I know, a budget sounds awful. It sounds like pinching pennies and never being able to have the things you want.
But it is actually the opposite! A budget can help you get what you want in life because a budget is about spending with intention. It is about consciously choosing what things are most important to you and making sure that is where you are putting your money.
A budget can also take away guilt about spending—imagine that! There’s no need to feel guilty when you know that you have a plan, and that all your bases are covered.
A budget is also about dreaming for the future and then making those dreams happen. Where do you want to be in five years? What do you need to be doing now to get there? A budget keeps you from just drifting along until one day you realize that you never got around to doing that thing you always wanted to do.
As a financial coach I help people put together great budgets. Yes, of course you can do it on your own. But with coaching you have someone to guide you through it, someone to provide an outside perspective on your finances, and someone to hold you accountable for actually getting it done. My coaching sessions are over video calls so I can coach people anywhere, and I offer a free 30-minute initial consultation to get started.
I have many strategies that I use with clients to help them with budgeting. Below are five of my top tips for creating, and maintaining, a great budget.
My Five Top Budgeting Tips
Tip #1. What should be in my budget?
A good budget will take your monthly income and divide it among these five categories:
- Bills: these are the things you have committed to paying each month, like rent, utilities, groceries, transportation, subscriptions, and debt payments.
- Spending Money: this is the fun stuff like restaurants, entertainment, and shopping.
- Occasional Expenses: these are things that don’t happen every month, but still have to be paid for, like vacations, annual car maintenance, birthdays, Christmas.
- Emergency Fund: this is for the things you can’t anticipate!
- Future: this includes your retirement as well as other future plans, like buying a home, starting a business, or doing a creative project.
Hint: the more you can minimize the “Bills” category, the more there is for all the other things. This means really taking a look at all those monthly payments and asking yourself what you really need, and what could be cut or reduced.
Tip #2. How much goes into each category?
This is something that you need to decide for yourself (we work together on this in coaching) but one rule of thumb is that about 50% should be for bills, 30% for spending and occasional, and 20% for emergency and future.
Here’s a fun exercise: try breaking your current spending down into these three categories and see how close you come to these percentages. For “future” don’t forget to include payroll deductions for your workplace retirement plan AND any matching money that your employer puts in.
Tip #3. Does budgeting mean tracking every expense?
Absolutely not! If you are not into the idea of tracking and categorizing every expense, there are ways to keep things simple. Once you have decided how you will split up your paycheck into the five categories you can:
- Set up automatic transfers from each paycheck into emergency savings, occasional expense savings, and retirement. This way they are set and you don’t have to worry about it.
- Set up automatic bill pay so that all those monthly payments happen on time and without you thinking about it.
- Create a separate spending account for yourself, and transfer whatever amount you decided on from each paycheck into that account. Then you don’t have to track it, you just spend it until it’s gone, and then wait for the next transfer.
If you want a more detailed approach, there are also many budgeting apps out there that can make it relatively easy to track expenses. But the key to making a budgeting app work is to have that overall plan—otherwise you are just watching the numbers go by without knowing how it all works together.
Tip #4. Set timelines for your larger financial goals.
Life is too short to be waiting around forever to do the things you want to do! Setting a timeline helps make things happen, and it keeps you from ending up full of regret because you never really gave it a shot.
Maybe you want to save $10,000 to go on a dream vacation. If you set a date for when you want to go, then you can figure out how much you have to save each month to get there. If you need to adjust the timeline so be it, but at least you are the right path
To me, this is also where budgeting gets fun. When I look at my own budget I love thinking about all the things I’m planning for the future. It can also give you a real sense of accomplishment when you see that goal getting closer every month.
Tip #5. Make sure to include fun for today, and dreams for the future.
It’s pretty impossible to stick with a new habit or goal if it is only negative. That is why every budget should have money for things you can enjoy doing now, as well as something for a future dream. We all need things to look forward to, and putting those things in your budget helps make looking at your finances a positive experience, instead of something you dread and try to avoid.
So, take some time to dream and imagine about your future. It is part of having a positive vision for your money and your life.
When Budgets Are Good
Budgets have helped me reach many different goals in my life. They have helped me go back to school and get a second degree so I could change careers, save for a down payment on my first condo, provide the seed money to start a non-profit dance studio, and to reach my ultimate dream of retiring early. None of these things would have been possible without a budget!
I want every person reading this article to have a budget that will lead them to their own dreams. That is part of why I became a financial coach—to help people do this! You can find out more about what I offer through coaching at sjvfinancialcoaching.com.
In the meantime, happy budgeting!
