I strongly believe in budgeting. I also know that with all the different budgeting tools and philosophies out there that what I might use may not be best for you. As you all know my wife and I use YNAB. But I know that some people prefer the old school pen and paper or the excel sheet budget. What I have realized though is that there are three major points that make budgeting successful. The ultimate question becomes how to create a budget?
1. Understand how much you spend and on what
To start a budget you need to understand how much you spent last month and more importantly, what you spent it on. There are a couple of different ways to go through this process.
i. For cash users, you should keep all your receipts for at least a month and then go back over and categorize your expenses.
ii. For those that use some form of plastic for all your expenses, you have an easier option. Just take your monthly statements from your debit and credit cards and categorize your expenses from there.
iii. There are many expense tracking tools that you can tie into your bank accounts and credit cards. They will automatically keep track of your expenses and categorize them for you.
This is your baseline to start a budget from.
2. Realize that not all your expenses are necessary expenses
After you have calculated your expenses and categorized them, now is the time for true honesty with yourself and your significant other if you share expenses. Go through your expenses and answer this all important question, “do I/we really need to spend money on this? Does this expense add long-term value to our lives?”
For example, your rent/mortgage payment adds long-term value by providing a roof over your head. Your gym expense provides long-term value by keeping yourself healthy, but maybe you can approach your physical health more mindfully. For example does the extra pair of running shoes, yoga pants or latest gadget provide long term value? Most likely not.
The expenses you answer no to are going to become wants and the expenses that add long-term value are going to be needs.
3. Prioritize your cash flow in your monthly budget
Pay yourself first. It’s so simple but extremely difficult. Realize that this is the ultimate investment into creating long-term value for you. Start by taking 5% of your savings and immediately place it in a separate account. Then the next month increase it to 10%. A great checking for this is the Aspiration checking that pays 1% interest.
After you have your savings accounted for, spend what you have left on your needs, the items that add long-term value to your life. If you have anything left after your needs you can spend on your wants.
My ultimate budgeting tip is self-discipline. You will not be able to successfully build and maintain a budget without self-discipline. Set time aside at the end of each month to go over your expenses and plan for the next month. Remember your budget is not static. Every month is different and that’s ok. You can roll with the punches. If you need help sticking to your budget or creating a budget give me a call and let’s set up a time to nail down your ultimate budget.
Steven LaFleur grew up in Rapid City, SD and after high school went to college at the University of Nebraska-Lincoln where he majored in finance and met his wife Kelly. After college graduation in 2013 working for the family business for three years Steven decided it was time to pursue a passion of his in helping people and their finances. Steven is now a financial advisor at True Measure Wealth Management in Omaha, NE. Steven and his wife Kelly have two daughters who keep them busy at all times of the day. Steven enjoys skiing in the mountains and also biking and golfing during the non-snowy months.