Why Budgeting Matters and How to Do It – Part 2

Have you ever experienced a moment in life desiring to make a purchase that you were not sure you could afford? I sure have! For me, it is usually a new Apple product or some fancy technological gizmo. In those moments it is easy to start rationalizing why the acquisition is a good idea. However, the more important question may be whether or not it fits within established money goals.

Last week I shared several reasons why a monthly budget is essential for success. Today I will share a few tips that I have learned along the way on how to prepare a budget each month and stick to it.

THE FIRST STEP TO WIN WITH MONEY

There is one action that will absolutely get things off on the right foot for a monthly budget. Skip over this step and budget efforts will be not be as effective. It is common sense, but many people avoid it. The secret is to … WRITE IT DOWN. It sounds so basic and simple that it is hard to believe it is so helpful, but it is! Writing down a monthly budget is critical for winning with money over the long-term.

My own personal experience is that it takes several months to learn how much money is regularly spent each month. After a while I can see patterns and identify that we almost always spend x amount of dollars in a certain category.

Write it down on a yellow pad or log it in a spreadsheet. Pick whatever option is practical and useful for you. This will force you to actually face what you are bringing in and what you are spending. Writing it down takes some effort initially because you have never done it before. However, like many other areas of life, you will get better and faster the more often you do it.

FOCUS LEADS TO FLEXIBILITY

It is important to realize that living on a monthly budget takes continued focus and effort. It requires active involvement each month. Passivity will tend to cause a slide into over-spending and can also lead to spending money in areas no in line with your financial goals. Dave Ramsey says “Children do what FEELS good. Adults devise a plan and follow it.”  It takes commitment and discipline to live according to a plan.

Even after operating a monthly budget for years I still struggle with being passive about money. Giving in to that temptation often results in me spending without knowing whether or not I have money remaining in that category for the month. When I spend without thinking, I am only robbing from myself and my other money goals.

I suggest figuring out a routine that will allow regular review of monthly spending. As you spend more time focusing on your money you will be better able to make adjustments on the fly. Flexibility comes with familiarity. This will allow you to make more well-informed decisions.

MAKE IT EASY FOR PEACE AND FREEDOM

It is not hard to see the effects of money on our lives. The American Psychological Association performs annual surveys about stress, including finances. Since 2008 money has been at the top of their list of sources of stress. There is no shortage of stress surrounding money.

Alleviate money stress by designing a game plan that reduces friction within your budget. This includes: auto drafts to pay bills, automatic deposits, entering receipts using an app on your smart phone, etc… There is even a service online that will manage your receipts for you if you want!

My recommendation is to find a system that works for you. For several years I used an increasingly complex Excel spreadsheet. Eventually, it became too cumbersome so I went looking for an alternative. It took me some time to settle on the solution I am currently using. I would encourage you to be patient. Finding what works will take some trial and error. It may take a few months. In the end, designing a solution where you are telling your money what to do and where to go will ease your mind. The peace you find at the end of the process will free you to dream of new ways to utilize the resources you have.

Preparing a monthly budget may seem like an overwhelming process. It definitely takes practice to get it right. Writing it down, focusing your efforts, and developing a system that works for you are three ingredients in a recipe for financial success.

Question: What suggestions do you have for making a budget work? You can leave a comment by clicking here.

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