Keys to Succeeding with a Budget
- brad06154
- 2 days ago
- 5 min read
In this post:
Updating your Budget every month
Balancing It: have a plan for every dollar
Reviewing It daily and with your spouse
Living It: Staying within the plan
Succeed with It: Turn it into the tool that moves you closer to your goals.
In "How to Budget" we talked about the mechanics of creating and using a budget.
In this post we will dive a little deeper into how to make your budget more effective, and use it to your greatest benefit. Following are 5 Keys to Succeeding with a Budget that can turn your budget into the tool that allows you to meet your financial goals.
1. Update It
Dedicating an hour or so toword the end of each month to review your spending and revise your budget for the upcoming month is critical.
As you plan for the upcoming month, you should incorporate any learnings from the previous month. Review your previous month budget plan and compare it to actual spending. For every line item ask yourself: "Does my spending behavior for this category need to change next month?" Then ask yourself: "Does my plan for this category need to change next month?" Especially for the first several months, you are likely to need to change both behavior and planned budget amounts fairly frequently. That's ok -- you're learning and improving your plan.
Now, look forward. What things will be different about the upcoming month? Will your income change? Are there any unique kid’s activities this upcoming month? Birthdays or other gifts? Dr. Appointments? We all know that electric and water vary by season.
The goal during this update cycle is to make the budget plan as accurate as possible.... and making you believe it is as accurate as possible.
2. Balance It
After you make all the adjustments from the previous month, and added spending for special circumstances in the upcoming month, you are likely to have to rebalance your budget.
If you're plan is to spend more than you are brining in, you have a little work to do. You can't spend like that for long without consequences. Go through the budget looking for every opportunity you can find to reduce spending (or increase income) until the shortfall goes away. NOTE: If you havve been at this for more than a couple months, and you continually find yourself with more expenses than income, it may be time to consider some lifestyle changes. Can you downsize your car? or move to a less expensive place? or get a different job?
Believe it or not, it is also bad to have money “left over”. People that walk around believing they have extra money for the month will find a way to spend it. Every time they are presented with an opportunity to spend money, they think "It's ok, I have extra money". In fact, most people will spend everything they had "leftover" and then some. A much better approach is to give every dollar a job. Every dollar is should either go to living expenses, debt reduction, or savings. We call this a zero-based budget, because there is nothing left over.
A zero based based budget is more effective at keeping spending within your means.
3. Review It
Anyone that may impact the success or failure of the monthly buget must review it, and agree it is “The Plan”. If you are married, your spouse must review it. I often suggest that the spouse that did not prepare the budget is required to make a change to it -- simply to create a stronger sense of ownership.
Once the month has started, It is a great habit to look at the budget 5 minutes daily. You can use that time to categorize transactions from the previous day, and monitor categories that may be approaching overspent.
Doing so will keep the budget up to date and top of mind.
Live It
“If it isn’t in the budget, Don’t spend it!” This key is the one most people miss, and it is probably the single most important step to staying within budget.
This would be easy if the plan was always perfect. The plan isn’t perfect, and life happens. So how do we keep on track? The answer is that you have to revisit the plan whenever there is a change that may jeopardize staying on plan. Unplanned kids activity? Want to go see a show? Revisit the budget and ask yourself where you can take the money from to cover the new expense. Do that BEFORE you spend the money. After you spend the money, it may be too late.
You may even need to reduce your "pay down debt" line item, or a "savings" line item to accommodate the new expense. If there is nothing in the budget you would be willing to reduce to cover the new expense, then the new expense isn’t going to happen this month.
If you can find money from other categories to cover an uplanned expense, move the money and then spend it. If not, skip the unplanned expense.
Succeed with your Budget
After about 3 months with a budget -- reviewing it and improving it each month, it begins to become an even more useful tool. Now you can look it over and moke some really impactful decisions. "If I just cut out starbucks and pack a lunch, I can have an extra $350 everyThe month to put toward my savings goal." Then make the changes in the budget -- move the savings from one category to your saving line item...... and sudenly you are impacting you financial goals in a real way.
A budget, used properly, will be the tool that allows you to acheive financial goals.
Looking at your budget and wondering how you can cut down on some expsenses? Check out: "Lifestyle Tips for Living on a Budget"
Frequently Asked Questions
Do I really need to review the budget daily?
Maybe not....... but how often is the correct cadence that you won't let slip for a week or more? I firmly believe that creating a habit of looking at your budget for 5 minutes each day is a game changer. You review what happened the day before, and make mental notes of categories you may need to stop spending on.
I happen to look at my budget while the morning coffee is brewing. (and I will not go a single day without coffee).
Why do you have to balance the budget to zero?
There are a few reasons this is important. The most obvious is that you can't have a plan to overspend every month and meet your goals.
The second, is that when people think they have money left over -- they spend that amount, and more. They just walk around thinking they don't need to worry because they have extra this month.
The last, and maybe most important reason; is that it forces you to reprioritize your spending and move money around when new priorities come up. E.g. "Is it really worth making zero progress on my savings goal this month to buy those clothes?"
What if my spouse isn't interested in budgeting?
That can be tough.
Can a football team win a game if a couple of players "aren't interested"? Maybe, a game or two. Are they going to win the Superbowl? Absolutely not. If a couple is going to succeed with money, they need to both engage. They are a team.
That being said -- Don't give up. One member of the couple can make a difference.
I have found it is easier to get both spouses to engage in some goals. Wouldn't it be great if we could be out of debt? Should we be saving for a down payment?. If both of you are interested in the outcome, it becomes much more likely you will both be invested in the process. Meet regularly over your budget and your goals if you want things to move as well as they can.
Brad Ormesher is the owner of Three Points Financial Coaching, and a Certified Financial Coach. You may schedule some time to speak with him (no obligation) using this button.
