On Tuesday I posted a brief "in a nutshell" view of my budgeting and bill-paying. Since the post published, I received one request via the comments section and one request via private email, for me to elaborate. First of all, that I'd even get an email from a reader always comes as a surprise, as I receive so few emails through my blog. But even more surprising is that I'd have two people want more budgeting info from me. I'm always surprised that anyone wants to hear about how my life runs. So this is significant. It's an area that some must feel needs addressing. And because this is such an enormous topic, I've broken this down into a series of posts. (And if this doesn't interest you, for whatever reason, go on your merry way and skip this post.)
So, here is creative savv's Basic Budgeting
What is a budget? A budget is a realistic (emphasis on realistic) plan for spending the money you bring in. A budget is the way that you choose how your money will be spent.
What a budget is not. A budget is not a constraining, overly restrictive plan for self-punishment (or imposed punishment on the rest of your family). A budget does not prohibit you from living the life you want.
A budget is freeing. You decide what matters to you, and plan for that. If travel is something that matters to you, you build travel into your budget. If you are wanting to buy that first house, then your budget will help you meet that goal. If early retirement is your dream future, then having a budget will insure that this priority is kept. You choose -- what matters, and what really doesn't.
A budget will help you stress less about money. You'll set aside a realistic amount of money to cover any possible expenses. Once you determine your goals. you'll be able to build a plan to meet those goals.
A budget is a visual. When you can see where your money is going, you can readjust the details in your budget to fit your income. And quite possibly, you may determine that what you need is to bring in more income, or find new ways to reduce your spending. And no matter how it feels in the moment, there are almost always ways to reduce spending. It just takes some creative thinking.
I just want to emphasize again, a budget is a realistic plan for spending what you bring in. If your income is moderate, then it's not likely you'll be able to spend your golden years on world cruises, 6 months of every year (unless of course you land a job aboard a cruise ship, then you'll cruise while working).
Be intentional: set goals and priorities
The first step we used, in setting up our budget, was to decide on our goals and priorities, both long-range and short term. Here are some questions you can ask yourself.
Do you want to provide for your children's (or even yours) higher educations?
Do you want to retire early?
Do you want financial security in the form of substantial savings and investments?
Do you have some sort of disabling condition/situation that could result in costly later-in-life care?
Do you like to travel?
Do you want to have a side income to bring in some extra money?
Do you want to scale back on your work hours so you can have more time with family? Or more time giving back to your community?
Would you like to go back to school and change careers?
Do you have debt (car, home, school, credit card) to pay off?
Do you enjoy eating out (or other expensive entertainment) regularly?
Do you like to be generous in your giving?
Do you need to take more shortcuts in cooking everyday meals, due to circumstances?
Are you happy to cook from scratch most meals?
Do you want to keep your home more comfortably warm?
Do you need to drive a nice car (or wear nice clothes) for work purposes?
Do you live in an older home that requires costly maintenance and upgrading?
Are you hoping for some major improvements on your home (new kitchen, addition, new deck, etc)?
Are you saving for your next home?
Do decorative objects and furnishings bring you joy to look at?
Imagine you in 10 years, what are you doing everyday? Where are you living? How does it feel to be this future you? How does your future you look different from the today you?
Very few of our dreams are really too big to ever at least partially achieve. My future me wants to travel, at least a little bit, and spoil grandchildren with homemade cookie fests, and maybe live in a small town where I can walk everywhere and know everyone. My future me wants some sort of creative career, which may involve going back to school.
This is for you to choose. There is no one right way to spend money, even amongst the most frugal.
We all have our priorities. You might be surprised at some of the things that our family finds important, as well as the things that we find unimportant. As you've seen, in our house, we're fine with spending less on food (provided someone in the household is willing to put in a fair amount of labor), driving an older car, using an indoor antenna for TV reception instead of cable, and shopping in second hand shops for some of our clothing. In exchange, we take nice vacations regularly, are financing our children's educations, and are putting a large percentage of our income into investments for future significant financial security. (What you don't know about my circumstances is that my husband has a disability as a result of a motorcycle accident. This disability could cause him to need to retire earlier than planned, and/or require special (and costly) care. We've built this into our budget, by putting away a large percentage of our income each month.)
We don't feel it's necessary to be 100% frugal, 100% of the time. (Despite how it may appear on this blog, this is a frugal living blog afterall, so I showcase the frugal living part of our lives.)
Answering questions like these, helped us to decide what really mattered, and then as a result of those decisions, we were in effect, choosing to spend less in other areas.
So, decide what matters most to you. And in doing so, make a conscious choice to spend less on the items which matter less. Write your goals and priorities down on a post-it and keep it in your office area, near your budget. So every time you reconcile your budget, entering in expenditures, you remind yourself why you sacrifice in some areas. When we aren't clear in our own minds just what our goals are, we lose focus with our spending.
We like to give our kids a voice in our priority choices. By priority choices, I mean do we want to spend more of our money on eating out, keeping the house warmer, a fantastic vacation, etc. I appreciate their input, and want to hear what is important to them. (Sometimes I'm surprised that something is not as important to one of them, as I had thought.) But they understand that theirs is just an opinion, and not a vote. Taking age and maturity into consideration, this may not work for every family.
My husband and I are 50/50 partners, as much as if we were business partners. Even when my husband and I are at odds about something, I still see him as my partner, and try to act accordingly. When we see inconsistencies in spending priorities, we address them. It's really not fair for one partner to scrimp and save, 24/7, while the other continues spending like he/she were single.
Partners have to compromise to meet common goals. Sometimes it's just a matter of discussing goals, clarifying what's important to both people, to help bring some equity to spending and saving. Compromise is key. You may have to scale back on your goals, to meet some of your S.O.'s goals. I think it's important to regularly revisit your goals with your S.O. For us, it reminds us of our priorities, and gives us the opportunity to change our vision for the future.
Be aware that not every one in your circle will "approve" of your goals and priorities. But guess what? They don't have to approve, because your goals are your goals. We've been given free will, and we may exercise that free will. If we are happy to cook from scratch every day, do without cable TV, drive an old beater car, so that at the end of the year we have enough saved for a somewhat extravagant vacation, then we "get" to do that, regardless of how others, outside of our immediate family, feel. Just keep in mind that they're coming from someplace else. Nod and smile, but continue on your journey towards your goals.
One final word with regards to setting your goals. Do not feel guilty when you have to say "no" to someone, if saying "yes" would severely compromise your goals. My kids have come to me and asked for money for things or events that I knew were not terribly important to them, but they still just wanted them. I have then reminded them of our goals, and they understand instantly, as many of the family goals directly benefit them.
I also will provide some suggestions for alternative ways to raise money for such items/events they desire. Sometimes it's just a matter of me saying, "we can go by the dollar store", or "if you can wait until next week, I should have a coupon to use for it", to help them see that we don't always get everything we want, right when we want it.
And when yet another person comes around, raising money for worthy-cause-of-the-day, it's okay to say, "I'm sorry I can't help you. Right now, we're paying off our debt/saving for a house/paying tuition for our kids' university." Most folks would not want you to compromise things of significance in your life. You might feel bad having to say this (I know I always feel badly when I turn down the kids who sell gift wrap for their school), but remember your goals. It would be a good idea to take a moment to reflect on this.
Maybe you'll need to work this sort of donation/charitable purchase into the Giving section of your budget, if you give this some thought, and you believe that you want to be helping worthy-causes-of-the-day. Or maybe you'll look at your budget and see that you really are supporting many worthy causes already.
Be intentional. Know your vision for your future. This is your life. Make it into the life you want it to be.
