What We Really Need From Budgets & How We Can Use Them Effectively
Updated: Dec 10, 2018
As the end of the year approaches, it is understandable that many of you will have a New Year resolution of wanting to get on and stick to a budget. This is an admirable goal. After all, each new year one should want to improve and evolve into a better person and situation than they were in the year before. The problem with this goal though is that it’s rarely properly thought out and planned correctly. And even with the best planning, the approach one takes usually all but guarantees that the budget will fail early on in the new year.
Why does this happen you ask? I liken the failure of budgeting to the same way that everyone signs up for a health club membership to start the New Year off right. In the beginning of the year, the gym is packed with people and you can barely get a workout in. By March though, there is plenty of room in the gym and you are left wondering what happened to all those people. The reason those people quit going to the gym (and the reason your budget fails) is that they knew that they should get in shape, but they had no actual goal of what it was to be healthy, and no plan to get to that goal, even if they had one.
Without a goal, you have no roadmap. Without a roadmap, you have no plan. If you don’t know where you are going, any road will get you there. The road that usually wins out in this instance is the one that takes you to where you decide to stop going to the gym. Does this sound similar to your budgeting woes?
So if we can all agree that to be successful in your budgeting you have to have a goal, and to get to that goal, you have to have a roadmap, where do we start? It’s simple. You start with your goal and work backward.
Before we start with the journey to budgeting success though, let’s quickly discuss what it is you really need out of your budget. At it’s most obvious purpose, a budget is meant to allow you to understand whether you can afford something or not. There is more to budgets though. Budgets help you save money. That money you save can come in handy for emergency expenses that arise out of nowhere, or even expenses you frankly forgot about.
Budgets that are put together well are also fantastic indicators that you can base future spending decisions on when looking through your documented spending history of the past. Lastly, a budget that is perfectly put together is one that will be able to tell you your limits. It can give you insight into what would happen if you are debating whether or not to change your income to spending ratios for a long period of time, such as taking a new job, but for less money, or buying a home with a larger mortgage.
So now that we know what you need from a budget, let’s set out to put together the perfect budget.
Step 1: Define Your Goal
Studies have shown time and time again that setting goals makes you exponentially more likely to succeed. Everybody starts a budget for a different reason. One person may want to become debt free. Another may want to have extra money at the end of the year to go on vacation. Somebody else might be saving money for tuition to go back to school to get a degree. The key here though is that you need to have your goal, written down, so you know what you are setting out to achieve.
Step 2: Write Down Your Income And Also Your Expense Categories As Best You Can
This step is a little painstaking, but it is very important. You need to make a list. In one column, you’ll have all the ways you make money. In another column, you’ll have all the different expenses you have each month. Both of these columns will be broken up by category.
So for instance, if you have a regular monthly salary, that would be documented as “salary”. If you also do freelance work on the side and earn money for projects, you would document that as “freelance earnings”. With your expenses you would do the same thing, grouping your expenses by category (e.g. rent, utilities, food, gas, etc.).
The Real Truth About Budgets
So that all sounds like a lot of work right? The truth is it’s a ton of work and it’s not fun. For lack of a better term, planning and trying to keep up with a budget sucks. There are too many things in real life that simply happen. A friend comes in from out of town unexpectedly and you want to go out and have a fun weekend with them. Your pet suddenly falls ill and you have a big vet bill you have to pay. Or what if your car breaks down and you need to pay for a new transmission?
All these things are the reasons that budgets suck. It’s nearly impossible to make traditional budgets work. The key word here is “traditional”. There is a better way to budget, and that is why we built The Build App.
The Build App is blessedly simple because it allows you to look at your daily budget. As you earn money from salary, freelance work or side gigs, you can enter that into the app. Your available amount of money to spend will instantly update. Then, as you purchase gifts or holiday expense items, you can enter those expenses in, and the app will automatically spread those expenses across the month, keeping your holiday budget and any other budgeting items you’ve entered into the app in check, while at the same time making sure you are saving money along the way.
Fight the suck. Download The Build App today and you’ll quickly see how you can empower yourself to take control of your budget, save more money and reach your goals more easily than you ever imagined possible.