You need a budget!

Budgets have always been a tough sell.  Some try to soften the topic up by calling them spending plans, but no matter what you call them you have to have a plan for your money. Here are some suggestions on creating and sticking to a budget (or spending plan).

Know the Goal

No one wakes up in the morning excited about the idea of putting together a budget.  Using a budget is not the goal.  A budget is a means to the goal.

Do you want to buy a house?  Become debt-free?  Take a special trip?

Now those are goals that will get you up in the morning, and using a budget will help you get there!

Choose the Right Budget Tool

Using a budget does take some work.  There’s no getting around that.  However, some budget tools fit certain people better than others, so make sure you’re using the tool that’s easiest for you.  Here are the main choices:

Paper and pencil.  As the name suggests, this is a purely manual system where you develop a written spending plan and then write down how much you actually spend each day.  It’s one of the simplest systems to use, requiring no software training.  

The envelope system.  Once you set an overall plan for your monthly income, this system will make it really easy to see how well you’re staying within your budget.  Let’s say you have $80 budgeted for clothing.  If you get paid once a month, you would deposit your paycheck into your checking account and then withdraw $80 in cash for your “clothing” envelope.  When you go clothes shopping, you take that envelope with you, pay with that cash, and put any change back into that envelope.

Need to see how much more you can spend on clothing at any point in the month?  Just look inside your “clothing” envelope and count the cash.

You wouldn’t use envelopes for every category, but for groceries, clothing, entertainment, and many others where impulsive buys can be budget busters, the envelope system works really well.

Spreadsheets. A simple Excel, Google Docs or similar spreadsheet is a step passed the paper and pencil. The spreadsheet can make some of the math a little easier and mistake free by doing it for you if you know how to operate a spreadsheet.

Budget software.  Quicken dominates this space, but there are other players as well, including You Need a Budget.  Such products cost money, but they offer the most extensive analysis tools, which may appeal to you if you’re very detail oriented.

Online tools.  Mint is the leader among free online budget sites, although there are others. One fee-based online budget tool is mvelopes, which bills itself as an online envelope system.

Expect Some Challenges

One issue that a lot of first-time budgeters face is they forget to record what they spent for a day or two, get frustrated, and quit.  One of the most helpful features of a daily spending journal or 'cash flow plan' document used in a paper and pencil or spreadsheet systems is each days expenses are recorded. After you record each day’s spending, cross off that day’s date as a reminder that you are current.

Another common issue is forgetting to plan for certain expenses, like home and vehicle maintenance, new tires or vacation planning. They don't happen on a frequently reoccurring schedule, but they do happen!

Be Flexible

Non-budgeters imagine budgets as rigid and constraining, but the best budgets are designed with some flexibility.  For example, don’t get all worried about trying to figure out if that take-out food you had for dinner last night should be categorized as “groceries” or “entertainment.”  If your grocery budget is almost tapped out, call it entertainment.  If you’re running out of room in your entertainment budget, call it groceries.

Also, be sure to budget in some money just for fun - it has no other purpose. Many budgets fail because all the categories have a rigid number assigned to them and there feels like there is no freedom. So budget a little fun money too. Dieters that were told they could not eat a certain sweet treat actually ate more of the junk food than those that were told they could have a moderate amount of the sweets. Budgeting is the same way, don't totally deprive yourself of things you enjoy on your endeavor to get fiscally fit - keep it moderation.

You won’t get the budgeting thing down to a science right away.  No one does.  But stick with it.  Over time, as you start to experience the many benefits of a budget, like a much greater sense of control over your finances, you’ll be motivated to keep going. To help you get started, A.D. Financial Planning has a budget guide on this site. Creating and using a budget involves three simple activities:

Contact us, A.D. Financial Planning can show you how to setup an easy to use budget. A spending plan is the first step on the 10 Steps to Financial Freedom!