Are you Budgeting…or just Tracking Expenses?
So, you’ve made the decision to get your money organized and you’ve spent a whole entire Sunday morning sorting and categorizing your transactions. Then you sit back and think…okay, now what?
Gurrrrrrrl, I feel you.
Before I knew how to manage my money, I did the same thing. I spent hours categorizing my transactions, looked at what I had spent the month before, and…felt discouraged.
But here’s the GOOD NEWS: You’ve done the pre-work to build your successful budget.
You’re just not done yet!
Budgeting vs Tracking Expenses
Tracking and categorizing expenses is an important part of any budget process, but the part most people get wrong is that it’s just the pre-work of the budget process.
Spreadsheets and money apps that track expenses are super helpful in seeing trends in your spending but they are backward-looking. Next, you want to use that data to inform your future spending. This is all a budget really is: your plan for your future spending.
And that’s why categorizing transactions is a preliminary step in the process, but it’s not the most important one!
The Most Important Budget Step:
The path to a successful budget is not to add up your bills, subtract them from your paycheck, and hope there is something left. That way leads to nothing but heartache, tears, and more credit card debt. Trust me.
The first step on the path to a successful budget is to figure out the kind of life you want your money to build for you. Yes. Really.
The first step to a successful budget is to take about ten steps back and think about the kind of life you want to live.
Yes, I know you have rent and bills and loans, I get that. But, your daily decisions build your future. So, what different daily spending decisions do you need to make to build the kind of life you want? What are you spending your money on each day that doesn’t serve the life you want to live? Which one of those expenses could you cut out of your life today, or at least as soon as possible?
Identify those, and then work to remove them from your life and you will be many miles down the road to the life you truly want to live.
And, you will have completed the REAL FIRST STEP to a successful budget.
🤗🤗🤗
Second Step: Saving - Taking care of Future You
The second step to a successful budget is another step a lot of people get wrong. They go right into identifying their bills and their debts. Those are important, everybody needs a roof over their head and food.
But, starting with your bills won’t build the life you want.
You have to start with taking care of Future You. And that means you have to start with Saving.
If you’ve never been great at saving, pick a small goal and start there. I wrote a whole blog post and did a video on how to become a saver even if you’ve never been one. You can find it HERE and HERE.
Third Step: Musts, Wants, and Debt
Once you figure out your savings goal, it’s time to sit down and figure out what your REAL Musts and Wants are, and how much you need to pay toward your debt.
When you’re listing out all of these expenses, step back and take a really hard look at each one of them and ask yourself: if I spend my money on this, will it help me get to the life I truly want to live? If it won’t, then it’s time to think about how to remove that expense from your budget.
Now, there are some expenses we might not want to pay, but we have to. Usually, those expenses relate in some way to an event or purchase we don’t feel good about. If it’s alimony, then it’s a failed relationship. If it’s a mortgage payment, maybe it’s that the interest rate is too high and now is not the right time to try to refinance.
Whatever it is, when and how can you get it out of your current life? It might take some time and creative thinking, but I bet you can do it!
Fourth Step: NOW you're ready to Budget!
Or, as I prefer to say: you’re ready to create your Money Plan!
Now that you have your savings goals, as well as your “Must pays”, “Wants to spend on”, and “Debts to pay back” sorted you are ready to budget!
The number one way I like to budget is to plan my paycheck like I plan my week. I wrote a longer blog post HERE, but the short version is to sit down with your calendar, your savings goals, musts, wants, and debt payments and figure out which paycheck is going to cover which item. Planning by paycheck allows you to break up your budget into manageable “chunks”.
I love using my calendar for this process because I look at my calendar Every DAY. I am never without my calendar because it’s on my phone.
First, add your paycheck, including the net amount, as a repeating “appointment”.
Then, Add each item (savings, musts, wants, debt) as a repeating “appointment” on your calendar.
You now have your budget built right into your calendar! You know exactly when you get paid and when you plan to pay for each item in your budget. Never get surprised by a pesky bill you forgot about ever again!
If you want to know more about how to Build Your Budget in your Bill Calendar, I have a whole class that walks you through everything you need to know to create a customized bill calendar just for you right in the calendar you keep on your phone! Check it out HERE. 🙂
Fifth Step: Review and see how you did (categorize those transactions!)
NOW, the process starts again! You’ve made it through one week or one pay period and you’re ready to update your spreadsheet or money app with your expenses and see how you did!
Go through and categorize your transactions to your little organized heart's delight. Only this time, tag all of your spending with Savings, Must, Want, and Debt.
Then, run a quick report and see how well you did against what you planned to do. I use Mint, but any money app will let you do this. Once I’ve tagged everything, I step back and look at where I spent my money and make some decisions about the coming week.
I go through this whole process each week during my Sunday Money Date.
I review how successful my savings goals are going, as well as all the other facets of my budget. I also take this time to review the upcoming week and make sure I know what’s coming in and what’s going out.
For a FREE copy of my Money Date Checklist, click HERE
Conclusion
Spreadsheets and Apps that track expenses have their place and can be helpful to see past spending trends, but categorizing transactions is just the pre-work for a successful budget.
Just tracking your expenses isn’t going to get you where you want to go. Are you making adjustments and decisions about your spending from the information the apps are giving you? If the app isn’t helping you make better decisions toward your larger financial goals, then it’s not useful. It’s busy work and who has time for that?!
P.S., if you want to learn how to plan your money right in your calendar, check out my How to Create a Bill Calendar course HERE.
Not ready for a whole course? No problem! Check out this blog post “How to Create a Bill Calendar”. There’s even a video!
**I am not a licensed financial advisor. I am a money expert and I provide education, tips, tricks and my opinions around money. You should consult a professional who understands your needs in order to make the best decisions for you! Additionally, some links in this blog may be affiliate links, which means if you click the link and buy the product I may earn a small commission - at NO COST to You! It’s one of the ways I keep the lights on around here so TYIA! 😉