Money flows in and out of your life even if you are not really paying attention to it. You might as well be in the know and tell your money where it should go.
Money does not sit idle. Our world is moving too fast.
Too many people want to learn how to create a budget before they ever answer some important questions.
Your budget has to make sense to you or you are never going to use it. Just because you found some cool spreadsheet online does not mean that you are now good to go. If you do not make it your own, it won’t go anywhere.
Here are some questions that you need to ask before you ever establish a budget.
1. How can I keep my budgeting process simple?
I have seen so many people fail with budgeting because they went from doing nothing to trying to do it all. They wanted to use expensive software and complicated spreadsheets. Even worse, they delayed using any kind of budgeting tool for months because it didn’t have “everything” they wanted to track.
Don’t get me wrong. I’m all about using tools to help you with the budgeting process, but sometimes it is the simple things that work best. When we try to overdo it we end up burned out because we can’t keep up with the job we just created for ourselves.
2. How far into the future should I look?
Another great question to settle on your budgeting journey is how far out to anticipate expenses. I have seen some people get too worried about this. They worry because things do not look good six months from now.
While I commend you for taking a lead on your personal finances, the glass is not always half empty. Budgeting should help you to see reality but never to increase your worry. Too many good things can happen in the next six months: a bigger tax return than you were expecting, a surprise check in the mail from your mortgage escrow, and so on. Just decide on a reasonable time frame to look forward, all the while, keeping your hand to the plow and earning income for your family.
3. How large of an emergency buffer do I need?
One of the best tips I can give for getting your finances in order is to start an emergency buffer. This will help you to stop using your credit card for emergencies and have some peace of mind that you are in fact ready for a rainy day.
Decide on an amount and do whatever you can to reach that amount. Put it into an accessible savings account and resist touching it except for emergencies.
4. What budget categories are essential for me to track?
Most of us find a budgeting spreadsheet online and then we try to use all of the categories listed. If you are just getting started, this is a plan for failure.
Think about it in light of exercising. If you have not been exercising and you decide to now track on a detailed spreadsheet your performance on 30 different exercises, how long will you keep that up? My guess is not very long. Simple steps work best.
Just sit down and figure out what the big budgeting categories are for you and start there. You can always get more detailed later.
5. How often will I review my budget?
This is a very important question to ask in my opinion. Creating a budget is not a one-time exercise. Budgeting is not something you can just check off your list.
It is a living, breathing document.
It is dynamic and not static. You have to constantly review it, customize it, and use it if it is going to work for you.
I sit down every Sunday evening to pay my bills, fill in my budget, and make any important money decisions. Before you ever start a budget you need to establish how often you will review your budget.
Also, my wife and I have a monthly budget meeting at the beginning of every month. She is much better at the details than I am so I use this to my advantage. She lets me know about all of the miscellaneous expenses that are coming up that month so we can plan for it.
Have you answered these important questions? If you do not have clear answers to these questions there is a good chance that your budgeting strategy will fail you at some point.
What questions do you have about budgeting? What led you to failure in the past? Meet us in the comments!