You’re listening to Episode 031 of Fulfilled – The Podcast. Today we are talking about one of my very favorite subjects. Yes, I know that makes me a complete and total nerd. Today’s topic is budgeting! I’m going to share with you why you need a budget, the must haves for a successful budget and I’m going to bust the 6 most common misconceptions people have about budgeting.
You Need a Budget — whether you are in a mountain or a valley financially – if you are struggling to make rent and having to choose which people go unpaid or your income is rising and your feeling confident and making great traction – you need a budget. A budget is a roadmap, it’s a plan for your money. Budgets are built by you and your partner at the beginning of each month – they create the out of bounds markers for what you are and are not going to spend on any given category during that month.
Your Budget Needs to be NEW each and every month — think back on the last 3-6 months of your life – no 2 months are the same, things ebb and flow depending on the season of life you are in, the season of the year, what your kids are up to, if you are travelling, if you are commission based with an income that fluctuates month-to-month. There are so many changing variables – if you want your budget to be successful you need a new one each month!
You do not, however, have to recreate the wheel each and every month – work smarter, not harder. Once you have a budget for a few months you will see patterns that emerge. There will be things that are the same month-to-month – things like rent, your mortgage payment, or your life insurance premiums. These things will carry over month-to-month and not change. Things like food, school supplies, clothing, these things tend to fluctuate each month.
You can use the framework of things that are consistent to build the base budget and then adjust certain categories up or down, depending on the specifics of the month – what you have scheduled, upcoming birthdays, holidays and expenses that you have coming up.
In Order to be Successful, Your Budget Needs to be 3 Things:
- Realistic – It has to make sense – you cannot spend $4 on groceries this month and $20 on gas. If you can, tell me your secrets. But honestly, writing down a budget that is completely off the wall so that you feel better about yourself and your money situation, so that it looks like you are making progress in paying off debt, even though you aren’t, or are able to save for college even though you can’t – it’s not a blessing. It’s a lot of energy and it’s wasted. Your budget isn’t going to work if it’s not on par with reality!
- Agreed Upon – The partner buy-in is key! Getting on the same page with your spouse or partner is truly one of the keys to success with your budget. You cannot do this alone if you live in partnership with another human being.
- In Writing – Whether on paper, digital, or using a platform built for just such a thing – your budget cannot exist only in your mind if you want it to be successful. You absolutely have to write it down. There are tons of digital and mobile applications you can use to build your budget, where you and your partner can both access the budget, where you can track expenses and run fun diagnostics… but at the start I recommend good, old-fashioned pen and paper. Get a yellow pad and write it down. Write it in pencil. Erase and make adjustments when you review together as a couple, if you’re part of a couple.
There’s something about seeing it on paper that makes it concrete, feel real, and can help you really internalize and commit to the budget. If you think it would be helpful, have you and your partner sign the budget… in pen. Like a contract. Agree to not spend any money outside of the written budget unless you come back to the drawing board, adjust the budget, and agree to the changes, initial them. This may feel kind of silly, but it also is binding and something you are agreeing on.
Once you create your budget you will find that you fall into one of three categories – either you need to make adjustments to make ends meet, you are treading water, or you are making tracks
- You Need to Make Adjustments – If you are struggling to meet your bills, to make rent, pay your mortgage or to pay minimums to all of your lenders, it’s time to make some adjustments. The first thing is to ensure that your health and safety are taken care of. I was recently listening to the Budgetnista who recommended in this situation that you go down the list of bills and decide to pay first and only those things that are necessary for your and your families health and safety (Water, heat, electricity, food – basic food).
- You are Treading Water – If you aren’t backsliding but you also aren’t making great strides forward, you are treading water. You are maintaining your position, you are meeting your minimum payments, you are surviving, but not making tons of progress towards your financial goals. If this is you, it’s time to take a look at whether you can decrease your expenses and increase your income, or both!
- You are Making Tracks – If you are making progress – if you get to the bottom of your zero based budget and you have money “left over” to use for aggressive debt payoff, increasing your savings or investments, you are doing GREAT. Take a moment to pat yourself on the back and celebrate that success! Good for you, keeping your expenses and your lifestyle low. Good for you, being able to make progress towards your financial goals!
Here’s the thing – you can never at any point be making too much or too little money to have a budget. The difference between budgeting and not budgeting.. It’s the difference between waking up in 30 years and wondering why you don’t have the freedom you wish you had and in 30 years having created the life of your dreams. It’s small changes over time. It’s being intentional month-after-month with your income.
Your Income – is your greatest tool for building wealth! Harnessing the power of your income and getting it to work for you instead of for the bank is crucial.
What do I mean by that? I mean getting on the receiving side of interest. When you are in debt, interest is working for the lenders to whom you owe that money. When you are able to get out of debt and saving, investing for the future – I recommend low-turnover mutual funds for your outside of retirement investing – then that income starts working for you. Instead of your money going to build the wealth of companies, banks and lenders your money is working to build the wealth of your future, your kids and your grandkids future. You are building wealth that can be passed from generation to generation.
