If my plan to Financial Wellness is a 20 foot tower, a budget is the blueprint to that tower. It's hard to find people excited about budgeting, and if you're in that group, maybe this article will put the process into terms that help you see its significance a little differently.
Imagine that you are the newly appointed air traffic controller at a busy airport. In this position, you will need to schedule when each plane is coming in, where each is coming from, which terminal each will be landing in, and when each will be leaving out. Given the relatively constant flow of traffic, you will need software and other technology to help you keep track of all planes at all times.
Just like that, every single dollar, every single penny you earn should have a pre-determined purpose. It is your responsibility as a steward of God’s resources, to follow a schedule to get that money out of your immediate possession and on to its intended destination, adjusting where necessary. Some people call this plan a budget, and many people cringe at even the sight or the thought of that word, and that’s ok. Call it what you want, call it The Money Plan, The Money GPS, Money Goals, but as long as you pray and create a plan, you’ll set yourself up for success.
To begin, you should list a record of all the cash or income you receive. If your income varies from period to period, that is ok, just provide an average or an estimate. You can use the Sample Income Tracker that I found on the Consumer Financial Protection Bureau (CFPB) website. It can also be downloaded from below.
Then you should list all your expenses that you can think of. Some are easier to identify and usually don’t change, like rent and debt, and some you’ll have to ballpark to get a good idea of what your spending is because it may change from month to month, like food or gas. The CFPB has a Sample Spending Tracker that you can download as well.
Once you've tracked your income and expenses, you can compare the two to see where you stand.
If you earn more money than you spend, congratulations, you can begin on working on those dream goals, saving for an emergency fund, paying off debt more quickly, the dream vacation, etc. If you earn less money than you spend, congratulations, you can begin on working towards controlling your spending so that you can get to those dream goals a little more quickly. If you spend the same amount of money as you earn, you do not have anything to do! Just kidding, congratulations, you can begin or continue to monitor your spending and budgeting to look for ways to increase your income or decrease your spending and set new goals for you and your money.
You’re never really done budgeting. This is a lifestyle change—just as you are never, ever really done with laundry, or dishes, so too will you always need to control and monitor how you spend money.
Air Traffic Control:
Most of budgeting is defined in one single term: control. There are so many variables outside of our control when it comes to money, but it’s important to identify what you can control, and perform the necessary actions to keep it under control!
Some money, as soon as you get it needs to go right away. For example, if you’re saving for an emergency, this money should immediately go to a separate savings account if your income is received via direct deposit. Many employers will allow you set this up through payroll so you do not even have to think about it.
Other money can stick around until it’s due, as in cash for bills like rent and utilities. I do believe in paying bills exactly when they are due, never late and never early, if there is no other financial benefit. If you find it easier to pay for things as soon as you get the cash, do so! You know your habits better than anyone else does, so do what works for you, so long as you are following and sticking to a defined plan.
Still other money needs to stick around until it is used up, like money for groceries, fast food and gas. It is a good practice to hold on to this money in the form of cash to ensure you do not overspend. Dave Ramsey refers to this as the cash envelope method; you label an envelope with one type of expense, load it with cash equal to the budgeted amount set, spend the money out of this envelope for its intended purpose, and once the money is gone, it’s gone. This method works well for those who swipe those debit and credit cards without intention.
If you identified that your expenses exceed your income, you need to know exactly where you’re overspending.
I use Mint.com to capture and categorize all of my expenses. I create a budget for each type of spending and it alerts me whenever I am going close to the budget limit. Green means I am doing well, yellow means I am getting close to the targeted amount, and red means I am over budget. This is helpful so that I can begin to change my spending behavior: if I am getting close to the budgeted in one area, I can spend less in another area to accommodate. This is why it is necessary and important to review your budget regularly, at the very least monthly, to align expectations and reality.
If you don’t feel comfortable providing this company with your banking information, most banking institutions have budgeting resources available to you online so that you can automate the categorization of all spending. I prefer using Mint because when I first started using it, I had well over 10 credit card accounts, various loans, and 2 bank accounts. This website managed all that traffic in one spot.
I also keep a meticulous spreadsheet where I track all my income and outlays for every month. (I trust, but verify the banks on a regular basis.) A link is listed below…if you are comfortable with Excel, you will have success with it. If not, there are plenty of budgeting templates online, on Pinterest that you can download or print, you just have to find one that works for you.
If you feel budgeting means you will have a regimented or restrictive lifestyle, please note that only your first couple of months will feel very uncomfortable as you begin to find your rhythm, but once you do, it will almost become like a game, comparing your cash to your budget, adjusting where necessary, holding yourself accountable, reaching your goals!
Tell me what do you call your Budget? How can I help you create it, manage it? If you've got one of your own, what works for you? Share your thoughts below!
Sample Excel Budget
Sample Budget Worksheet
Sample Income Tracker
Sample Spending Tracker