
How to fix it: A good place to start is by calculating how much you need to save monthly (either for emergencies, debt repayment, vacation, etc.). Then, add that amount to your fixed expenses. Next, make your savings contributions automatic by either payroll deduction or an automatic transfer from your bank account. Last, sit back and watch your account balances start to grow.
You think: ‘Things will be better when ___________”
Have you ever thought, Things will be better when I get my bonus, or that pay raise, or that new job, or whatever it is that you think is going to make your money miraculously behave itself and fall into place.
Here’s the thing, it’s a lie. It never happens! You can’t budget what you don’t have.
Instead, it’s just a way to convince yourself that whatever you did this month won’t matter next, because by then your situation will be different/better. But it rarely is.
How to fix it: Stop living for the “what-if” and start planning for the “what-is”. If you get a bonus, or a new job, great — NOW you can start planning for how will allocate the additional resources.
Until then, keep tracking and budgeting and spending according to what you have right now.
In all of this, remember, budgeting is not automatic — it’s a skill that you have to learn. It’s almost like like lifting weights — in order to be successful, you have to develop muscle memory. The great news, though…it’s not difficult and the more you do it the better you get at it.
Now I’ve got to ask, was this blog super helpful but kinda not because you still don’t have the first idea of where to start? Maybe you need a Financial Coach to walk you thru the process and hold you accountable along the way. I’d love to be that person! Here’s a link to my calendar, where you can schedule a few minutes to chat and see if Worth Winning is a good fit.