7 Budgeting Skills Worth Honing
Budgeting at its core is nothing more than simple addition and subtraction. Add up all of your income for the month and then subtract your expenses. That number should equal zero. Every dollar should be accounted for. If your expenses were less than your income, use what’s left to fund a category that will help your financial picture (savings, debt pay-down, investing, etc.).
Pretty simple, right? Why is budgeting so complicated? Why is the math so easy, yet budgeting in real life so hard? Probably the same reason math word problems were always so hard in grade school. (...If train A left the station traveling at 60 mph at 11:30 am, what time should you put the pizza in the oven?)
A budget is an accumulation of priorities within a given time period that allows us to direct where our money should be spent (before it is, in fact, spent). It’s a plan for our money. We tell our money where to go before the month begins. If we can stick to our plan, we execute the budget perfectly, and all is right in our financial world.
But, that’s not very realistic. Often we give up on our budget when things don’t go according to plan. It’s hard to keep up. Life is multi-faceted and throws a lot at us. It’s not only a math problem, but a life problem. This adulting thing is real hard, am I right?
I believe in budgeting. I believe budgeting is a skill we learned that unified our marriage, got us on the same page, and propelled us to where we are today. It’s our monthly road map. And I want you to experience the same or similar. So here are seven skills worth honing to help you master the art of budgeting:
Be real with yourself: Honesty is the best policy. Don’t fudge the numbers. Be real. If you normally spend $500 a month on food and you decide you’re going to cut that down to $200 next month, that’s not realistic. You could cut back by $20 or $30 this month, see how it goes, and re-evaluate next month. That’s a better move. It’s a step in the right direction - a mini experiment to see how you do. Re-evaluate at the end of the month and tweak the goal until your food budget is where you want it to be.
Categorize expenses: Setting up your budget with categories that make sense to you is vital. You’ll never be able to stick to a budget if you don’t have a categories for everything. Categories can be as broad or focused as you want. It’s your budget. Whether you use a budget spreadsheet, YNAB, Every Dollar, or another budgeting tool of your choice, make the categories your own. If creating a "Target" category helps you keep your dollar spot spending in check, then create a "Target" category.
Keep your budget updated: We are all busy. We all have multiple things going on at any given time. I think we are fooling ourselves to think that we can sort out an entire household budget in our heads while trying to make sure we got everything at the grocery store for the week. I know for myself, those times I thought I remembered how much money we had left for groceries that month, those are the times I end up overspending. Making a habit of keeping your budget updated and keeping it in front of you before you spend money is a great skill worth sharpening.
Know your weak points: After you’ve been budgeting for a few months (or a few years), you’ll start to develop a rhythm, but inevitably, there will be a few categories that become the bane of your budgeting existence. They haunt you in your sleep. No matter what you do, you struggle to stay on track with those categories month to month. These tend to be lifestyle choices that cause problems. For me, it’s our food category and my personal spending category.
Understand and plan for irregular expenses: If you are not in tune with your irregular expenses before you start a budget, the entire first year could be rough. Car insurance, property taxes, and vehicle registration renewals are a few of the common items that come at various times throughout the year. They might be paid quarterly, bi-annually, or even annually. Because they cover an extended time period, they tend to be a higher expense that can squeeze your budget dry if you are not ready for it. We hate these surprises. As much as possible, we try to save monthly for everything so that we are ready for it when the bill comes. We simply break down the yearly cost of the item, divide by 12, and save that amount monthly (or, if you don't have a full year to save, divide by the months until the payment is due). We even do this for our Amazon Prime membership. Ha! An entire category that gets funded $8.25 per month.
Focus on one goal at a time: The whole point of learning how to budget and understand where your monthly cash flow is that it helps to understand your margin (extra you have at the end of the month). Once you have that figured out, apply it to your top priority goal. That might be saving for an emergency fund, paying down debt, saving for a vacation, saving for a newer vehicle, etc. Whatever it is, you will gain more traction if you can prioritize your goals and focus intensely on achieving them with all the extra money you can find in your budget.
Adjust your budget mid-month: Things change. Things come up that we didn’t plan for. Accepting this fact can help. It really hurts if you are a perfectionist, but every month there will be something that is missed. When that happens, it’s important to go back to the budget and make the adjustment. That usually means shifting some dollars away from other categories to fill the need. Unless, of course, you have a money tree… then just go harvest some more money to fill the need.
If you’re just getting started with budgeting, I hope this helps provide some perspective on the work needed to get comfortable and efficient with the budgeting process. It is a process. It can’t be a "set it and forget it" item on your list. That’s one of the biggest reasons people give up on budgeting. They tried, put it away, and it didn’t work, so they gave up.
But not you! You got this. Work on these seven budget skills over the next few months, and you’ll create the skills needed to manage your way toward your financial goals. You can do it!