Yes, it would be so much more fun if I told you that you only needed to budget for the next 6 months and you’d be wealthy… or if you could set it and forget it, not have to create a new budget each month… but that’s not the way that building wealth works. It’s a budget each and every month where you are taking steps towards those goals, towards the life of your dreams. It’s a budget that is realistic, balances, and is new and fits the month ahead. It’s a budget that’s different during different seasons of the year and also seasons of life – ones where daycare is a huge expense and then tuba lessons and travel soccer start later on when your kids are a bit older.
Be patient with this process. It takes an average of 3 whole months before most people feel like they have a firm foundation for their budget. Three months of frequently adjusting the budget for things that you forget to put in it. Three months of figuring out how to communicate with your spouse, track your spending, and adjust your habits to fit the plan.
Give yourself grace in the process – if you haven’t been budgeting your entire adult life it’s not as though writing down a budget one time is going to magically change all of your habits and your mindset around money. These changes take time. If you get frustrated and feel like quitting – circle back to the reason that you started this process in the first place! Remember your why!
Utilize Sinking Funds – Sinking funds are a tool to be used to budget in advance and save for an upcoming expense. Say you are looking to move up in car and you need $10,000 to make the jump you are looking to make and you’d like to do it 10 months from now. This means you’d need to save $1,000 a month for 10 months. You add that money each month and the balance carries over to the next month… first it’s 1, then 2, then 3,000 until you reach $10,000 at the time when you are ready to make the purchase. Sinking funds are great for things like vacations, life insurance premiums, car insurance paid every 6 months, furniture and car purchases. Think of using a sinking fund for a bigger purchase that happens less frequently, and something that you can’t pull out of one months budget.
OK, now it’s time to bust 6 common budgeting myths. These are 6 misconceptions that people have about budgets.
- Budgets are Restrictive – In fact, most people find budgets to be something that gives them permission to spend on those things that are most important to them. Once you get the hang of budgeting, you find the budget to be freeing. It takes away the guilt that can often be associated with spending. It also improves your marriage or relationship because there isn’t any hiding anything. With a budget you have transparency and truthfulness inside your marriage and this is so important to success as a couple financially.
- Budgets are for Poor People – This is so untrue… most millionaires, in fact, have a budget! They have been planning for years, controlling their spending, directing their income towards investments that have grown and helped them to become millionaires.
You need a budget at every stage – the stages you feel you are struggling and the ones where you are prospering – being responsible for your money and in control of where it goes helps you get out of the struggling and into the soaring stages! Living on less than you make is truly the not-so-secret “secret” to becoming wealthy and that process starts with a budget!
- Budgets are No Fun! – While they may seem dry and straight up boring, there are so many fun things you can do as a result of budgeting. You can buy an RV and take a trip across the country. You can travel near and far. You can bless your community – local and globally in ways you could never have imagined. Getting control of your money is so much fun – for your family, for your legacy and for the world!
Think how much fun it would be to have complete control of your paycheck. By budgeting and paying off debt you are regaining control of your income. Once those debts are paid off you can get back to doing things that you WANT to be doing with your money.
- Budgets are Fixed and Rigid – While in fact you do need to create a budget every month, but if things change in seasons of life or even throughout the month you can go back and change your budget as you need. Budgets do give you a boundary, but they also fit your life and flow with you as seasons and things change in your life. We have been budgeting together in our marriage for decades and almost every month we adjust our budget because… life is unpredictable. There are sports dues that crop up, trips to the emergency room and unexpected car repairs that crop up. When this happens – we look at the budget, adjust the necessary category up and other categories down so that the budget continues to balance.
- Budgets are the Same Every Month – No way! First of all, and I know I sound like a broken record here… you need a new budget for each month, as each month has unique things – different number of paychecks, certain holidays, expenses, travel, celebrations, etc. They aren’t boring or repetitive and honestly I can say that in all the time that I’ve been budgeting for our family and no two budgets have been exactly the same. April this year didn’t look like April last year and May won’t look like either of those. If it’s to fit your life and be a true reflection of what you are earning and spending, your budget will be new each and every month.
- Budgets are Hard to Stick To – This is one I hear a LOT! Yes, at first it’s a change in your habits and that can feel challenging, but once you get the hang of budgeting and spending within those bounds… you check the budget before purchases. You plan based on what remains in your monthly food budget, and you adapt your habits to be in line with your financial goals. Adjusting to new habits takes time, but giving yourself grace and sticking with it through that 3 month mark are really helpful!
There you have it! An introduction to budgeting – why you need one – what makes a great one – how to implement it – why it’s important to control your income and what sinking funds are. I hope that you leave this episode feeling inspired to reinvigorate your existing budget or create one for the first time ever. Be patient with yourself in the process, but don’t let yourself off the hook – you DO need a plan for your money each and every month! No one else is going to do it for you, my friend!
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