Budgeting = Awareness

Ah, the dreaded budget – either you have one, or you know you should probably have one. 

Maybe the very idea fills you with dread – the word “budget” might be synonymous with “restriction” and “belt-tightening” to you, and actually, you would be far from alone if that’s the case. In truth, the real power of a budget is an exercise in awareness. 

A budget doesn’t mean you necessarily have to change how you spend – but it gives you an incredible amount of power and control to know when and where you spend your money. Ultimately our goal with budgeting is to provide you with both sides of the equation: getting you started on a budget for your edification (and gratification!) and ways to reduce your spending if that’s what you’re seeking. The goal with budgeting is to gain increased awareness of where your money is going, and then you get to decide where you want to go. Every successful organization and company knows where their money goes, and you should too.

Step 1: Start!!!
Starting a budget entails recording every expense over a month, no matter how minor. You’ll compare these to a list of your initial “guestimates,” a ballpark number for each expense category (housing, recreation, utilities, etc.) You need to decide, then, how you’ll track these outflows. It’s easy to get hung up on the perfect tool to track your expenses, so you never start.

You know better than anyone else how your brain works, so if you find that keeping an index card or a notepad in your pocket keeps you reliably jotting down each expense, then that should be your go-to. Conversely, if what motivates you is an app or spreadsheet that you can update easily, I use Truebill (not sponsored), which lets you link your credit cards and cash accounts to track and categorize your spending.

My advice is to simply choose and go – mentally acknowledge that it may be clunky at the beginning and you are almost certainly going to tweak how you record this info, but start. And then keep going!

Step 2: Automate, Automate, Automate
There are two categories for an expense: fixed or variable (the same every month or determinant). It can be discretionary or nondiscretionary (you want to pay it, or you have to pay it). We’re looking to automate those fixed expenses, especially the nondiscretionary expenses which are fixed because you know what they’ll be, and you know you have to pay them.

The other thing that is CRUCIAL to automate if you are trying to build up your net worth is your savings. Have a certain fixed amount go into your savings account at the beginning of each month, or set up an Automatic Investment Plan for your investment accounts. We’ve found that if you have to decide to save every month, at some point consciously, you’re going to find a reason not to. Let these processes happen in the background not so that you no longer pay attention to them but so that you know your money will be reliably going where it needs to go.

(Note that if you have some sort of windfalls like a tax refund or an inheritance, these automated savings should be considered a floor, not a maximum. Try and overfund in some months when possible to feel good about spending a little more in others!) We offer a service here to track your expenses, but you might also consider other services like Mint.com. 

Step 3: Become a Pattern-Seeker
Recall that in creating your budget, awareness is the name of the game. Most people severely underestimate what they spend in a given month, let alone a year, and might be surprised by the areas that comprise the biggest slices of their spending pie. After your month of expense tracking, pay close attention to how things stack up against your initial estimates – if things were vastly different than your guesses, that might be okay.

The question to ask yourself is if your spending is serving your goals: do you highly value time with your family? Then a lot of money spent on things like date nights and movies with the kids could be reasonable, given it’s not breaking the bank. But if you find you’ve been spending a lot of money on eating out, and it’s hampering your ability to accomplish what’s important to you, it may be time to reevaluate your spending.

But again, even if you find that your expenses are where you want them, you now have that factual information and peace of mind. Knowing where every dollar goes can be an empowering experience and can give you a sense of control and direction even if you ultimately don’t make any changes.

Step 4: Try A Spending Cleanse
When we think about cutting down our spending, it’s common to look towards little routine expenses like the morning coffee or the chips from the vending machine as the most logical choice to dial back. What tends to be the biggest drags on our expenses, though, are the unplanned, spur-of-the-moment purchases that add up. But sometimes, after a hard day or a long week, it’s easy to order out, browse Amazon for that thing you’ve been wanting, or throw an extra something in the shopping cart at the store.

Using a Spending Cleanse can help you identify these counter-productive habits – set aside a few days to a couple of weeks, and tell yourself that your goal is to complete as few transactions as possible (I recommend getting groceries and upcoming bills out of the way before this period so you can take it seriously). You’re free to make big-dollar purchases; we’re just aiming for the smallest number of expenses you can manage.

Shockingly, saving money is a byproduct of this activity, not the most valuable aspect. The natural beauty of this exercise is that it can reveal counter-productive habits (feeling the urge to get fast food after the gym or impulse buying something late at night, etc.) and actively help you rewire them during the cleanse. Now, this isn’t to say that you should indefinitely delay your gratification, but you’ll be able to be more intentional about how often and how much you’re indulging.

Step 5: The 72 Hour Rule
Another money-saving strategy that’s a lot less intensive than spending cleansing is implementing the 72 Hour Rule. If you have a problem with impulse buys (which have become more accessible than ever with services like Amazon, especially post-pandemic), know you are in good company. According to Shopify, impulse buys account for between 40% and 80% of all purchases. And with fewer barriers than ever between you and purchases, it’s effortless for these to pile up.

The fundamental rule is this: if you add something unplanned to your cart, wait 72 hours. That’s it. You are entirely free to return to it after the allotted time has passed and buy it if you still find you want it. But, having started doing this in my day-to-day, letting the initial excitement cooldown puts a valuable distance between instant desire and buyer’s remorse. Using this method will result in saving a lot of money on things that, in retrospect, you probably don’t want once the dopamine charging through your body has subsided. You don’t have to think about potential purchases constantly; set it, forget it, and just see how you feel upon returning to your cart; it’s that easy.

In Conclusion
Whether you’re starting a budget to try and pull back on your spending or because you’d like the control and satisfaction afforded by the knowledge of your spending, I can’t recommend that you keep track of your expenses. It can be difficult and even daunting to start, but it’s so worth it for the security that comes with understanding exactly where your money goes. Hopefully, even if you’re already keeping tabs on your spending, one of these tips helps you fine-tune the process. If you’d like more help with managing or tracking your expenses, feel free to reach out to us so we can lend you a hand – after all, an essential step is to start. If you’d like to schedule a budgeting/spending consultation, please reach out to us anytime. We’re here to help!