There are some personal finance topics that seem to strike fear into the hearts of people everywhere. As we move into October, and Halloween approaches, I thought I would tackle a few of these topics and see if I can make them less scary. Up first, I thought I would talk about why budgeting doesn’t have to be scary.
Why is Budgeting Scary?
Before we start dispelling myths associated with budgeting, it is important to understand why budgeting is so scary to people. Creating a budget is scary because it requires truly looking at your spending. You have to understand what you are spending, and more importantly, why you are spending that money. But facing your spending, especially if it is out of control, is looking in a mirror and not liking what you see. But budgeting doesn’t have to be scary. It’s important to push past the fear about what you might find and realize that it’s ok to start where you are, use what you have, and take control of your finances.
Budgeting Fear # 1: Budgets are Confining
I’ve had plenty of clients tell me that they don’t want to budget because it’s confining. It will take away their freedom to spend. And I totally understand how it can feel this way initially. But, in the long run, it will actually give you more freedom to spend your money your way.
When you create a budget, the first step is to tally up all of your monthly income and compare it to your fixed and flexible monthly expenses. Doing this helps you gain an understanding of what you are spending. It lets you look at your spending objectively. Once your past expenditures are reviewed, you can start to make changes. Find spending that doesn’t line up with your values and your goals and make a point to reduce or cut it. This frees up funds to be spent on the things that you do value. This is when budgeting really opens up your finances and allows you more freedom in how you spend. Because you are making strategic choices, you are making your money work for you.
Budgeting Fear # 2: I Don’t Understand it, so I’ll Do it Wrong
There are a lot of buzz words around budgeting that can be intimidating if you are new to the process. Budgeting gurus throw around zero-based budgeting, the 50/20/30 budget, pay yourself first, and envelope budgeting. But if you are just starting out, hearing these terms can be confusing and it can prevent you from ever trying.
Here are the basics of budgeting. Total your income, total up all of your expenses, subtract expenses from income and see what is left. You can learn about the different tracking methods and budgeting styles as you move forward. What is important is to start. And it doesn’t have to be fancy or complicated in the beginning. In fact, the simpler the better. Use a pen and paper, or a spreadsheet program on your computer. Track your income for a few months, and all of your expenses. And that’s it, your budgeting! As long as you are tracking income and expenses and comparing them to get a picture of what is going on, and spending less than you earn, you’re doing it just fine. There are plenty of resources that will keep you pointed in the right direction along the way!
To get you started, you can download a free personal expense tracker. Print it out and use it to guide you through the budgeting process!
Budgeting Fear # 3: I Don’t Make Enough Money to Budget
This fear is especially common with younger people. They feel like they aren’t making enough money to budget. And often they say “once I earn more I’ll create a budget”. The truth is, there is no magic income after which you should start budgeting. It can actually be easier to start when you aren’t making a lot, but you also don’t have many expenses. This is because you are starting from a simple place. Your budget might only be income and four or five expenses. But starting to monitor your spending now will build the habit for when things get more complex.
Starting to budget early will also help you avoid lifestyle inflation. Lifestyle inflation is when you receive a raise or a bonus and your spending keeps pace. This means your savings hasn’t increased and can lead to higher levels of debt. If you are tracking your spending and budgeting, when you receive a raise you will better account for the money. This gives you a chance to give each dollar a purpose and increase saving and investing not just spending. Which will put you in a better situation in the long run.
Budgeting Fear # 4: I don’t Have the Time to Budget
Our world glorifies busy. We all have so much on our plates that adding one more thing to the schedule feels overwhelming. People often think that budgeting is a process that takes hours and will keep them from doing other things they want and need to get done. I get it, finding more time in your day to get something done can be rough.
The truth is, budgeting can be accomplished in 10-15 minutes a week. I suggest that my clients set a personal finance meeting for themselves once a week. Pick a time when you aren’t pressed with other responsibilities. Saturday morning with your coffee or Sunday afternoon with a glass of wine. If you are budgeting with a partner schedule your weekly check in at a time when you both can give it your undivided attention. Having weekly check-ins together will keep you on the same page and working towards the same goals.
Look at your income and spending for the previous week. Track what came in and what went out. How does your spending line up with the budget you’ve set for yourself? If there are areas where you need to cut back in the week ahead make a note. Also look ahead at your week and see if you have any bills due or big expenses you need to take care of. This can help you know where you are and stay on course to get where you want to go. It may take longer when you are just getting started but giving yourself this time for reflection and planning will help you live your best life within your budget.
Budgeting Fear # 5: I Overspent so it’s Pointless
This is a fear I see with people who have recently started budgeting. And it is actually an excuse disguised as a fear. Someone starts budgeting, then something comes up – a night out with friends, a gift they forgot to budget for, or even just too much spent on groceries. Suddenly, budgeting is scary all over again and they justify giving up.
The truth here is that we all make mistakes. Slip ups will happen. It’s how we recover from them that matter. So, if you overspend or forget to include an upcoming expense in your budget, don’t give up! Take a look at where you went over and what you have left. Adjust where you can and know that you can start over fresh next month.
A Few Final Thoughts
When clients are scared about starting to budget, I like to tell them that every expert was once a beginner. We all have to start somewhere. Your budget should be flexible and adjusted as needed from month to month and throughout your life. It isn’t something rigid that you create once and cast in stone. It will change as you change. But budgeting doesn’t have to be scary. You control your budget and ultimately your spending. And having a plan will help you reach your financial goals and make your money work for you!
If you are starting to budget and want to find ways to save while doing it, check out my blog post on how we find room in our budget to save.
Ready to create a budget and want a little extra help or an accountability partner along the way, sign up here for a free “get to know you” financial coaching call. Let’s work together!