Budgeting is an important part of managing your finances. It is the ultimate groundwork to becoming financially independent and financially literate. If you don’t build a solid ground floor to your house, chances are it will all come crashing down. The same is true with budgeting.
Creating a budget is creating the ground floor to your house of financial freedom and independence. Budgets are actually very simple to create, and easy to maintain. Yet, many people do not structure their finances in any sort of organized fashion. Upon receiving their paycheck, people will spend it on the essentials – food, gas, water, electric, etc. Afterwards, they will spend the rest in any frivolous way they choose – drinks at the bar, the latest iPhone, the next biggest TV, a new pair of shoes – the list continues. They will spend and spend until the money is all but gone, awaiting the next paycheck to repeat the process.
These same people, at the end of the month, will look at their bank balance and say, “Where does it all go?” “It just seems to get away from me.” Or “If I was paid more, I’d save more.”
Chances are you’ve said this. Probably out loud, and in front of other people. You may have even said it jokingly, knowing that the people you said it to do the exact same thing. These statements, while lighthearted with intention, very seriously indicate the relationship you have with your money.
“Where Does it All Go?”
Oh, we would love for you to run our company! Where does it all go? Stop asking yourself this question and find out where it all goes. You’d be surprised how much unnecessary spending you actually do. A budget is a great way to track your expenses, and then correct your allowance for the spending you want to be frivolous with.
It’s okay to spend your money impulsively, so long as you’ve set aside a percentage of your earnings into an “impulse” category. Once that category is used up, no more impulse purchases are allowed!
The most common mistake with creating an impulse allowance is determining where to place it in order of importance. The answer is always the same: LAST. Don’t prioritize impulse buying. Think of your money mindset! Setting aside money for impulse purchases before you set aside money for retirement savings puts your money in control. Always allocate money to your essentials before even thinking of putting any amount into the “impulse” category.
“It Just Seems To Get Away From Me.”
Blatantly put, this sentence simply demonstrates a lack of discipline. In other words, you might as well say “I’m not in control of my money. My money dictates my actions.”
It may sound tedious, but each and every dollar, quarter, nickel, dime, and penny should be accounted for. Granted, most people don’t care about the pennies and other coins, but at the very least, knowing where each dollar is going is the simplest path to paving the road to financial independence.
Each and every dollar counts. You may have heard stories of business owners who take their first dollar and frame it in their office or store it someplace safe. Even Mr. Krabs has his first dollar framed and displayed in his house. This is because these people know that each and every dollar counts, and accounting for each dollar got them the financial freedom they worked so hard for.
There is an important distinction to recognize between being a penny-pincher and being accountable. A penny pincher is stingy and miserly, while being accountable is being responsible. It is possible to account for each and every dollar without having to be stingy and miserly. It is taking control of your money.
“If I Was Paid More, I’d Save More.”
If that were true, that’s probably why you aren’t being paid more. If bad spending habits have already been established, engrained, and practiced for such a long time, having more money will simply exacerbate the issues – not fix them.
Secondly, this statement perfectly demonstrates how money is the one in control. This statement blames the money and the circumstance for not being better. It does not put blame on the self, for not having the disciplines to save more money. How someone uses their money can be revealing of their character – blaming the circumstance instead of themself. This is not accountable, and no more money in the world can fix your relationship with money. The only one who can fix that relationship is you.
Budget, With a Capital “B”
Your greatest chance of improving financial literacy and achieving financial independence starts by building a solid groundwork for your finances. Budgeting out your day, week, month, or even year can help you keep track of where all your money is going, and begin the process of establishing good financial habits.
Budgeting breaks down your incomes and expenses, and categorizes them by importance. For example, you might make $3500 per month after taxes, and you know that you already need to spend 60% of that rent, groceries, car payment, loans, utilities, and credit cards. Allocate the appropriate percentage to those categories, and then rank those categories by importance so you know which ones to pay first. It’s that simple!
There are tools to help you keep track of your finances including mobile and desktop apps. If you’re handy with Microsoft Excel, you can create your own budgeting tool if you are feeling a bit more ambitious.
The Money Mindset
Are you in control of your money, or is your money in control of you? Who are you blaming for your financial situation? Your circumstance or yourself? The easiest and most essential way to get back on top is to make a personal budget. Your money won’t fix itself, only you can fix it. Let today be the day you regain control of your money!