Love it or hate it, if you want to be financially successful you are going to need to budget your money. Besides, if the wealthiest people in the world plan their finances, what is your excuse?
If you don't plan you can't win. Ever heard the saying "failing to plan is like planning to fail?". In this blog post, I'm going to walk you through the process of budgeting and how you can win at it!
"If the wealthiest people in the world plan their finances, what's your excuse?"
So why budget?
Here are some pretty solid reasons why you should be budgeting!
- You can keep your spending in check
- You can track your expenses
- You ensure you are not spending more than you earn
- You control your money and your money doesn't control you
- Leveraging a budget is how you build real wealth!
Why do people think they aren't good at budgeting?
Well, there are a variety of reasons people think this way including the following:
- They don't know where to start and don't have a formula that works for them
- It becomes too much work
- They find it too complicated
- It makes them feel bad about their finances
- They feel like it's punishment or limiting
That being said, the process of budgeting doesn't have to be difficult or complicated. You just need to create a system that works for you. Also, people often allow their emotions to cloud their judgement when it comes to planning their finances, but if you look at your money objectively for what it really is, a tool, then it's easier to make your plans! You definitely don't want your feelings and emotion derail your financial success right?
Think about it this way, every dollar you earn is a soldier in your financial army and in order to win the monthly battle (against your spending and expenses), you need a war strategy and that strategy is your budget. Otherwise, you are just sending all your soldiers (dollars) to die at the front line (unplanned spending and not tracking expenses will cause your money to slip through your fingers).
How to budget
1. Call it something fun
Call your budget something that you like and that motivates you to keep up with it. Who says it has to be called a budget? The word budget is boring anyway! Remember, your budget is your blueprint for managing your money you can build wealth.
2. Create a budget in advance of each month
Creating a budget in advance of each month means that once the month starts you have a plan and you aren't scrambling trying to figure out what to do. Plan to create your budget a few days before the month starts this way you have time to lay things out and figure out what your finances will look like in the upcoming month.
3. Don't assume every month will be the same
Every single month should be planned for separately. No two months will be exactly the same financially and so you want to prepare in advance for things like one of bills/one time expenses, travel plans, events you have to attend etc
4. Base your budget on your projected income for that month
If you get paid once a month, twice a month or every two weeks based your budget on that project income so you know exactly how much to have to budget around and keep in mind that if you get paid every two weeks there will be a month where you get three paychecks.
5. Pay your expenses before splurging
This means paying for your essentials, debt, and goals (savings and investments) first before you do any splurging or miscellaneous spending. The last thing you want is to find that you have overspent on what isn't necessary and don't have a way to pay your bills.
6. Track your transactions
Tracking your transactions allows you to make sure you stay within your budget and keeps you conscious of your spending habits. You can track your transactions in a spending journal, spreadsheet or with an automated app or online tool.
In addition to managing your income and expenses, you want to use your budget in planning to build your long-term wealth!
Using your budget to build wealth
- Create an emergency fund
- If you have a retirement match contribute to get it
- Start knocking down your debt
- Give back
- Plan for other goals like buying a house, paying off your house, saving for the short and midterm
Like any art budgeting takes time to master. If you slip, brush yourself off and get back on track. Take the lessons you learned about budgeting from the previous month and apply it to the next month.