The “B” word. Budgeting. Uggggh! (slight shudder).
Budgeting is probably one of the most hated words in personal finance topics. I can honestly say I have NEVER met anyone who likes budgeting. I’m not even sure I’ve met anyone who is lukewarm on the subject.
If budgeting is seemingly universally disliked, it begs the question as to why do we do it. Is it even necessary to budget your money in order to maintain control? As long as you know you have money leftover at the end of the month, doesn’t that mean you’re staying within your means?
Perhaps. But it also doesn’t mean you couldn’t be managing your money more efficiently to get more of what you want out of it. Maybe the exotic vacation you’ve been dreaming of doesn’t have to remain a dream. By fine tuning of your monthly expenditures, you may be able to tuck a little extra away each month and make that trip a reality sooner than you think.
I’ll be the first to admit I’m not big on budgeting either. Having a pretty good streak of ADD in me, the idea of sitting down each month and plugging numbers into a spreadsheet to make sure I’m watching my nickels and savings my dimes falls into the “boring” category pretty quickly.
But, there are ways to make budgeting less painful. More important, there’s something you need to do before you start trying to implement a budget.
Too many people, when they’re frustrated with their money situation, sit down in exasperation thinking “I’ve got to work out a budget and get my spending on track!”. They then dutifully write down what they think they should be spending on their monthly bills for perhaps a month or two before falling back into their old, unkempt spending patterns.
The reason budgeting efforts commonly derail, is that all too often people haven’t got a clue how they are actually spending their money every day, week, and month. Classic examples of budget busters are the daily coffee at Starbucks or buying lunch instead of preparing your own. People have no idea how much they’re really spending on these little incidentals, which do add up.
Some personal finance writers will argue that worrying about spending $5 a day on fancy coffee is not material to a person who may have more serious financial misplays affecting their life — a mortgage with a higher than necessary interest rate, high credit card debt, poorly planned major purchases, etc. They say worrying about the little expenses smacks of being “penny wise, but pound foolish” and I don’t disagree. Certainly, if you’ve got big ticket problems that need to be looked after, get on board with making a plan to correct those immediately.
But I still think it’s necessary to address things like curbing your daily “skinny hazelnut macchiato, sugar-free syrup, extra shot, light ice, no whip ” indulgence, if for no other reason than developing a sense of self-discipline in your spending habits. If a person wanted to live a healthier lifestyle, quitting smoking would be one of their top priorities. But one would also want to get control of snacking on chips or candy between meals as well.
Stop and think about it. If you’re going to develop a plan for where you spend your money in the coming weeks and months, wouldn’t it make sense to know where you’re spending your money today? Absolutely. So, before you even get into preparing a budget it’s worth your time to track your spending first.
When you track your money for a month (the minimum time frame I’d recommend), you may be surprised to find your spending is vastly different than what you think it is. If you want to align your spending to what your real priorities are, you first need to find where any “leakage” might be happening (like those fancy coffees) and then start plugging those leaks.
You can track your spending the old fashioned way. Buy yourself a pocket notebook and pencil at the dollar store and carry them with you every day. Whenever you make a purchase, write it down. At the end of the day, tally it up. At the end of the week, go through the daily expenses and group them into common categories like housing, utilities, clothing and so on. At the end of the month, compile all the weekly numbers in the various categories and you’ll have an idea of where your money is going and where any leaks are.
If you’re like me and don’t always remember to write things down, you can also get in the habit of keeping your receipts when you make a purchase. At the end of the day, empty your purse or pockets and tally your receipts.
I know people who choose to pay everything with either their debit or credit card (be careful with using credit if you know have credit issues) and then use their transaction history on their statements to track their spending. You may want to try using your statements too, but my experience has been that bank and credit card statements don’t identify the transaction exactly the way I would like it, so this system is not my preference.
If you’re comfortable using your smartphone and computer, there’s a number of technological solutions available. If you use online banking, chances are your bank may already have tools on their website to help track spending as well as budgeting tools. There’s also various apps you can install on your smartphone. The best apps will allow you to customize the program to your personal preferences. Most have free versions with plenty of features to use. Some have “pro” versions where, for a few dollars more, you have access to even more customization.
The bottom line is, before you even bother attempting to budget, do yourself a favour and spend at least a month tracking your money to find out where your money is going and identify areas you can modify your spending to make your money do a better job for you.
In my next post, I’ll offer you a simple “one number” solution to making budgeting an easier process for you. In the meantime, go find those leaks and start plugging!
