Today we’re talking about budgets.
If there’s one basic metric for your personal finance, it’s your budget. It’s the first thing I do with a new client after hi and hello. Until we know exactly how much discretionary income there is to play with (the amount you have left after all your bills), it’s difficult to make decisions. Your budget gives you a realistic idea of whether or not you can handle the goal your considering.
Here are my three tips to take your budget game to the next level:
Put your Excel skills to use
Everybody else loves Excel as much as I do right? If not, don’t worry – I’m not saying yours has to go there. Mine is on paper. Use any medium that you prefer, but use Excel to produce realistic figures from your transaction history.
Log into your accounts online and search for the ‘Download’ or ‘Export’ option. It might be hiding, but it’s there as a standard feature. Grab all your transactions for the year or whenever your routine began. What you’ll get, is an Excel sheet with all your expenses. If your bank does a good job, it includes titles like GAS, GROCERY, and RESTAURANT. Perfect things to sort by.
If you’re unsure how often you fill your tank, sort the worksheet by GAS. It will organize to give you a good idea. Highlight what’s important and which expenses line up regularly. This will save you tons of time. Instead of skimming your statements or searching the dusty attic of you memory, Excel will capture your spending habits in neat cellblocks.
Trust your average
If you’re still unsure of the exact amount you spend on something, you might leave your budget feeling uneasy. This happens a lot for people making irregular income or purchasing services that fluctuate in price. Trust your gut – trust the average.
The minimum you spend on a weekly happy-hour is $5 and the maximum you’ve dropped is $55, when Michael stuffed a tequila shot down your throat. Your average is $30. Let it fluctuate around that number. Use $30 as a benchmark when you attend the following week.
Most people feeling defeated by their budget are suffering from uncertainty, NOT over spending. The budget at your office is rigid and likes certainty, but that’s not how your personal budget works. It isn’t locked in place. If you keep this in mind, and trust your average, you’ll budget more often, because it won’t produce that queasy feeling.
Create a living document
Odds are the items on your budget will change at least once during the year. Even your rent adjusts, and that’s a big “constant”. Make sure you can modify your budget and retain the same format. The figures should only last a few months. The structure should last you years.
This is what budgets are built for. As our routines change, so do our spending habits. Budgets are there to organize the chaos. Use templates, legal pads, google docs, chalkboards, spreadsheets – anything with a strict arrangement where you can erase and update.
Legal pads work for me. In a digital age, I keep a few sentimental practices in analog. Every month, I compare my budget with my pay stubs and ledgers. I circle the ones that change – even by a few dollars – and write the new amount. When three or more things have changed, I know it’s time to rewrite the budget and see how my discretionary income differs.
These are my three tips to a better budget. Please, if you have a trick that works for you, share it with us in the comments. Your ideas are what makes me a better financial coach for my clients – the more the merrier.
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All the best.