Budgets get a bad rap, but you wouldn’t do anything else in life without a plan. Here’s how to get started.
The Marriage Challenge
By Art Rainer
BUDGETS GET A BAD RAP
I am a University of Kentucky graduate, and, therefore, I get pretty passionate about their sports teams. You may have a team that you cheer for. Imagine if your team played a game without any plan. Entering the game, they had no clue what offense or defense to run. Apparently, they never really gave it much thought prior to the game. And when the coach was questioned about it later, he said, “I figured it would just work out in the end.”
Or imagine that today is the first morning of your vacation. You are going to Oregon for the week. The family loads in the car, and you crank the engine. As you back the car out of the driveway, your teammate asks, “Do you know how to get there?” You respond, “Hadn’t really thought about it. I assumed that if we just started driving, it would eventually work out.” We expect coaches to have a game-winning plan. And there is no way that you would waste your vacation traveling aimlessly. You would have a plan.
Well, that’s what a budget is—a plan. A budget is your plan to accomplish your financial goals. It is your plan to pursue contentment and purpose in your finances. A budget is also one of your most important tools to strengthen communication. Budgets force conversation. They get you and your teammate on the same page, moving forward in the same direction.
My preference is a monthly budget. This fits most income and bill cycles. If you haven’t started a monthly budget yet, here are a few steps to get you going:
Step 1: Determine your monthly goals. Your first step in developing a monthly budget is to determine your financial goals, specifically your giving and saving goals. These goals will help define the shape of your budget.
If you haven’t hit the 10 percent giving mark, I recommend it as goal. Likewise, if you haven’t hit the 15 percent retirement goal, I recommend that goal as well. Now, you may not be able to hit those goals this month, or even this year, but your monthly budget should reflect progress toward those goals.
For example, you may want to start The Takeoff plan for giving. This means including at least 1 percent giving. You may also consider dedicating a portion of your budget to retirement savings, a step toward hitting that 15 percent mark. Make sure your budget allows you to take your next step in reaching your financial goals.
Step 2: Determine your monthly income. After identifying your financial goals, figure out how much you get paid on a monthly basis. Usually, this is a fairly easy step—simply look at your paycheck. If your pay varies, maybe because you are in sales, take the average of your past few months of income. Of course, if there happens to be a month where you received a much higher income than usual, exclude that month. Outliers can throw off your average.
More than likely, the income that shows up in your bank account is your net (after-tax) income. This is the amount you want to use for your monthly income. However, if taxes are not taken out, which means you are probably self-employed, you will need to include your taxes in the next step.
Step 3: Determine your monthly expenditures. Next, go back and look at your past month’s expenses. These expenses will serve as the starting point for step 3. As you look through the expenses, consider whether or not you can lump any of them into a single category. This will simplify your budget. Complex budgets often result in abandoned budgets. Common categories include giving, saving, retirement, mortgage/rent, groceries, transportation, education, medical, and entertainment. Don’t forget to include taxes if you used pretax income in step 2.
Step 4: Adjust your expenditures to fit your income (and your ability to save and give). Now add up all of your monthly expenditures. How do they compare to your monthly income? For many, this reveals the reason for their financial struggles. They have more expenditures than income. Each month, they get a little further behind. So, what do you do?
You adjust. Look at your monthly expenditures and find places where you could cut back. For some, this may mean eating out less. For others, it may mean selling their current car and purchasing one that fits their budget. Even better, it means purchasing a car with cash and eliminating the ongoing monthly payment. Don’t forget to consider how you can include giving and saving in your budget. Giving and saving may be areas where increases are necessary. You may need to sacrifice a few good things for a much better thing. Remember, your budget is a plan to help you reach your goals.
Step 5: Track your spending. After you have created your monthly budget, don’t just set it aside and ignore it. Use it to make sure that your spending aligns with the plan. There are many ways to track your spending. One of the most common, low-tech tracking methods is called the “envelope system.” Each expense category receives its own envelope. For example, you probably would have an envelope titled “Groceries.” In this envelope would be the amount you budgeted for the grocery category, in cash. As you make purchases, you use the money in the envelope. Once the money runs out, you don’t make any more purchases.
The envelope system is designed to create financial discipline. And it has worked for many people. If you prefer not having a bunch of cash in envelopes, there are several online budgeting resources. One is Mint.com. This digital platform connects your bank accounts to a budget you set up on the site. This is only one option—there are several other great online tools out there. The important thing is to find a way to keep up with your expenses. Tracking your spending is vital to get out of a financial pit and on the track to financial health. Choose the tracking system that works best for you.
Step 6: Have a monthly check-in. Monthly check-ins is a great way not just to see if you are on track but to communicate with your teammate. Try to schedule some time each month to review your budget and make any necessary adjustments. Consider whether or not onetime expenses will hit in the next month. And don’t forget to evaluate the progress you are making in reaching your goals.
Excerpted with permission from The Marriage Challenge by Art Rainer. Copyright 2018, B&H Publishing Group.