Even though many Americans know that budgets are an important part of their financial wellbeing, a recent poll by Debt.com proves that perhaps we all don’t practice what we preach.
93% of respondents said that everyone should have a budget and only 67% actually have a household budget. Interestingly enough, the top reason that people cited for not making or sticking with a budget (39%) agreed it was due to a limited income that they felt didn’t warrant a budget.
I see this type of mindset quite often, the feeling of not having enough to justify a budget, or investing, or creating an estate plan, the list goes on and on. But this mindset is the roadblock standing in the way of finding financial success. No matter the level of your income, by managing it well and making smart, proactive financial decisions you can start building your wealth.
The best place to start is with your budget.
Track your expenses first
The best, most critical first step you can take to improve your finances is to track your spending, to create financial awareness. How can you identify why your budget isn’t working when you don’t have the information? What habits do you need to change?
The solution is to track your expenses and the best tool I’ve seen on the market is Tiller Money.
Buffet has an amazing quote: “Don’t save what is left after spending; spend what is left after saving.” If you want to build wealth, then you need to figure out where your money is going and then focus on optimizing it (through a budget).
Why your budget isn’t working
You may have created a budget and continue to find that you go over it each month. This habit frustrates you and you feel uncertain of how to move forward so you abandon the project altogether. It is easy to abandon a budget that doesn’t work.
But instead of throwing in the towel, take some time to evaluate why your budget isn’t working in the first place. Below are a few questions to help you look at your current budget and why you aren’t seeing your desired results.
- Are there specific categories that you go over more often than others?
- How far over are you in these categories?
- What is the reason behind spending more of your money in these categories?
The reason that many budgets don’t work isn’t that the system is flawed, rather the problem often lies in the approach to the system. If you simply use your budget to plug in expenses as opposed to taking the time to evaluate your spending and saving habits, you aren’t going to get the most out of your budget.
Let’s say, for example, you find yourself spending more on entertainment than you anticipated. Why are you spending the money? Is it an area where you can easily cut back such as ordering take out or is it a weekly date night with your spouse? Each of these things carries different weight and should be prioritized differently in your monthly spending. If date night is important, you shouldn’t feel like you need to cut that out. While there are budget-friendly dates to keep in mind, you should still make it a point to spend money that aligns with your values.
Make your budget with intention
When you build your budget from a foundation of your goals and values, you are outlining a comprehensive plan that best reflects your spending and saving strategy. That is really what a budget is. I know that budgets aren’t always discussed in this fashion, but thinking about them as a way to reach your goals will help make it feel more personal.
Your needs are different than those around you, so why should you use the same budgeting model as your friend, co-worker, or family member? Make your budget personal to you, your life, and your needs. By personalizing your spending and saving, you will be proactively working toward your goals and more inclined to stick with it.
Money has meaning and plays a significant role in your life. When you reframe your budget as intentional spending, you will be better able to use your money according to your values.
Keep your goals in mind
Even when you create a budget full of meaning and intention, it can still be difficult to stick to. Consistency is key to a successful budget and when your budget gets tough I encourage you to return to your goals. What goals are most important to you? What progress have you made so far? How will attainting this goal impact your lifestyle?
When the going gets tough, go big picture. Thinking through these questions will help you refocus your energy into sticking with and being consistent with the budget that you spent so much time getting right. Let your long-term goals be your motivation and remind yourself what you are working for regularly along the way.
Here at Wealth Habits, we are passionate about helping you reach your goals. Could your budget use a little fine-tuning or are you interested in exploring new financial goals? Give us a call and we would love to help you make the most of your financial strategy.