If making a budget were a school project, I’ve seen some A+’s made by my clients over the years, and they’re not what you’d expect. The most inspiring one I’ve ever seen was on a jumbo-sized paper that unfolded into an even larger poster-sized banner. It was covered in colourful labels and was split into categories with headings that jumped out with bolded fonts. I was stunned when my client proudly laid it on my desk. The details, effort, and passion she put into this amazed me. Her excitement was contagious, not only was I impressed but I was inspired! That evening I went home and sat down to do an updated version of my own budget, knowing mine too deserved a far greater effort than I had given it in the past. It deserved some colour, bolded titles, funky fonts and just some extra time and attention.
I know we’re not taught that budgets can be inspiring. And for most of us, they’re in the category of – I probably should get to that one day soon. But creating a roadmap for your future wealth should be fun. There are many great books, articles, electronic applications and spreadsheets that recommend formats for budgeting. And to get you started, here are five tips I’ve curated from the hundreds of budgets I’ve seen.
Tip #1 Actually Make a budget!
Many of us are guilty of guesstimating in our heads or scratching out our expenses on a scrap piece of paper. But this won’t give you the true picture of your financial health. Start by listing the largest expenses like mortgages and car payments (fixed expenses), and work your way down the list. Capture them all, don’t leave any out. And look up your receipts to get them right. Don’t forget all the little things that don’t come up every month. These are called discretionary expenses, and can be grouped into categories to help you plan.
Tip #2 Create Awareness of Your Habits
Don’t let seeing your budget in black and white (or full colour!) get you down. The first step to reducing stress is awareness of what’s happening. Knowing that the goal of your budget is simply to develop an awareness of your spending habits can keep you feeling positive through the process, and with the end result.
Tip #3 Check-In Annually or with Major Life Events
Budgets are not a one-time exercise. Doing it once doesn’t check it off your list forever. Pick an annual date to serve as a reminder, such as the start of the new year when you are ready to take on new goals and resolutions. You may need to refresh your budget after major life events and changes, such as a raise at work, a move, or a change in family circumstances like a birth, a death or a divorce. Anytime your income increases, a best practice is to increase the allocation to savings so you don’t increase your spending without noticing.
Tip# 4 Don’t Leave Anything Out
Generally, budgets are monthly. Some expenses don’t happen every month, so they are easy to miss. For example, if you get your hair done on a quarterly basis – then ensure that you divide the total yearly hair expense by 12 and include what that equates to on a monthly basis. Or if you pay an expense annually, like an insurance premium, then include the monthly equivalent. Don’t ignore your small expenses. Include it all. Eliminating multiple small entries can add up to big savings on a monthly and yearly basis. Including everything can help you to feel truly confident with the end result.
Tip #5 Set Realistic Goals
A budget serves a variety of purposes. It shows what has already happened and where you are spending the bulk of your income. But it can also be a planning tool for the future. It can help you set goals and make changes. For instance, if your completed budget shows your monthly restaurant expenditures are higher than you are comfortable with, then you can aim to decrease them in the future. Your budget is a baseline and from that, you can create goals to strive for, but don’t be too restrictive or hard on yourself. Set realistic goals, such as: decrease my fancy latte expense by 20% each month, by making coffee at home a few days a week. This will set you up for more success than goals like: eliminate all eating out, which may set you up for failure. Creating realistic goals will set you up for success, and you have a better chance of making your ideal budget a reality.
Although I don’t like to give homework, I do suggest everyone take some time to get an idea about their income versus expenses. I enjoy seeing what they come up with because being vague with the request allows them to get creative. And perhaps we should all treat budgets like creative projects – then we could let go of how it ‘should’ be done, and instead be inspired to create what works best for us.
