How many of you cringe when you hear the word “budget?” If you get stressed, anxious at the thought of money, or can’t seem to stop fighting about finances with your significant other, read on to learn how a budget is just a tool that enables you to plan for what you really want in life!
Budget – it’s an estimate of your expected income and expenses for a given future period (i.e. month or year).
Benefits of creating a budget:
- Reduce stress
- Sleep better at night
- Minimize fighting with significant other
- Eliminate guilt in spending
Many of my clients have never done a budget prior to working with me. Most were wary about doing one. Couples who have not been successful talking about money with one another found it extremely helpful to have a mediator (i.e. financial coach) when discussing finances and creating a budget. I even have some clients where the ownership of maintaining the budget was voluntarily shifted to the spouse who was originally disinterested in finances! The best feedback is when I had a client say that she could now spend money on clothing without feeling guilty because there was cash in her “clothing fund” allocated specifically for her shopping trips!
For those who draw a salary, your expected income is known and predictable, so that’s the easy part! The expenses are where most people have no idea. They usually get overwhelmed even thinking about it, so they don’t even attempt to understand it. But by choosing to ignore it, oftentimes they buy things without realizing that they are spending more than or equal to the income they are bringing in…resulting in debt or zero savings.
By planning how much you want to spend in each category of your personal life, you are able to make adjustments as needed to achieve your short-term and long-term goals .
For example, if you start to realize that you are spending $400 a month on dining out, but yet you have been wishing that one day you could afford to take a family vacation to Disney, then perhaps you make the decision that Disney is more important. Then you can make changes to allocate and budget only $100 on dining out, and save $300 towards a vacation fund to pay for Disney.
Actual Expenses prior to Budget:
Dining out: $400 per month x 12 = $4,800 spent
Actual Expenses after a Budget:
Dining out: $100 per month x 12 = $1,200 spent
Vacation Fund: $300 per month x 12 = $3,600 saved
Result: After a year of being more aware and conscious of budgeting and spending, you are well on your way to affording a family vacation at Disney.
The goal of a budget is to plan for every dollar earned, and the benefit is that you create the structure and framework to save or spend money for the things you need or really want in life or for your business.
My goal when coaching is never to have someone love doing a budget. You don’t have to love the tool, but you can appreciate the benefits and results. By doing one, you can increase your chances of success in your personal finances, allowing you to have more choices in how you spend your time.
Recommended Action Items:
- Create a monthly budget. If you don’t know how to do one or want a better tool, contact a financial coach.
- Track actuals. (*Note – You may want to do this on a weekly or bi-weekly basis at first.)
- Adjust next month’s budget as needed.