In less than two weeks it’s going to be two years since I started budgeting. Prior to becoming a budgeting geek, I really didn’t care for a budget, they didn’t make sense and sadly I found budgeting a lot of work in which I wasn’t willing to vest much time. Furthermore, I wasn’t sure how to do it and while I knew I was constantly spending more than I had, I didn’t have the discipline to stop.
I tried to create what I thought was a realistic budget, but it always failed. I finally started taking budgeting seriously when I also decided to get out of nearly $10,000 of debt. Since then, I managed to eliminate $10k worth of debt in a little over a year, and in the same process became a budgeting pro. I can confidently say that if it wasn’t for budgeting, I’d certainly still be swimming in debt today.
So, in spirit of November being the Financial Literacy Month in Canada, I’d like to share with you four key points on making the most of budgeting.
1. Understand Your Spending Habits
The whole idea behind knowing your spending habits is so you know where you’re starting and more importantly having something to measure it against. There’s no other way to understand your spending habits unless you track your spending. Generally three months is recommended, but even tracking your spending for a whole month will give you a decent picture of your spending ways. By successfully tracking your spending habits, you’ll be able to know how much you spent in a certain category, but more importantly you’ll realize how much you need to budget for that category. The basics of budgeting begins with figuring out how much money you will have for the month, dividing it up based on what you want to do with it, and then tracking where your money actually goes. A budget provides guidelines and when you are accurately recording your spending habits – whether it’s in a simple spreadsheet, or with a budgeting tool like Mint or Quicken – the numbers as they say don’t lie.
2. You Quit and You’ll Fail
The only downside to budgeting that I could come up with is that it’s a repetitive process. The first time I started budgeting, I wanted to quit after the first month because the process was tedious, limiting and in a way it beat me up knowing that I had money sitting in the bank account, but I could only spend $100 for groceries this month. However, much like anything in life, budgeting takes time. Certainly when you start working out, the results are not instantaneous and neither are the results with budgeting. Part of human nature is that we want instant results, instant gratification and instant everything, but they key is to work smarter and not harder. Budgeting in a way is a game against thyself, and only the smart, patient and determined succeed – the rest just fail by quitting on a potentially life altering journey.
3. Understanding Why Budgets Exist and What They Do
In order to reap the benefits of any exercise it’s important to understand why were doing something. We work out because the health benefits are good, we feel better, look better and train our bodies to defend against unlikely illnesses. Budgeting is not meant to act as a system that works against you and way of stopping you from having fun. So, the sooner you understand the purpose of budgeting and more importantly why you’re budgeting, the more successful you’ll be at money management. Budgeting isn’t about deprivation and instead it’s about empowerment.
4. Goal Setting Trough Budgeting
There are many things I love about budgeting, but my favorite aspect is goal setting. Budgets allow us to set financial milestone goals for the future and they also allow us to create smaller specific goals that are easier to obtain. Working towards financial milestones such as saving for a down payment or eliminating debt are very solid goals. But more specific and more importantly motivating goals are being able to cut your lunch spending down or eliminating coffee on the go or saving $50 off of your monthly grocery budget. You get to see instantaneous results with the smaller goals, which fuel you to continue pushing forward towards the bigger milestones.
Learning to take control of your financial situation is what I call empowerment. At the end of the day, nobody cares more about yourself or your money as you do. So, who better to take control of the financial situation than yourself. Budgeting is just another form of exercising, it’s not different than physical exercises, the benefits the may be different, but the principles remain relatively the same. It’s up to you whether you budget or try it for that matter. I certainty can’t force you, nor would I ever want to do such a thing, but certainly I can tell you that budgeting is a powerful tool that can set you free in ways that you’ve never even imagined.
Readers, do you budget? Why do you budget? Did it take you a while to grow accustomed to budgeting?