Budget is a scary word. I know. I’ve been there. People seem to think if they start budgeting that means they have to stop spending money completely and become miserable old misers. It doesn’t have to be that way though.
The first step to successful budgeting is to change your mindset toward budgeting. Budgeting isn’t about cutting your spending to the bone and eating ramen noodles every day—it’s about telling your money what you want it to do instead of letting it slip through your fingers. None of us want to float through life with no idea where all of our money went, but so often, that’s how we live. Budgeting is about being purposeful with your spending and letting it reflect your values and goals.
And the good news is that budgeting doesn’t have to be limiting. Have you ever thought that it might be freeing? Do you like to go out to eat? Add a line to your budget for eating out and allocate money toward that each month. Do you like to go shopping occasionally? Add a line item for “fun money.” The point of a budget isn’t to get rid of every fun thing in life. The point is to pay attention, to exercise discipline and moderation, and to balance your short-term goals with your long-term ones. Yes, you like to eat out, but I’m guessing you’d also like to retire someday. You may have a big dream you think is out of reach, a vacation you’d love to take, or some generous giving you want to do. Your budget can help you figure out how much spending is actually reasonable for you in a given month for things like eating out, while also helping you plan for your long-term goals and dreams.
Track Your Spending
The first step to building a budget for your family is to start tracking your spending. Most experts will say it is the most important step to help you get your finances in order. My recommendation is to not try to significantly cut anything for the first month or so. The point here is simply that you need to know where your money is going. How much did you spend on groceries last month? Eating out? If you don’t currently track your spending I’ll bet you’ll be surprised when you find out the exact number.
It’s extremely easy to overspend in lots of different areas, and if you don’t track it you won’t even know you are doing it. Your spending reflects your values and priorities. What does your spending say about you? Think about the things that make you the happiest in life. Make a list. I’d guess grocery shopping at Walmart doesn’t make the top 10 for most people. I’d venture to say about half of your top 10 don’t priorities don’t cost you anything at all, or very little.
There are lots of ways to actually track your spending. Everything from writing it down, to spreadsheets, to budgeting software. I like the envelope system personally, whether you use cash in actual envelopes or one of the many budgeting apps for couples (they work great for single people as well). Either way, you classify your transactions into “envelopes”, which are just categories for spending. Fill up your envelopes (metaphorically if you are using software) at the beginning of the month, and then don’t spend more than what you allocated during the month.
After the first month or two, sit down and look at your spending totals. Are they where you thought they’d be or where you want them to be? Are you hitting your savings goals? Once you know where your money is going, it’s much easier to make a legitimate budget that you have a chance of sticking to.
Start Cutting and Stick to It
Now here’s the real key to budgeting—sticking to it. Writing down a fancy budget where you say you are going to spend $12 on groceries and put the rest into savings isn’t actually helpful. It has to be realistic. On the low end, many frugal bloggers shoot for $2 per person per meal. That’s $180 a month per person for groceries. You obviously can’t eat out at a restaurant for $2 a meal, so if you spend a lot of time eating out, that might be a good place to start cutting.
Remember though, budgeting isn’t about cutting everything to the bone and being miserable. Budgeting is just the act of you telling your money where you want it to go. If you really like to go out to eat, find ways to incorporate it into your budget but see if you can cut back a little. Do you go out for lunch nearly every day? Try bringing your lunch three days and eating out two. Over the course of a month, that will start adding up for you. If eating out is not a priority for you, then definitely make that easy sacrifice. Making your own food from scratch and eating at home is always going to be the cheapest way to feed yourself—and often the healthiest.
And one of the easiest ways to help yourself stick to your budget is to make sure you give yourself some “fun money.” Even if it’s $20 a month—give yourself and your spouse some money to do whatever you want with. You have to figure out how much room you have in your budget, but it’s important to remember to have a little fun. Everything doesn’t have to be cut out of your budget. You just have to keep things in moderation and pay attention.
Short Term Goals
What are your short term goals? Do you need a new (to you) car? Seriously, don’t buy a new car, get a few-years-old used car, but’s that’s outside the scope of this post. Is your emergency fund in a good place? Three to six months of your expenses is a good amount of cash to have in savings in case you were wondering. Do you have a vacation you’ve been dying to take? Christmas. It comes around every December. These are all short-term goals that are great to have, but you need to save up for them. Debt will kill your long-term goals. Don’t put your vacation on the charge card. Try not to finance your car. Save up for them over time.
Put those savings goals into your budget. Figure out how much the car you want is going to cost and put a few hundred a month into savings so that you can pay cash for it in a year or three. Plan your vacation as far ahead of time as you can, and put money towards that each month. If you don’t have the emergency fund or you are in debt, start with that.
Long Term Goals
A lot of people look forward to retirement, but many see it as something 40 years down the road or maybe something not attainable at all. That doesn’t have to be the case though. The key is extremely simple, it’s just math. All you have to do is spend less than you make, save the difference, and do it consistently over time. That will get you there, guaranteed. The only question then is how big the difference is between how much you make and how much you spend. If you save 15% it will take you roughly 43 years to be financially independent. If you save 65%, it will only take you a little more than 10 years.
So how do you balance your short-term goals with your long-term goals? How do you balance those with what you need to live and enjoy life? These decisions are going to be very personal things that you need to discuss and decide with your family. You need to be honest and open with each other and really think about what you want in life. Did you make that list earlier of the five or ten things that you most enjoy in life? If you didn’t, stop and do that now. Then share your list with your significant other.
Your lists should help you prioritize your spending. Does one of you want to quit your job to stay home with the kids, or perhaps go part-time? Do you love traveling and seeing the world? Want a new car for the commute to the job you love? Or do you hate your job and can’t stand the commute? Everyone is different, so everyone is going to have a different budget. The key is to shape your budget so that your spending actually reflects your values and dreams.
If you don’t actually care about eating out, but you love going on vacation, maybe pack your lunch more often and save that money for your next trip. If you are spending way too much at the grocery store, try to figure out why, or maybe switch to a discount grocer like Aldi. Do you yearn for financial freedom over everything else? Try to stop buying so much “stuff” and put it into an index fund instead. The more you save the sooner you will reach your goals.
Have Monthly (at least) Budget Meetings
If you want to succeed with your budget, you will have to get and stay on the same page as your significant other. This is fundamental to the process. If you don’t agree on where you want your money to go, it’s going to just create stress and arguments in your relationship. Money is one of the main things people argue about. If you can solve this, you will be much happier in life.
To keep on top of your budget, you have to look at it regularly. Things come up and you have to account for them. You may not have planned on that medical bill this month, or perhaps you got into a fender bender. There are all sorts of unexpected things that happen in life, and you have to deal with them when they do. You might have to cut back on eating out this month so you can fix your bumper, or your mailbox, or maybe both.
The more often you meet, the easier it will be. For a long time, my wife and I met twice a week. Now it’s more like weekly. The more often you do it, the quicker and easier the meeting can be. It’s a lot easier and faster to go over four days of transactions than it is to go over the whole month.
There is no right or wrong way to do a budget as long as you are spending less than you make and being intentional with your money. The important thing is that you are on the same page with your family and you are working toward your shared goals. A budget isn’t a bad or scary thing. It’s a plan to help you reach those goals. Your spending reflects your values. Either you are moving toward your goals, or you are just floating along. Don’t dread budgeting, or think of as something that is limiting you. Let your budget help you reach your goals, and let it be something that helps your relationship grow stronger.