BUDGET UGH, REFRAME TO MONEY MANAGEMENT

Why is it every time we hear the word budget, negative emotions tend to be stirred inside of us? Words and feelings often associated with budgets include: time consuming, overwhelming, tedious, methodical money tracking. The definition of a budget is simply an estimate, often itemized, of expected income and expense for a given period in the future. I like to use the word money management when it comes to budgeting as it helps reframe my thinking of the process.

KNOWLEDGE IS POWER

It is not so much about the “budget”; it is more about knowing what money is coming in and out on a regular basis. Before I made money management a priority, I had no clue about my spending. I had several bank accounts, credit cards, investment accounts and cash all over the place. What I didn’t realize is a lack of money management creates ambiguity and doesn’t allow you to spend or save freely. The thought of trying to figure out the entire financial picture was overwhelming and the motivation for creating a budget was at best, low.

I started doing research on money management by asking around to see who in my circle actually knew their finances. Interestingly, I found that my friends who are considered high net worth individuals have a budget, know where all their money is going on a regular basis and stick to their budget.

SPENDER OR SAVER, NEED A HEALTHY BALANCE

Everyone has very different views of spending, to make things simple we will categorize people into two groups: spenders vs. savers. Think you’re naturally a saver or a spender? Savers enjoy squeezing money out of their budget and are looking for ways to not spend money. On the other hand, spenders tend to want to spend every penny they get, YOLO! Both are extreme approaches, the goal is to have a healthy balance, which can be better achieved through simply knowing your financial situation.

READY TO GIVE MONEY MANAGEMENT A TRY? LET’S UNDERSTAND YOUR SPENDING

Money management is not just about tracking your expenses but understanding where your money is going and confirming it is in alignment with your priorities. Financial software allows you to automatically see your complete financial picture and shows trends in your spending habits. Most credit cards and banks have this feature as well, but that is only helpful if you have all your accounts in one location. There are several tools available and I have tried a ton. The most comprehensive and easiest financial software is www.mint.com, which is free. ;) This tool will allow you to see all your accounts and investments in one location. It will automatically import your daily spending and categorize your expenses into buckets.

After you choose your financial software of choice, do not allow yourself to get caught up in the different functionality, just stick to the basics at first:

Load your current accounts
Categorizing your expenses
Enter your fixed expenses in the “budget” feature
Review your spending habits

Once you have the system set up, the next step is to review the output. Set up 30 minutes, once a month to review your monthly spending. I urge you to not pass any judgment or make any drastic changes the first two months. Rather just observe your natural spending habits. Use the next two months to benchmark your progress to see where you are and where you should be. Pay particular attention to your non-fixed expenses such as groceries and eating out.

We will talk in future posts about priority setting and investments, but for now let’s just focus on fully understanding your complete financial picture.

ACTION ITEMS:

Locate your financial organization list you created from post 1.
Determine your expense tracking software (Mint.com)
Set aside 1 hour to enter your essential financial information into your tracking tool
Schedule 30 minutes 1x a month to review your expenses with no judgment
Note how much is left at the end of the month

Leave us a comment on something you observed about your spending; we are here to support you!

Money management is like eating healthy; we all know we should do it but it is an ongoing process that often gets left by the wayside for something more indulgent.

Image Source: NY Times Buck Blog, by Carl Richard (4/1/2013)

By Elizabeth Cumby, M.B.A. - Finance Expert/Entrepreneur