Lisa Whitley — Seriously, why? Everyone tells you that you should have a budget. But if it is such a great thing to have, then wouldn’t everyone do it happily without being prodded by people like me?
I believe that the thing that often stands between knowing that you should have a budget, and actually practicing budgeting, is not truly understanding the purpose of the exercise. A budget without a purpose — a goal — is a frustrating dead-end.
First, merely tracking your spending is not the same as having a budget. “Budget” means that you have identified, for any given spending category (housing, transportation, groceries, etc.), an amount of money that you want to spend. You track your spending against the target figure for that category. Apps that collect your transactions for your review can be helpful, but realize that they only show you what has happened in the past. When you are in the “spending moment”, they cannot keep you from drawing outside of the lines.
Which brings me to the purpose of staying within the lines. No one likes limits. No one wants to be told what they cannot do.
Here’s my idea…just as assiduously as you track your spending, track your goals. It may be a savings goal (building an emergency fund or an anticipated big purchase) or paying down a debt. Either way the goal needs to have a specific dollar figure attached to it. The conversation that you should be having (with yourself or with your partner) isn’t “How much did we spend at the grocery store?” but rather, “How much did our savings balance for next year’s vacation grow?” “How much did our credit card balance fall this month?” The margin — the difference between your paycheck and your actual spending (based on your budget targets) — funds your goals.
- Once your spending targets and habits are firmly established, you may find that the only thing you need to regularly track is your progress to your goals. That can be a much more uplifting exercise than the sometimes soul-deadening task of examining grocery store receipts.
- If you feel that you need more discipline, set a weekly target for your goal. If not, check in once a month.
- Then adjust your future spending down (or even up) depending on how you are progressing to your goal.
- If you are not consistently hitting the goal, that is when you may want to re-engage in tracking your spending more closely.
- And if you are, consider automating your goal by setting up an automatic transfer to the “goal account.” (Should you up the goal as well?)
Some find budgeting to be fun. But the rest of us? We need a bit more motivation and that is where monitoring your progress to achieving a goal comes in. That’s your “why.”
Damian is the lead Financial Concierge on Your Money Line, the financial help line serving all Pete the Planner® Financial Wellness clients. Damian is a CERTIFIED FINANCIAL PLANNER™ professional and loves answering your money questions. Despite sharing a last name and sense of humor, Damian and Pete are not related.