The HOW and WHY of Budgeting

Budgeting is the First Step in Financial Planning

"Failing to plan, is planning to fail".  There is a lot of wisdom in this old adage when in comes to personal money management. 

We hear it all the time… we must spend within our budgets. But what does that really mean?  Many people spend aimlessly without preparing a budget and as a result, they usually come up short in their financial goals.  As you read this, you may be thinking "I have little to no money" or "I have enough income to cover expenses".  Budgeting is important for those who are struggling, those who have more than enough, and everyone in between!   While we can’t predict every single thing in our future, your budget can and should be used as a roadmap to help you to reach your financial goals.

The HOW of Budgeting - Creating a Budget
A budget is simply a listing of expected income and expected expenses for a period of time.  You should budget for all expected expenses, which includes recurring expenses, such as utility bills, groceries, mortgage, insurance and other expenses that you will incur for the month. In addition, you should also budget for items that you may pay infrequent, such as your annual property taxes or a quarterly insurance bill.  Setting aside money toward these annual expenses can prevent “panic mode” when the bill is due.  For example, if your property taxes are due annually, you should set budget a sum monthly to make certain you are able to cover the expense when due.

There are many online budgeting tools, or you can print a paper budget worksheet like this one from Dave Ramsey's website.

The WHY of Budgeting - Get Inspired!

But how can you stay motivated with something as boring as budgeting?

One way that I have found it is easier to stay motivated about budgeting is to also prepare an inspirational budget which includes words as well as numbers!  This idea is inspired from a scripture from the bible, “Then the Lord answered me and said: Write the vision and make it plain on tablets” (Habakkuk 2:2).

Step 1: Spend some time really thinking about what is really important to you and write it down. Be specific and think about the "why" behind the goal.  For example, you might write down the following:

To experience financial peace in my family so that relationships are less stressful and we can spend more time together as a family rather than working second jobs.
To give more to deserving ministries and missions so that I can be a part of advancing the Great Commission.

Next, right down the specific steps to attain those goals.  Be aggressive, but reasonable based on your personal situation.  For example, you might write down the following:

Pay off $3000 in credit card balances within six months by cutting out all non-essential expenses.

Start saving to pay cash for our next automobile.

Shop for a lower cost cell phone plan and auto insurance.

I think that an inspirational budget plan is extremely helpful for several different reasons.  It provides me (1) a clear vision to determine where I am headed; (2) inspiration to keep pressing on and (3) and a constant reminder to understand small sacrifices will provide big rewards in the future.

So whether your desire is to pay for your kids to go to college or simply become debt free at a certain age, your chances to achieve your financial desires are much better if you prepare and live within your budget!

To find out more about professional financial advising and coaching by a CPA with a heart for helping others become good stewards of their resources, visit Ascend Financial.