Let’s play a word association game. When you hear the word “budget,” what word comes to mind? Restrictive? Limiting? Boring?
Why not purposeful, strategic or freeing? Sound like a stretch? Maybe. Or maybe we just attach the wrong connotation to the word.
Simply put, a budget is a spending plan – a projection of expected expenses for some future period. But if that’s where your definition ends, you’re missing the main point. A budget isn’t just a projection for how you spend your money; it’s the map for how you pursue your financial goals.
Set aside the concept of budgeting for a moment and think more broadly. What are the most important things in your life? What do you value? Is it your family? Your friends? For many of you, your faith is certainly on that list.
Now think about how you spend your money. Regardless of what you value, does the way you spend money mirror what is most important to you?
The budgeting process can feel restrictive, but it can also give you confidence in knowing that your spending is aligned with your priorities. And that confidence can help free you from worry so you can focus on the more important things in life.
January is a natural time to reassess your finances and develop a plan for the coming year. A great first step is to develop a budget. Need some help? Consider the tips below, and feel free to contact me at firstname.lastname@example.org for a free template.
Be realistic. It’s easy to start out with good intentions that are overly aggressive. Be careful not to be so restrictive that when an unexpected expense pops up you get discouraged and give up.
Remember non-recurring expenses. Start your list of expenses with those that recur monthly, but don’t forget about expenses like auto insurance or club dues that you pay less frequently. If your insurance is $600 every six months, set aside $100 per month so you will have the cash available to pay the bill when it comes due.
Include some fun money. I once worked on a budget for a friend who enjoyed having fresh flowers on her desk. She included a flower fund in her monthly budget, and enjoyed the flowers without worrying about whether she could afford them.
Track your spending. After you prepare your budget, keep track of everything you spend for a month. You may realize that you spent less on gas or more on food than you anticipated.
Be flexible. Budgeting is a process, and you’ll need to make some changes. Work up a draft, track your spending and repeat. Over time, you’ll develop a feel for how you’re spending your money and will be in a better position to make sure your spending aligns with your goals.
by Chris Brune, PhD, CFP® is associate professor of finance and chair of Ouachita’s Department of Accounting and Finance; he also is a 1994 Ouachita graduate. For more helpful tips from Dr. Brune on managing your personal finances, watch for his new podcast at www.obusignal.com.
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