Establishing a monthly household budget is sound financial advice. We all know this, so why do we struggle with not only creating a budget, but sticking to one? Well there’s a simple answer to that question, and I’m pretty sure we all know what it is. Budgeting is hard! We’ll discuss what should be the first step in creating an effective monthly budget.
Society speaks of creating budgets like it’s the easiest thing in the world. That, somehow, everyone has figured out how to create the perfect monthly household budget and manages to stick it without error. If you let the financial gurus on social media tell it, they have their money earmarked down to the penny, the spreadsheet perfectly reconciled on the last day of each month, and sit back with their hands folded behind their heads as they watch the numbers neatly reconcile down to zero.
But what about that flat tire? What about your sick kid that you had to take to the doctor, only to get hit with that $100 copay? What about you getting sick and having to call out from work, earning you less hours for the week, and not being able to make the time up with overtime? There are a million reasons why it is impossible for most people to stick to a strict monthly budget.
That doesn’t mean there isn’t anything you can do, though. I’m here to tell you there is a way to create a monthly household budget that you can stick to, and that actually works. The key is to treat your monthly budget the way you should approach most difficult things in life. And that’s breaking down the complicated task into smaller, more easily achievable goals.
Think about it, people who struggle with their weight and try to diet often go too hard too soon. They don’t do enough research, they restrict too many calories, they cut out all the foods that they know and love. Often these dieters make good progress for a time, particularly in the beginning when the motivation is still high. But the motivation will inevitably wane, and then they’re left with the hard task that must be repeated day in and day out. This is where most people fail, not just with dieting, but with any hard task. Like budgeting.
But the people that approach difficult tasks with a slow and steady approach, making small changes over time, tend to see the most long-term success. That’s the best way to approach beginning your budget. Because the best budget plan is the one tailored specifically to you, by you.
The best budget plan is the one tailored specifically to you, by you
The first step is to review your monthly spending. Review your statements from all sources you spend money (bank accounts, credit cards, etc.). Learn how and where you spend your money. See the difference between what you thought you prioritized in your life with what you actually do—because where you spend you time and/or money will show you what you really prioritize.
Sticking with our theme of breaking things down into small, easily achievable goals, this first step can be further broken down into even smaller action items. Remember, the goal is to keep the budget as simple and actionable as possible, and that means small steps that equal small wins.
The first actionable goal toward reviewing your monthly spending is to pull all your financial statements for the prior 4 months and categorize your monetary outflows into three categories: necessary expenses (rent, food, utilities, transportation; all the things you must spend money on to survive), unnecessary spending (fun money, hair/nails, eating out, dating; expenses you may want, but you can live without), and savings and investments.
Don’t look to make any adjustments just yet. Don’t try to allocate spending in a doc, spreadsheet, or app. Just learn where you’ve spent your money. Learn what the real priorities in your life are. You may be shocked to see just how much of your monthly budget get burned through with things like buying lunch everyday instead of bringing it from home. It really adds up and can sometimes feel like death by a thousand cuts.
BONUS: see if you can calculate your average spend in those categories over that four-month time period
Armed with this knowledge, your second actionable goal is to live your normal life as best you can for another 2 or 3 months. The simple act of knowing how you spend your money will cause you to naturally make more conscious choices. Check in week to week and see where you compared to prior months. Again, you’re not creating a written budget just yet. At this point, just let your more conscious spending guide your decision making.
A couple of months is enough time to create the habit of being more mindful with your spending. You’ll see that you will naturally be more aware of your spending and what you’ve prioritized in your life. Now you’re ready for the third and final actionable goal, and that’s to trim items from unnecessary spending category and drop it into your savings and investments category, until you have more money in your savings and investments category. If you can get a 2-1 ratio, perfect.
Now, you still haven’t created a budget just yet. But if you’ve tried and failed to stick with a budget, try this approach. You will absolutely see better results after creating this framework.
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