While budgeting seems very constraining, knowing where your cash goes can also be viewed as an awareness practice. Consider that even the super-wealthy take the time to generally understand their cash flows.
In fact, while interviewing over 1,000 millionaires for his book, The Millionaire Next Door, Thomas J. Stanley found that for every 100 millionaires who don’t budget, there are about 120 who do. Stanley also discovered that many of them use the “pay yourself first” strategy, saving and investing a minimum of 15% toward their financial goals before spending.
Some of the benefits of budgeting include:
- Accomplishing your financial goals (e.g., emergency funds, college, retirement).
- Staying within your means.
- Analyzing and improving your spending habits.
- Spotting identity theft. (Read more about ID theft)
There are several ways to track your spending, from basic methods to technologically advanced options. Let’s explore some options and tips below.
Keep It Simple
The simplest tool is to track your spending on a piece of paper. Keep a piece of paper and track spending at least for a week but ideally a month. While this seems somewhat archaic, if the method works for you, run with it!
You could step this up a notch by recording those expenses in a budget created in an Excel spreadsheet. This allows you to keep it simple while giving you more accurate insights into your weekly, monthly, and annual spending and saving progress.
Use a Cash Flow App
At Carlson, we prefer using cash flow apps like industry powerhouses Mint* or Quicken to track spending. These platforms will help save time, stay on top of your spending, and make it easy to:
- Link your bank accounts, credit cards, and more.
- View your financial data and activity in one place.
- Assess your spending and whether it’s higher than your income.
*At the end of 2023 Intuit is pushing all users of Mint to its Credit Karma platform.
Review Your Expenses
Regardless of your chosen method, a good starting point is to review your accounts so you understand your spending habits and adjust where necessary. That means breaking down both fixed and variable expenses and then categorizing them.
Your primary expense categories should include needs, wants, and savings/debt repayment. Each of these might consist of subcategories such as:
- Needs: Housing, transportation, insurance, utilities, groceries, childcare, child support, and alimony.
- Wants: Leisure shopping (clothing, accessories, home décor), dining out, alcohol, entertainment, fitness memberships, travel, cable or streaming services, and self-care.
- Savings/Debt Repayment: Emergency fund, savings account, retirement savings, investments, credit card interest (and this should be avoided at all cost), student loans, other minimum loan payments, and extra payments on debt (e.g., mortgage, car, or student loans).
If your cash outflows exceed your cash inflows, it’s time to create a budget!
Start with a Joy Audit
For some people, setting a budget is constraining and suffocating. If the word “budget” sparks anxiety and negativity, consider reframing your approach by doing a joy audit instead as suggested by MoneyZen founder Manisha Thakor.
So, what is a joy audit? We all need to take care of our basic needs (i.e., food, shelter, and some clothing). However, we sometimes need a stopgap, and a joy audit is an easy and rewarding place to begin. Perhaps you’re spending on a streaming service you no longer use or taking your kids to events they don’t like.
If something doesn’t bring you joy, it’s an easy place to make a change and start saving money today.
If budgeting helps some of the wealthiest people, it can help you reach your financial goals, too! For more money-saving tips, speak to the Carlson team today.
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