SUMMARY
- Budgeting is about aligning your money with your life goals—not restriction or deprivation
- February’s Freedom 30 focus walks you through building a realistic spending and saving plan
- Weekly projects help you track expenses, identify income, and create a workable budget
- A flexible, adjustable budget reduces financial stress and increases peace of mind
- Small, intentional changes can free up money for debt payoff, savings, and future goals
Budgeting is one of the most powerful tools for improving your financial well-being, and it doesn’t have to feel restrictive. Welcome to the February issue of The Freedom 30, a financial literacy program developed in partnership with our friends at Balance. This 12-month program is designed to help you build confidence with money, reduce financial stress, and move forward toward your short-, mid-, and long-term financial goals. For more information on the program, visit last month’s blog.
This month’s focus is budgeting, or what you might prefer to call a spending and saving plan. By understanding where your money goes and intentionally deciding where it should go, you can make sure your income supports the life you want, today and in the future. If you missed it, January’s blog helps you clarify your personal goals, which will guide the budgeting work you’ll do this month.
Think of achieving your financial dreams as a journey. Creating a budget is like fueling the vehicle that will get you there. While budgeting is often associated with restriction, the real purpose is freedom; freedom to spend on what matters most to you while making steady progress toward financial security and peace of mind.
February’s Freedom 30 activities can help take the stress out of budgeting by breaking the process into simple, manageable weekly steps. Whether you’re creating a budget for the first time or restarting after a break, this month will help you build a plan that works in real life, not just on paper.
February: Budgeting is winning!
The underlying theme for this month’s activities is taking the stress out of budgeting. In fact, if you have negative associations with the term “budget,” you don’t even have to call it that. Instead, you can call it a Spending and Saving Plan, which can emphasize the joy of your money, both in what you get to spend monthly on yourself and in what you’ll set aside for those big-picture dreams.
Many folks doing a budget for the first time or for the first time in a long time find that when they implement their new plan, they don’t miss the extraneous things they used to think were vital to their enjoyment of life. Additionally, they get satisfaction and peace of mind from knowing their hard work is paying off as they watch their savings grow. You can put yourself in that category by completing this month’s tasks.
Week 1 Project: Track your expenses and follow the money.
It’s time to become a private investigator and examine every last nook and cranny of your finances. Before you can establish a system for using your money to achieve your financial goals, you need to know where your money is currently going.
Start by downloading a monthly expense tracking worksheet. Next, fill out all the categories to the best of your ability. Try to be as accurate as possible. At this point, use your current expenditure and not your projected modifications. That part will come later.
This process is easiest if you use a debit or credit card for all or almost all your transactions. If you utilize this approach to spending, you can go online and see your digital record of where your money has gone. It helps to keep receipts from grocery stores and other retailers for a while so you can break down your costs into more specific categories.
If you use cash primarily, you’ll need to keep receipts and maintain spending journal. It’s extra work, but the payoff can mean a huge net benefit to your bottom line – freeing up a lot of dough each month to put toward your life ambitions. Be sure to keep in mind any bills that don’t come due each month, such as annual memberships, insurance premiums, or charitable contributions that occur only once a year. Also, remember to include your debt payments for credit cards or personal loans.
Takeaway: By the end of this exercise, you should have a solid understanding of your monthly expenses.
Week 2 Project: Identify all your income sources.
Using an income worksheet, capture how money comes into your various accounts. If you work, your income is probably at the forefront of your mind. However, don’t forget things like:
- Alimony
- Child support
- Investments
- Annuities
- Life insurance withdrawals
- Settlements
- Severance payments
- Side hustles
- Tips
Using online banking can also make tracking much easier. Again, remember that not all transactions happen monthly, so look back at your income from the past year. If you share finances with someone, like a spouse or partner, ask them to track down all their income sources as well.
It’s a good idea to avoid counting gifts or bonuses in this category because they aren’t guaranteed income. When you get these extra boosts, you can use them to either speed up the timeframe for your goal achievement or give yourself a little more security with an enhanced emergency savings account.
Typically, gathering the figures for the incoming portion of your cash flow equation doesn’t take as long as gathering your expenses. If you still need more time to collect all the information on your expenses, feel free to set aside some time this week to finalize your expenses list.
