The more I learn about personal finance, the more things stand out to me. Often I’ll read or hear the phrase: “If you’re on a budget, this [inexpensive item] is a great option for you!” News flash: We’re ALL on a budget. Every last one of us! The word “budget” can get a bad rap. It might conjure images of eating beans out of a can, putting coins into rollers, or clipping coupons (none of which are shameful or bad, for the record). When some people hear “budget” they think “poor,” or “restrictions.” For those of us personal finance folks in the know, a budget is simply a tool we use to make sure our money is properly directed to where it needs to be.
“Cash.” Image from Pinterest.
Here’s my point: Everyone has a budget, even if they haven’t defined it. The budget of a family that earns $300,000 a year will look different than that of a single mom working two minimum wage jobs. Everyone’s budget is completely unique, and how you define that budget is up to you. The reality is, even the wealthiest person has finite financial resources. A budget is a structured tool that simple tracks “money in” and “money out.” Everyone should know where their money is going—regardless of how much or how little of it they have.
“I don’t have a budget, and I don’t need one,” you insist. “I make enough money, I pay my bills on time, and my accounts are in good standing.” Yes, you still have a budget, you simply haven’t defined it yet. Even if you don’t overdraw your account, put money into savings every month, and pay all of your bills, you still need to define your budget. Budgeting brings to light financial blind spots you may not see until you’ve done your homework. And believe me, you need to do your homework.
Your budget can have space for all of the lovely wonderful things that bring joy to your life: Golf memberships, yoga classes, brunches, concert tickets, vacations! But defining your budget and bringing it structure may help you to meet your future financial goals. It may be a wake-up call. When I started tracking my spending, I realized I had spent $500 in one month on clothing and beauty products. When I only earn $2,000 after taxes, that’s a big red flag. I needed to see what I was spending in order to define my budget—so that I could try to stick to it.
Defining a budget requires a two-pronged approach: 1) Make a list of all your “obligations.” Utilities, bills, debt payments, housing, etc. 2) Track your spending for a few months and add up what you spend in each category. Find a number that falls between what you actually spent and what you feel “fits” into your income with your obligations.
No one is perfect: Be flexible with yourself.
For example, I allow myself $100 for clothing each month, $100 for beauty, and $100 for eating out (combined with my fiancé). I may not stick to that budget every single month exactly, but I know my ballpark figure and try not to go too much over. Simply being aware of where you are is empowering, rather than letting all those “small” purchases add up without realizing. I recommend keeping a money diary where you write down all your spending on a daily basis, and a daily to weekly update of a spending spreadsheet, where you can track your spending by category (this works well in a Google Sheet for myself and my fiancé). It doesn’t have to be fancy, or perfect, your just have to do it.
Budgets are for all of us! Have you defined yours? Let me know in the comments.
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