Atlanta Financial Blog

Who Said Budget Is A Bad Word?

Who Said Budget Is A Bad Word?

Charles Crowley, CFP®, AIF®
August 27, 2019

We’ve all experienced this in one way or another: the paycheck lands, we think that we have recommitted our mind to being thrifty and frugal, but then something (or someone, reflection in the mirror included) happens to derail the process. We know it is necessary. We understand the benefits. But it isn’t fun! YOLO, right?! Sure, denying ourselves today the zeal of instant gratification is NOT enjoyable, but it IS responsible.

Whether you are just beginning the “adulting” journey and are trying to get a handle on what having personal, financial accountability means, or you’re a cashflow veteran and you’re pushing forward with a much needed over-haul of your money management repertoire, these 5 tips are essential to remember when taking command of our favorite 6 letter curse word… the BUDGET:

  1. Track your spending first, before constructing your budget, and then continue to track it moving forward!

It is nearly impossible to construct a workable cashflow plan if you have no realistic idea of where your money has actually been going in the first place. Even if you’ve gone through this exercise in the past, it is never a bad idea to periodically reassess where your dollars may be consistently sneaking off to.

  1. Ensure that your method matches your needs.

Some budgets I’ve seen are very simple (less categories, fewer details, etc.). Others end up being quite complex. Whatever direction you choose to go in remember that your method needs to be motivating, easily understandable, and actionable. If you over-complicate the process to the point of it becoming a time-waster, you will abandon it too quickly. A budget will only work FOR you to the extent you are committed to it and hold yourself accountable.

  1. Assign a job to every dollar you have coming in.

Assigning a purpose to every dollar flowing in should be a very intentional task. Ensure that what you define as the “essential expenses” (what you have to cover should you really have to tighten the belt, sometimes known as the “bare-bones” items) are covered first. Then account for your savings goals appropriately giving yourself the necessary margin1 you need. Finally, divvy up what is left so that you have the peace of mind you are living within your means. Notice that I mentioned savings… Pro tip: one of the most common areas to overlook is your savings goals – do not forget to build in a savings component as this is the only way to ensure you are not constantly undermining your progress!

  1. Credit cards… Be. Careful.

Far too often I hear the justification for using a credit card be one of three things: 1) it makes it easier to track spending 2) I’m building up my credit score or 3) I’m accruing a “benefit” when I use it which feels like free money (rewards points, mileage, cash back, etc.) It is true that credit card use can simplify the budgeting process in some ways. Cards often do offer potential reward benefits and, when used responsibly over time, they can help your credit score to climb higher. The danger with credit cards, however, comes when you can’t pay the balance off at the end of each month.  That is your warning signal that you are spending more than you make, and that trend can create a deep hole that is hard to climb out of.

  1. Ensure your cashflow plan permits an allowance for your passions.

One of the biggest reasons I see people fail when following a budget is that they don’t work in any flexibility to enjoy their money or share it with the people or causes that they care about. Again, one has to be disciplined in the approach, but if there is no reflection of who you are and what brings you joy within your budget then it will be difficult to keep up the motivation long term.

Understanding that starting a budget and building out a cashflow plan can be a daunting chore at times, hopefully the tips above will provide you with some things to chew on as you decide what might work best for you. Of course, leverage our team here at Atlanta Financial for additional tips and guidance. We welcome the opportunity to help take your monthly income from something you temporarily have to something you consistently own.

1 Check out the article “Proper Margin” for more details on building up emergency and contingency funds.

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