Quarterly Report: Setting a Budget

Today’s post is brought to you by my “in-house” accountant and Reg. CPA (aka my husband Evan). Evan has kindly agreed to write some posts about finances every now and then (lucky us!). I know I’m a little bias but it’s no exaggeration when I say he’s a whiz at this kind of thing, and I’m very happy to be able to share some of his knowledge with you. Today’s post is about setting a budget–something I never, ever could do. Budget setting is tedious to do and even harder to stick to, but Evan is here to provide some tips to create, start, and stick with budget that matches your lifestyle!

While it may sound obvious that having a budget is important, it actually takes time and dedication to stick with it month after month. Even for accountants, making a household budget can be a chore, however this is something that everyone should strive to master. By making a budget, you determine how much you bring in; how much you are actually spending; and how you are spending your hard-earned money–this is relevant info everyone earning money should know. A budget is also a tool that can help you to reach long term goals like buying a house, car, or plan a vacation (ed. note: or pay off those student loans!) because it assists with identifying areas that you could cut back on to reach those targets.

One. The first step is finding a way to document your transactions. The main idea here is that you have to know where your money is going. You can do this the long-way: manually and going through every credit card and bank statement and inputting that in an excel sheet. Or you can use the free, user friendly, secure tools available online. For my own personal needs, I use Mint.com to track my spending. I provide my log in credentials for my accounts, which is done through a secure connection, and Mint automatically pulls in all of my history. Once updated, I go through and review the history and categorize each purchase (was it for groceries or restaurant, etc). I also split up a purchase to get the most accurate picture of what I’m spending. The best part is that they have a budget feature that lets you set a monthly amount for each category. Mint will then summarize your purchases for each category, and tell you if you’re approaching your limit or still have room to spare.

Two. Be realistic in your budget and goals. It’s great to set your sights high, but if you set a ton of goals right away it may be difficult to stick to them all, and that can leave you discouraged. Instead, think of one big goal and one small goal and make a game plan. If you do go over budget, analyze the situation and think about whether you need to consider trying a different approach. Maybe you buy things too easily with a credit card, so you may want to consider using cash. You also need to analyze what’s important to you. Do you want to buy lunch every day or would you rather bring lunch and go on a trip? Determine your priority and then make plans accordingly.

Three. Track your spending. This is the most important! I would recommend tracking your spending for a month or two, without budget setting, to see where you’re spending your cash. This will give you a good picture of how you actually spend your money compared to what you may have thought. When you finally see all of your individual purchases and a total monthly tally you’ll get a better picture of where you can cut back and can make lifestyle changes if necessary (i.e. bringing coffee to work instead of buying it every day). I always think of The Office when Michael Scott finds out from Oscar, the accountant, that he is spending hundreds on multiple magic sets–you just never really know how you’re spending your money until you track it!

It takes a lot of time, commitment, and will-power to stick to a budget–especially if you reach your limit before the end of the month. Many people struggle with over spending and carrying too much debt, which has many negative consequences and can greatly affect your quality of life and what you hope to accomplish. However, by setting and sticking with a realistic budget you may reach your goals faster than you thought possible. This will give you the initiative to keep going and by doing so, you will create a healthy financial future for yourself and your family.

–E