This blog is part one of a multi-part series on budgeting.
The word “budget” conjures up thoughts of Scrooge-like accounting and strict financial restraint. Most of us enjoy thinking about budgets as much as we enjoy pondering our next diet. Both feel like some kind of promised long-term reward in exchange for short-term misery. Some of us in the financial services world try to disguise the word “budget” by calling it a “cash flow plan” or “spending plan” thinking that a different word will make the medicine more palatable. I think not. I think most people understand that “calorie intake reduction” and “consumption monitoring” still mean a diet and “cash flow plan” means a budget.
So let’s dispense with the terminology and get down to substance. A budget, like a diet, is simply a plan. You decide, prior to the actual moment of spending, where you’ll spend your money and then you stick to that decision. That doesn’t sound like restriction or bondage to me, it sounds like control and power. We do it all the time in other areas of our lives. For example, few of us drive to the airport and then decide where we’re going and on which airline we’ll travel. We plan ahead. It’s just forethought. A budget is simply a plan for your money. A plan that you work out before “getting to the airport”.
Where to start a budget? Start at the starting point. The starting point of a budget is tracking. Before doing anything else, just track your spending for three months. Every time you spend money, no matter the amount, write down in a notebook the date, amount, and the category of the spending. Follow the same principle with all of your income. Don’t make any changes to your spending habits during the first three months, just track where your money is coming from and where it’s going. At the end of each week, total up the amounts in each category. At the end of the month, total up the weeks. You might be surprised by the results. Most of spend a lot more money on dining out then we realize. Be a dedicated tracker, like financial GPS, and write down ALL income and ALL spending… regardless of the account you spend it from or the source of the income.
I’ll discuss the next steps of tracking in part two.