• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar

Wealth Pilgrim

No Money Worries. No Matter What.

Neal Frankle featured in
  • Home
  • Life Insurance
  • Investing
    • Build Strong Investment Building Blocks To Avoid Going Broke In Retirement
    • Systematic Mutual Fund and ETF Investing
    • Stock Market Investing Guide
    • Choosing the Right Investment Brokerage Guide
    • How Bonds Work Guide
    • How Banks Really Work Guide
    • Annuities – What You Need To Know Before You Invest
    • A Beginners Guide To Buying Individual Stocks
    • Create A Pool Of Great Mutual Funds and ETFs To Pick From To Secure Your Retirement
    • ETF and Index Fund Investment Guide
  • Earn More
  • Banking
  • Retirement Planning
    • Retirement Guide
  • Ask Neal a Question
  • Reviews
    • Upgrade Personal Loans Review
    • Lending Club Review
    • Prosper Review
    • Ally Invest TradeKing Review
    • CIT Bank Review
    • LegalZoom Review
    • Lexington Law Review
    • Airbnb Host Review
    • Should You Drive For Uber?
  • Tax
  • Courses
    • Raise Your Credit Score So You Can Buy a House – Free Video Course

Creating a Budget that Works

by Neal Frankle, CFP ®, The article represents the author's opinion. This post may contain affiliate links. Please read our disclosure for more info.

Lots of people name “getting out of debt” as their top priority for the coming year. Well, if you are one of those people, the most important first step you should take is to become a master at budgeting. The good news is that you can make a budget that works even if you’ve tried and failed in the past. Here’s how:

1. Get Religion

Your budget is the building block of your financial future. It doesn’t matter how much or little you have or earn. If you earn $100,000 a year but spend $150,000 annually, how much financial security do you have? None. Lots of people run after earning more, and that’s fine. But that step alone, without being crystal clear on how much you spend, puts you on a never-ending paper chase. In order to really have a budget that works, you need to fundamentally understand that you need a budget even if you don’t have any debt. You have to want a budget as if your financial life depends on it – because it does.

2. Get “Webstered”

To have a budget that works, you have to understand what a budget is. And it’s not complicated. For our purposes, we’re not going to need a dictionary. Your budget includes four elements. The first part involves tracking what you spend – everything. The second part is forecasting what you will spend during a month. That forecast includes everything you will spend. The third part is to compare what you thought you’d spend against what you actually spent. And the fourth and final part of this process is to change your behavior (or budget) to reflect the reality of what you spend and what you can afford. We’ll get to this shortly.

3. Get Family

In order to successfully stick to your budget you have to get “buy in” from your family. Without everyone being on board it will be very difficult to stick to your budget. You’ll work at cross purposes and waste energy in disagreements over your spending. The best way to get everyone in your family on the same page with you is to explain what you’re doing and why. Explain why you think your family needs a budget and what’s going to change.

4. Get Tracking

You can track your spending in many different ways, but the key here is to do it such a way that is simple and fun. You need a system or you will stop tracking your expenses and all the previous steps will have been for nothing. There are different levels of tracking. One very easy and simple tracking method is to just look at your bank statement. It tells you what your total withdrawals are for the month. That, in effect, tells you how much you’ve spent. So one very easy way to track your spending is to just keep a tally of your total withdrawals on a month-by-month basis.

This is a great strategy but you may need more details if you want to make better spending decisions. In other words you might figure, by following your total withdrawals from your bank account, you spend $7,000 on average each month. But until you know how that $7,000 is being spent every month, it’s tough to know how to change your spending behavior. And in order to have that information, you need to either write down what you spend or use tracking software.

I personally like to use budgeting software because the idea of writing down what I spend and transferring that data to my computer gives me nausea. I’m just not that ambitious. It’s too much work, and as a result I won’t do it. If that describes you, get a budgeting tracking package.

There are a variety of programs available. Some are free and some aren’t. My favorite is YNAB (You Need a Budget) because it handles all four phases I mentioned above. It helps you forecast your spending, compare the forecast to the actual and then determine what you need to change to get on track.There are other options as well. No matter what you choose, just make sure you get a program that allows you to download the data from your bank and credit cards. This way, you can update your budget in a less than 30 minutes a month. And because it’s so easy, there is a greater chance that you’ll stick to it.

5. Get Forecasting

After you track your spending for a few months you’ll be able to estimate what you’re going to spend in the months ahead. You won’t do it perfectly but that’s fine. You’ll be blindsided by non-recurring expenses like annual insurance premiums and unexpected repair bills once in a while. That’s OK. This isn’t pass/fail. You get to fine-tune your forecasts over time. You’ll see that by continuing this process, you‘ll get closer and closer to the real number that represents what you spend on a monthly basis.

At this point, especially if you use a budget tracking software package, you’ll know where you have problems with forecasting. In other words, there will be some unavoidable expenses that you’ll forget about. These are typically the annual or semi-annual expenses and/or the unforeseeable but completely predictable repair bills. Don’t assume just because you didn’t forecast an expense that you’re overspending.

However, there will also be areas where you are overspending. When you look at your actual numbers versus your forecasted numbers, you’ll know exactly where those problems are. The question is, are you willing to change your financial behavior? If not, why not? And if not, you must change your forecast budget to reflect higher spending.

You Might Also Like:

Solve Debt Problems without the Rip-offs

5 Unique Ways to Slash Your Cost of Debt

 

Tweet
Pin
Share

Reader Interactions

User Generated Content (UGC) Disclosure: Please note that the opinions of the commenters are not necessarily the opinions of this site.

Comments

  1. Jamie says

    January 13, 2012 at 2:03 PM

    Really good advice here, especially #s 2 and 3. When you start tracking every single penny, you start to get a reality check very quickly (kind of like when you start logging calories! 🙂 As you mention, it’s SO important to make sure everyone in the family is on board.

    Reply

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Are You Human? * Time limit is exhausted. Please reload CAPTCHA.

Primary Sidebar

Who is Neal Frankle

Neal Frankle

I'm a Certified Financial Planner™ with more than 25 years of experience. I feel very blessed and hope to share my personal financial experience and professional wisdom with readers of WealthPilgrim.
Read More »

Stay Connected

Facebook Twitter YouTube RSS

More Categories

Career Development
College Funding
Credit Cards
Credit Score Fixes
Money and Marriage
Debt Relief
Estate Protection
Property Investment Loans
Small Business Strategies
Spend Less Money

Disclaimer

Wealth Pilgrim is not responsible for and does not endorse any advertising, products or resource available from advertisements on this website. Wealth Pilgrim receives compensation from Google for advertising space on this website, but does not control the advertising selection or content. Please do the appropriate research before participating in any third party offers. The information contained in WealthPilgrim.com is for general information or entertainment purposes only and does not constitute professional financial advice. Please contact an independent financial professional for advice regarding your specific situation. Wealth Pilgrim does not provide investment advisory services and is not a registered investment adviser. Neal may provide advisory services through Wealth Resources Group, a registered investment adviser. Wealth Pilgrim and Wealth Resources Group are affiliated companies. In accordance with FTC guidelines, we state that we have a financial relationship with some of the companies mentioned in this website. This may include receiving payments,access to free products and services for product and service reviews and giveaways. Any references to third party products, rates, or websites are subject to change without notice. We do our best to maintain current information, but due to the rapidly changing environment, some information may have changed since it was published. Please do the appropriate research before participating in any third party offers.


About · Contact · Disclaimer & Privacy policy

Copyright © Wealth Pilgrim 2021 All Rights Reserved