Is it true that it’s not what you make, it’s what you spend?
If this is still a debate in your household, then this post is precisely for you.
Of all matters that matter the most; building, realizing and maintaining an accurate personal budget is, at its core, one of the critical life lessons I intend to teach my son (and anyone else willing to listen) as soon as possible.
Truth be told, I am not a trained or self-proclaimed financial guru nor do I pretend to be an adviser on anything money-related (beyond this article, of course). The good thing here, for you, is that I have absolutely zero bias and will not ask you to buy anything from anyone. I’m also pretty good with numbers and always strive for simplicity.
With that said, below are my 7 Steps to Building an Accurate Personal Budget:
What’s the use when you do something great, but refuse to commit to the maintenance of its greatness? The rest of this article means little unless you can truly commit, 100%, to the task of creating and maintaining a personal budget.
I’ve written about commitment before and can only hope that the concept will not be a recent revelation in your life.
2. Make it online accessible
A budget (as well as most anything these days) is most effective when you can have ready access to reference and update it from anywhere. I highly recommend Google Drive due to the fact that it works great on multiple devices, can be shared (read/write and read-only) and can handle most any formula, graph, chart, data you throw at it.
3. Record everything
Next to committing to your budget, of course, recording everything is certainly the most difficult task when creating an exact and transparent budget.
It’s easy to jot down, record and check your daily and monthly expenses but not so simple with the bi-annual and annual expenses that hit your email inbox or post mailbox (e.g. life insurance, car insurance, property taxes). The same is true for the expenses that really have no schedule such as routine car servicing, sporadic flights/vacations and the unknown costs of acquiring a new hobby.
I’ve created a monthly budget template that relates the most to the lives of today’s middle-class with the hopes that you now have a useable template to build upon.
Access the IE Budget Template via my Google Drive here.
Note: The file is read-only but please feel free to download as a .xlsx, .ods, .csv or whatever format you feel meets your needs.
If you have any questions or need further clarification, just let me know.
4. Stop lying to yourself
Likely, the most common suspect for budgets failing is that we all have a tendency to lie to ourselves.
Will power is weak, at best, for most of us. As we’d like to think that we only spend $200 per week eating out, drinks, social and entertainment, this becomes more and more obvious when we actually begin to police ourselves by going “cash-only” for a week.
Imagine if we couldn’t run to the store and buy bigger clothes or just jump up a belt notch after an all-you-can-eat pasta bowl at Olive Garden. With a budget, you can easily limit yourself by taking only what you need. I recommend policing yourself every 6 months, at least. The following item should help…
5. QA with cash-only
Honestly, I just started this earlier this year to do a bit of quality assurance on my recorded expenses. Coincidentally, few expenses popped up that weren’t accounted for…then a few more. And a few more, making it very obvious that I was guilty of #4 above. Damn.
This is a tough task, to be honest. But critical nonetheless. Trust me: no matter how many credit card points/rewards will be missed, just give this “cash-only” exercise a week to practice. This will be eye opening, not only for the fact that cash is an absolute inconvenience versus the use of debit/credit, but more so that you are now able to police yourself by limiting your funds.
I’ve heard and thought about multiple ways to accomplish this feat, using envelopes (easier if you carry around a purse/backpack/messenger bag) or, simply, just to plan ahead by considering what lunch meetings are scheduled or if it’s Friday and the likelihood of a Happy Hour will occur. Carrying cash with an emergency credit card works best for me.
6. Wash, Rinse and Repeat
If you’ve truly committed to fiscal sanity, it is necessary to revisit your budget as often as needed. This could be weekly for the first few months, monthly for the first few years and quarterly for the years to follow.
No matter how unactive you are financially, your auto insurance will be changing, your employer will update their medical insurance options, your interests/hobbies will change, your salary/investment income will change, your kids will age and (sorry), you will age.
I’ve maintained a solid budget for the past 6+ years and I still reference/update it, at least, once a month.
7. Define fiscal accountability and enforcement
Unfortunately, as much as you convince yourself otherwise, fiscal accountability cannot be maintained without unwavering enforcement. Significant others work best as they introduce an emotional bind to finances with a keen focus on longevity (most times).
It’s much easier to convince yourself that you need that new pair of shoes/shirt/gadget/whatever, but try convincing your significant other when you just told them they shouldn’t acquire the shoes/shirt/gadget/whatever they wanted just last week.
Keep at the front of your mind while going through this exercise, if it were easy, everyone would do it.
Building and maintaining an accurate budget isn’t trivial task, but your life, as a result of it, will be so much easier making this matter well worth the time and effort.