Takeaway: A complete list of your expenses is your bounty from this week’s mini-project.
Week 3 Project: Build your monthly budget and financial plan.
Now’s the exciting part! It’s time to compile all the data you’ve assembled into a budget worksheet. If you prefer, you can use a computer spreadsheet or an app if that suits your needs better.
Be sure to list the current goals you developed as part of last month’s Freedom 30 sessions in your budget. Include them as regular monthly expenses to ensure they’re in your plan. If you’re not 100% sure of the exact amounts just yet, you can use estimates of what you think you’d like to put toward each of your goals.
The easiest way to transform your current spending into a supercharged, goal-smashing machine is to use a worksheet/spreadsheet with “before” and “after” columns, or two separate versions entirely. It will help you keep your proposed changes straight if you have two different sets of numbers.
Now, subtract your current expenses from your present income level. If the number is negative, you have some good motivation to start looking for expenses to trim or income streams to create financial balance. If the number is positive, looking for ways to put as much money as possible toward your goals is still a strong move. Since cutting costs is typically easier than generating extra income, focus on this part of the equation first.
If you’re having trouble coming up with ideas for improving your incoming or outgoing money, consider taking our Financial Wellness Check. This free, online session only takes about five minutes and can help you grow wealth more efficiently and avoid financial pitfalls. Or visit our Financial Education Center for ideas on spending, saving, debt, and planning that can help you improve your budget. Enter your new totals in the “going forward” version of your budget. If the numbers still aren’t working, a financial counselor might be your best bet.
With the money you’ve cleared up from your new plan for more conscious spending, you’ve got an excellent new power source to inject into your goal attainment, whether paying off debt, upgrading your living situation, or something else.
Takeaway: You’ve now created a budget!
Week 4 Project: Adjust and maintain your budget.
At this point, you might be thinking that the whole purpose of a budget is to have an iron-clad, inflexible, unchanging mandate for where every cent of your money goes. The reality is that it’s not actually how things work out there in the real world. Circumstances change. Your preferences shift. Some things you thought would work just don’t.
A more workable way to think of a budget is as a set of guiding principles you will do your best to stick to, but that may need some massaging over time. If you beat yourself up over going over a little bit in a particular month on entertainment expenses, your budget will quickly start feeling more stress than it’s worth.
In the first month after you’ve put your new budget in place, there are two critical questions to be thinking about:
1. Do the changes you’ve made to your costs and income feel workable, and does your quality of life feel good with them in place?
2. Did the changes you made have the desired impact on your cash flow?
The first question is, of course, very subjective. That’s one only you (and possibly family members) can answer. If you cut something out, like going to the movie theatre once a month, that you now regret, feel free to reinstate that expense. Just know that you’ll need to cut somewhere else to stick to your plan. One of the goals for your spending in this overall approach is to have a quality of life that makes you feel good, so this is an excellent opportunity to determine which types of expenses give you the most bang for your buck in bringing joy and contentment to your world.
At the end of the first month of utilizing your new spending and saving plan, it’s time to do more math. Using a new budget worksheet, crunch your numbers from the past month. How closely did you stick to your projections? It’s great to come up with ideas for using your available funds in the most pragmatic way possible. Still, you must enact those ideas when you’re in the storm of temptation and emotion that is life.
It’s important to stop here to remember that nothing about creating a budget is meant to make you feel inadequate about the choices you make with your money. If things didn’t work out quite the way you expected in the first month, it’s okay. If you had a few missteps or lapses in discipline in the first month, remember those in the months ahead and use those memories to help you make decisions more in line with your stated goals in the future.
Final thoughts.
Creating a budget isn’t about perfection; it’s about progress. By building a spending and saving plan that reflects your goals and values, you can turn the money you earn into meaningful forward momentum in your life. With flexibility, patience, and a willingness to adjust along the way, budgeting becomes a powerful tool for reducing stress and creating the future you’re working toward.
Whatever your financial goals are, we’re here to help you reach them. If you have any questions about any of our accounts or services, please call 800.877.2345.
This article was developed in partnership with our friends at Balance.
