A core element to financial health is to spend less than you make. It is simple until you put it
into action. Many people feel restricted by a set budget, and often the word budget generates
the same feeling as a strict diet. If this is something that you are struggling with, then I can
probably make a safe bet that you are either not budgeting or not budgeting correctly. I want you
to change how you think of a budget. A budget is not a wish list or a goal sheet. It is data
collection and gives you an accurate picture of where you spend your money. It is a tool to help
you calculate your spending needs for next month. It is information, and information is power.
So here are three aspects of creating a better budget. I challenge you to test your own budget
and see if it follows these three tips.
1. Is it Realistic?
I believe it is crucial to dream big with your financial goals. However, idealism is lethal
when it comes to budgets. The first mistake of first-time budget-makers is trying to change your
habits. You need to be realistic, or you will find that your finances will fall apart faster than a
tower of cards. If you have a Starbucks addiction and you know you spend $100 on coffee per
month, that needs to be in the budget. If you want to make a change, that is great, but your
budget should not be the deciding factor in this equation. I suggest using the three-month rule. If
you have not spent money on that vice for three months, abolish it from your budget. You can
even work this into your goals because if you didn’t spend money on Starbucks for those three
months, you just saved $300. You can use that money to celebrate accomplishing your goal.
However, if you don’t put it in the budget and you continue to buy your Starbucks, you will be
over $300. This results in your budget being blown up. Be realistic, or you are just setting
yourself up for failure.
2. Is it Accurate?
There is a common saying in data aggregation that you have probably heard before. If
you put crap in, you can only expect crap to come out. Budgets are very personal, and you
should do your budget in a way that works for you. I like to use an app called YNAB (You need a
Budget). It takes all my transactions and income from online banking apps and puts it all in one
place. But I know some very successful people who use Excel, pen & paper, cash envelopes,
and even one who keeps it all in their head. All these methods are 100% viable, and you should
choose what works for you. The key is your data needs to be as accurate as possible. Guesses,
assumptions, and estimations will only result in a failed budget. Failure has many forms, for
example, thinking you are in the green when the reality is you are in deep dark red territory.
3. Is it Flexible?
Life is unpredictable and chaotic. This means you can’t plan for everything. There will be
months where you will need to spend more in some categories and less in others. Of course,
you should always have an emergency fund ready and established for unexpected situations.
However, your budget should be flexible enough to allow you to rely on your emergency fund
when absolutely necessary. A tip is to overestimate categories where you can, and always
include a Miscellaneous category in your budget. If you overspend in one, you should be able to
pull from another. You and your life change, so your budget should change with you.
A well-built budget is the ultimate financial tool to accomplish your financial goals and
maintain your financial health. It most certainly can feel like a chore at times, but so does doing
dishes, laundry, and brushing your teeth. It is the foundation of any effective financial plan, and
without it, you are putting yourself at a disadvantage. Make sure it is realistic, accurate, and
flexible. I promise you will see results. Don’t hold yourself back. You Need A Budget!