Do you know how much money you spend every month? Well, we should am I right!!?
Let’s start out with an exercise that I personally do with professional athletes, and then we can check where yourmoney mindset is at right now.
Start by thinking of the last five transactions you’ve made. Where did you spend your money? How much did your transaction cost? What did you purchase?
Some of us might be able to complete this exercise, but the majority of us would struggle to remember the last transaction we made– let alone how much money we spent, and where/what we purchased. Yikes.
Are you shocked by what you can or cannot remember? And if this was easy for you, then great, but it’s mostly not the case. For fun try it out on a friend too, and I bet you they will struggle to get all 5 exactly right!
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The reason this exercise is so difficult for majority of people is because it’s very easy for us toswipe swipe swipeand keep it moving without putting much thought into why we spent our hard earned money on things we can’t even remember. And most importantly, we can’t seem to remember how much the transaction costs. When we operate using cards, it is easier to simply swipe and go without much thought.
This example is just one of the many reasons why having a monthly budget is so important! Budgeting bringsawareness to your spending habits which helps shape your overall financial picture. Knowing your numbers is a big part of winning when it comes to your finances.
Your personal budget is a roadmap to your spending habits and personal finances. It breaks down your monthly income, (money you bring in), and expenses, (money going out), and puts them in easy to use categories so you can keep track of where you money is going.
Let’s simplify this even more. Your budget is a list of everything you spend money on each month. Using that list, we compare it to what you earn, and see if you were saving money or if you were spending more than you earn.
Simply put, your budget is your spending check. It can be painful like the linebacker that comes out of left field and sacks the quarterback, or it can be rewarding, like finishing a marathon after months of training. A budget is a great reality check and it is one we all need.
First: Estimating how much money you spend every month in each category of your budget, (housing, transportation, food, etc.).
Second: Tracking how much you spend, and where you’re spending it throughout the month.
Sounds easy right? Write down what you think you’re going to spend, and then watch what you are spending money on.
Fun fact, according to a Gallup poll, “68% of Americans don’t have or use a budget.” This means that most of us are not using a budget. It also means those people not using a budget, do not know where they stand financially month to month. For most people, awareness of their financial picture is rather low.
Financial Footwork Strives to change that norm. We give you the tools and the coaching you need to build your budget for the first time, and then continue adjusting your budget each month as you get used to tracking and understanding your money.
Using the budget we’ve created inMy Money Playbook 1.0, we’ve taken your budget and broken it into 11 categories to track and manage your estimated monthly expenses. Most monthly budgets will have some variation of these categories:
There are a few different budget standards the financial industry recognizes, most notably the 50/30/20 rule:
Managing your budget to this rule looks like this: 50% needs, 30% wants, and 20% savings, based on your take-home income. Today, with the cost of living continuing to climb, I realize how difficult hitting these buckets can be.
Building a budget takes time, repetition, and consistency. It can take about 6 months to master spending habits and find patterns in your financial life. As you become more comfortable with your budget, you can then make adjustments, rebalance wages, or simply find ways to reduce your expenses. This will help you find your 50/30/20 balance or a variation that works for you.
We like the idea of the 50/30/20 as a starting point. The 50/30/20 split might not be ideal for your lifestyle, and that’s fine. The idea is that you have a starting point to work from and adjust YOUR budget to meet your needs.
For example, I had a friend who recently hit a solid six month streak with herUltimate Beginner Budget Course– finding three areas where she could improve her spending habits;
aka her quality of life.
First, she put together a plan for saving $250/month every month based on her income. She had a few credit cards she needed to pay off and used her budget to make a plan to get those paid in full as quickly as possible. She was able to pay off her credit card debt in 5 months and has now increased her monthly savings to just shy of $1000.
Second, she had her car and renters insurance bundled to save her money monthly, which saved $27/per month. That $27 month-to-month adds up!!! She took that $27 and put it in her meals out of a budget so she could go out to happy hour with friends one to two more times a month. Quality of life wins once again!
Third, she loves loves loves LOVES clothes. She didn't want to lose the ability to get a new garment monthly, so she decided that she was going to budget a specific amount monthly so she could always have money in her “clothes” account—[a separate checking account for her clothes]
Are you thinking, “ this seems excessive! An account for clothes?!” I’m going to stop you right there. What do you love? What things do you like to do? Wouldn't it be great if you had a small pile of cash to be able to do the things you love all the time?
That’s what happened with my friend. She loves clothes, so that is where she put her play money. It’s in her budget, and she has an account just for that so she manages her spending and can get things as she sees them. Again, win-win!
As she finds things she wants to buy, that account has enough money for one or two items every couple of months. This was a huge win for her! It keeps her in check on going crazy with clothes and still allows her to get those pieces she loves. And it’s the same sort of thing when you can have the proper budget.
Three big budgeting wins put her closer to aligning her budget with her long-term goals. She may not be at the perfect 50/30/20 split, however, her budget is working very well for her and that is the key.
We like the idea of the 50/30/20 but be patient if your finances are not perfect right out of the gate, it takes time and practice, (every month), to build a solid budget that works for you. That 50/30/20 split might not be ideal for your lifestyle, but that’s fine. Make it work for you and keep it consistent, your budget is YOURS, and your roadmap is your goals.
Your budget is your tool to tell your money where to go (aka categories) and how you want to spend it. That is where the act of budgeting comes in!
A personal budget will have two columns. In the estimated column and the actual column, different budgeting tools might use different terms. However, the concept is the same budget to budget.
At Financial Footwork we use the termsestimatedand actual.
Estimated- your estimate of what you think you’re going to spend in a monthly period.
Using your budget, you will estimate your spending for the month. This is typically done at the beginning of each month so you have a handle on what you can anticipate your spending for the month to look like.
Actual -what you spend in a month.
Tracking your spending is key to having a successful budget. If you estimate your expenses and don't look at what you are spending, you are not budgeting!
Using an expense log/tracker which you can find in MyMoney Playbook 1.0, write down your monthly bills, purchases, and payments as you make them. If you start writing down your transactions as you make them, you will find clarity fairly quickly when spending money by writing down your purchases. Meanwhile you’ll save time and energy out of your weeks/months from adding your spending figures on the go instead of waiting til the end of the month.
The act of writing your expenses down is one of the key habits you can create when starting a budget by implementing strong financial habits. Track your purchases daily and calculate your spending monthly. This is how you calculate and complete the actual column of your budget.
At the end of the month, you will compare yourestimates vs your actual spending. This is where you get into the nuts and bolts of your spending habits and make change to improve your life. Comparing your categoriesmonth-in-and-month out will help you find your financial patterns and allow you to have financial improvements.
Now that we know what a budget is and the basics of how to use it, do we know that it works?The answer is “yes” if you actually implement it, and use these methods monthly. Your budget gives you insight into your spending habits, things you need to improve financially, ways to save, and eventually tracks how to achieve your personal financial goals. Things like, buying a home, getting your dream car, and saving for a trip. Your budget makes those dreams attainable if you use it consistently and hold yourself accountable for what you want to accomplish.
Your budget is on you if you can stay disciplined with it and set realistic goals for your money. Your budget will get you there! Use our Ultimate Beginner Budget Course to set up and stay on track with your budget.
You will find that there is an immense sense of relief and freedom that comes from knowing exactly where your money is going and how it works for you! Take the guesswork out of your money and eliminate the stress of not knowing. Start a budget and bring clarity to your life.
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Lisa Ford
December 19, 2021
Need to learn how to budget on a once a month income