I’ve been hearing a lot of misconceptions about budgeting on the street that I need to set straight.
“The street, Michelle? Really?”
Hey, you can take the girl outta Queens…
So let’s get real for a minute…
The #1 goal of budgeting isn’t just to get out of debt or stop living paycheck to paycheck or save some of that cash you work so hard to earn.
Those are important, obvs, but they’re not my #1.
A budget is a guideline to help you spend intentionally with your heart.
“Looks like you can take the Queens out of the girl…”
Working towards financial goals isn’t simply about saving or paying off debt. BORING! It’s all about optimizing your cash-flow so your spending is synched with your personal values and life goals.
Every life goal requires a financial plan because we run the risk of sinking further into debt or blowing through savings without one.
Managing your money with a budget is the first step to ensuring you put your money where your heart is. #stressfree
While there’s no simple formula for creating a personal budget (sorry!), there are some basic guidelines you can follow to maintain a realistic and flexible monthly spending plan unique to YOU.
If you are trying to reach some ambitious financial goals or are just tired of worrying about where your money is going, a budget is your ticket to #FREEDOM.
That’s why I’m here to teach you these SIX truths about budgeting that you need to make peace with so you can stay on track and stress less about money matters.
A budget is a plan, not a challenge.
Budgeting may seem restrictive and limiting but it’s actually quite freeing when approached with specific goals and an open mind. A budget assigns special jobs to your money and having that purpose is the heart and soul of becoming financially empowered.
A sustainable budget is flexible. Most budgeting drop-outs got discouraged because their expenses didn’t fall neatly in their preset category limits. Unexpected expenses can creep up and knock everything out of whack to the point that you feel like you have failed. And then you give up for good!
But the beauty of a budget is that it can always be rebalanced at any point to adjust for hiccups and rainy days. Yes, it can be annoying sometimes, but the only people who don’t wrestle with adjusting a budget are those who have no idea where their money is going in the first place.
Budgets aren’t meant to be boring.
Establishing a budget doesn’t mean that you must cut all the fun from your life so stop starving your spending! Budgeting is a conscious effort to spend your income in any manner you choose. It is essentially a plan TO spend, not a plan to prohibit spending. If you approach budgeting with the mindset that extreme frugalness is mandatory, you will be miserable and give up.
You have a budget because you want to improve your life. That’s why a good budget leaves room for fun stuff. You just have to figure out what fun stuff is really important to you and at what cost. This might be keeping your $100 per month coffee tab while it’s an all-inclusive cable TV package for someone else. Those little treats help maintain your motivation as you work towards your bigger picture goals.
Tracking your spending is scary and that’s okay.
When I first started tracking my spending, I thought it would just be basic math. That was until the numbers started to add up. We all know that we have money leaks but actually identifying them is terrifying.
Knowledge is power! Approach tracking with the mindset that budgets are all about transparency to see where your money is going. There is nothing wrong with spending your money as long as you are making a conscious choice to spend it.
Should you ever notice that you are not in control of your spending, be brave enough to question why. Let your fears empower you, not stop you, because embracing that fear makes it easier to choose your big picture goals over immediate spending. Paying attention will eventually feel better than ignorance.
Numbers are more important than labels.
Some financial planners recommend that your budget is only 50% towards essentials, 30% for the non-essentials, and 20% towards savings and goals. I spent way too much time trying to determine whether dining out was part of my food category or my entertainment category. Then, I tried to figure out how much of my grocery budget was essential and what was discretionary.
Eventually, I realized that detail didn’t matter. The most important part of your budget is that you only spend what you take in and that your spending is aligned with your goals and values. We get so caught up putting everything into neat little buckets that we don’t look at the big picture.
It can feel really discouraging to spend $100 more on groceries than planned, but as long as you can cut back on something else to not outspend your total monthly income, you are still on the right path.
Let your categories structure your spending but give yourself permission to be flexible and rebalance those buckets to make it work for you. The less categories the better!
Your budget will never be perfect.
Life is full of surprises that can throw off your budget. Part of your budget needs to account for these situations. If you don’t give yourself a cushion, you may end up sabotaging a goal or putting yourself in further debt.
Variable expenses are the biggest culprit at destroying budgets. When it comes to these, give yourself wiggle room and just find balance. I like to include a category in my budget called “The Oops! Fund” and I let it accrue in my savings if no surprise expenses come up. Budget to expect the unexpected and you will be able to adjust for those pesky expenses with ease.
You will feel wealthier on a budget than you ever did without one.
When you map out your budget for the first time, you might find that your income isn’t going to cover everything on your wish list. But categories get allocated and reallocated all the time, especially once you start crossing reached goals off your agenda.
In our consumption-based economy, it’s incredibly empowering to have control over where your money is going as you work towards your personal definition of financial freedom.
You will see just how far your money can go and what you can afford with it by creating a plan and tracking your spending. Before you know it, you will find that you have more money in the bank and a financial life full of ease and gratification.