Financial Planning, Millennials

Budgeting 101

78% of Americans live paycheck to paycheck. Ever wondered why? As a society, we have become so focused on what we have instead of what we have saved. Material possessions are our sign of status these days. We feel obligated to buy every new thing to keep up, as if we would be seen as less without them, and before long, things are out of control. It’s as if we see the money come in, and in a matter of weeks it’s gone. Our savings sit stagnant while our bank account quickly depletes creating fear, anger, and anxiety. Ever felt this way? I know 78% of Americans have. 

So what’s the solution? 

Budgeting. Budgeting is the solution. 

When most people think about budgeting, they think of having to create an extensive spread sheet with fixed dollar amounts ultimately resulting in their life becoming less fun. However, this doesn’t have to be the case. The goal of budgeting is not to restrict your lifestyle. Rather, the goal is to help us become aware of our behaviors. To understand and see how we spend money, and to see if the way we spend money is aligned with what is most important to us. If it’s not, then we need to make a change. Isn’t the reason we work to create the life we want? So wouldn’t it make sense to figure out if we are using our money towards building the life we want? The best way to do this is through budgeting.

Now that you are on board with the idea of budget, you may be unsure exactly how to get started. “Do I just write down every single thing I pay for?” If it were 10 years ago, I would say yes. But thanks to technology, you don’t have to do that anymore. All you need to do is download an app like Everydollar or Mint and start letting it track your spending for you. This way after a month or two you can better understand where your money is going and see what changes need to be made. 

Note: For all my old school readers, if this method is not for you, and you prefer a hand written budget or an Excel spread sheet, then you are in luck. We have a downloadable one you can use for free right below! 

Now once this is done, you are ready to start budgeting. My belief is that traditional budgeting does not work for most people. Sure, most people can track how they spend every dollar for a few months, but after awhile they burn out and give up. Budgeting like this requires a lot of time and attention. That is why I believe ‘a simple budget’ works best. With a simple budget, you prioritize fixed expenses and needs first leaving you to spend the rest guilt free.

Here are a few steps to help you implement a simple budget into your life. 

  1. Figure out your take home pay 
    • The best way to do this is just to check an old pay stub. Look at the exact dollar amount that hits your bank account, and you’re good to do. Focus on net income not gross.
  1. Calculate your fixed expenses 
    • Add up all of things that don’t change much month to month
      • Rent, mortgage, utilities, insurances, loan payments, groceries, etc. 
      • Also add in savings or extra debt payments into this category as those should remain fixed every month. Don’t let this slip and fall to the end of the list. Savings are a priority if you ever want to achieve financial success. 
      • Automate these steps so when money hits your bank account, all of these are already covered and not forgotten about. 
  1. Calculate what’s left
    • Subtract your fixed expenses from your take home pay, and that is what you have left to spend. This is your ‘fun money.’ Use it for thing that actually create happiness for you. If that is coffee every morning, then do it. If it is going out every weekend, do it. Just make sure this extra money is used for things that actually bring you joy.

It really is that easy. Using this strategy allows you to prioritize your fixed expenses, savings, and debt so everything important is taken care of first. Whether your budget is on an app, handwritten, or in a spreadsheet doesn’t matter. All that matters is that you find what budgeting style works for you, and stick to it.

Disclaimer: Nothing on this blog should be considered advice, or recommendations. If you have questions pertaining to your individual situation you should consult your financial advisor. For all of the disclaimers, please see my disclaimers page.