Financial Planning Blog

While looking around the web for useful tools and articles on budgeting, I came upon this gem at Investopedia. In the collection of articles under the heading of "Budgeting 101" is this explanatory lead-in:

"With very little effort or sacrifice, budgeting allows you to plan for your future, pay off your debts, and still enjoy life today."

Oh, if it was only so easy.

Let's be clear--budgeting is not about making your life easy, or hard for that matter. It's about being purposeful with your money so you can meet your life goals. Budgeting is also about looking down the road, imagining the life you want, and setting the financial course to get there. Generally, if you are serious about getting somewhere in life, you do some level of planning. Budgeting is simply creating and following a spending plan that supports your life objectives and values.

When you mention the word "budget", people think of several different things. They may associate a budget with a complicated spreadsheet or several labeled envelopes with their monthly cash allotments. The more digitally adept associate budgeting with having all their accounts set up and tracked in Mint.com or Quicken. More than likely, the term "budget" brings on visions of tedious sacrifices such as skipping your morning latte or taking your lunch to work. No wonder people hate budgeting--they see it as a spending diet. (And, unfortunately for many, it is often as ineffective as dieting.)

One of the reasons people struggle with creating and following an effective spending plan is they have an incomplete view of the process. They focus on just one facet of budgeting, but miss the big picture. You will likely find it helpful to organize your thinking about creating and following a spending plan into these four fundamental elements:

1. Prioritizing your needs and wants
2. Creating and documenting the plan
3. Executing and living the plan
4. Tracking your performance

A successful spending plan will incorporate all four of these elements, but each person may find it practical to invest more effort in a particular area. The first two elements focus on developing the plan and will be covered in the next post, and the next. The third and fourth elements are about living out the plan, and will be dealt with in the final article.

In the meantime, you may want to check out this short Dave Ramsey budgeting video, just to get into the mood.