What Is a Budget and How It Helps Your Financial Vision?

The “B” word (it’s not what you think)

Think about your debt or the amount of money you owe. Your car loan with never ending payments, and the bills that keep piling up. A new couch you want to buy because the couch in your living room is coming apart. Oh wait, you forgot the kids need back-to-school supplies and clothes next month. All of these things are on your mind, but you just don’t have the money to do it. Once you get paid, the money seems to disappear. Where did my money go? What did I spend it on? 

It’s time to make a plan and face that “B” word. BUDGET.

The word BUDGET, to some, seems intimidating, nerve-racking, and really stressful. Maybe, you’ve tried a budget that didn’t work for you. It was complicated and required too much time. I can see wanting to give up on budgeting after feeling like it failed. 

On the flip side, a budget helps you feel in control of your money, and understand where your financial future is headed. It helps you to feel accomplished and bring joy when you reach your goals. How can it make you feel such opposite emotions? It depends on where you are with your financial journey.

Emotions of budgeting

Let’s say you’re drowning in debt. Student loans, vehicle loans, and not to mention, the furniture and vacation you charged to the credit cards. If you have a spouse, you argue and disagree every time the two of you talk about money. You can’t ever seem to agree. If you are single, you don’t make enough money to keep up with social outings and run out of money before payday.

If this is you, more than likely, you have negative feelings associated with a budget. You may fear and dread thinking or talking about money. You may think that you’re just not good with money. Maybe you ignore or avoid talking about finances. Have you given up all together, because in your mind, your budget failed, so what’s the point?

On the other hand, what if you’re debt free, and have an emergency fund in your savings account?  You’re using a budget to manage your money. You also have a couple hundred-thousand dollars in retirement and investment accounts. 

Was that a smile on your face? Can you see the difference between how these two scenarios can have dramatically different feelings? Just the thought of the last scenario makes you feel good. It makes you feel secure about your future. Don’t think that it isn't possible, because it’s possible. Design a plan to get there and the plan is within your budget.  

What is a budget?

A budget is having a plan for your money. It’s telling your money where to go and how to spend it. It includes income, expenses, savings, and giving. 

• Income - is any money you earn from employment, side jobs, dividends, investments, and selling unwanted items.

• Expenses - including debt and bills; housing, loans, utilities, insurance, food, gas, etc. 

• Savings - including specific saving funds, retirement accounts, and investments. 

• Giving - Then there’s giving. Giving to people in need, to your church, family members, or charities. It feels great to give to others.

A popular budgeting method is to create a budget based on when you get paid. Most people get paid in one of the following ways; once a week, bi-weekly, or monthly. Some people get paid by the job and that makes it even harder because income fluctuates. Most people plan their budgets around their pay period or from month to month. 

We will use budgeting monthly and round numbers for simplicity. Take the total monthly income minus the total monthly expenses. ($2000 monthly income - $1500 monthly expenses = $500). The remainder should be a positive number. 

If it's negative, you are spending more money than you earned for the month. If you spend more than you earn, you’ll need to reduce expenses, find ways to save, or increase income. Try all three simultaneously to make the biggest impact and the most effective way to stop spending more than you earn.

Zero-based budget

My personal, and favorite style of budgeting is using a zero-based budget. A zero-based budget gives a name to every single dollar. It sounds complicated, but it’s not. You’ll use categories like housing, food, utilities, savings, or fun money to categorize where your dollars go. Take the remaining $500 in the equation above and give those dollars a name. Without assigning them a name you may spend it on non-essential items.

If you have debt or your building an emergency fund, I would suggest most of the $500 go directly to the debt or emergency fund. A debt is any monies owed on a car payment, credit card, student loans, etc. This may seem tough to do. If you are really serious about getting out of debt, you need to make some sacrifices in the short term for your long term vision. 

An emergency fund is where you’ll put a specific amount of money to borrow from yourself. In the event of an emergency, and only then, will you use this money instead of charging money to a credit card or taking out a personal loan. You’ll repay yourself the amount of money you borrowed from the emergency fund.

If you are debt free, and have an emergency fund, you can allocate $500 towards specific funds. For example, $100 toward a car maintenance fund, $100 toward an entertainment fund, $100.00 toward a vacation fund, and $200 toward a savings or investment fund. 

So your equation would look more like this, ($2000 monthly income - $1500 monthly expenses - $500 debt, spend, or savings funds = $0 a zero-based budget). First, you listed all of your income. Next, subtract all of your expenses. Last, subtract the remaining money (allocating it to debt, emergency funds or your specific funds) until every dollar has been used. This will leave you with zero dollars. 

Using this zero-based budgeting method is having a plan for your money and giving every dollar a name. Every budget isn’t as clear cut as the numbers given in the example. YOU WILL make mistakes. YOU WILL need to re-write your budget. YOU WILL need to pull money from one category to pay for something in another category. 

For example, using fun money to pay for car maintenance if you are under budget in the car maintenance category. It happens! It DOES NOT mean your budget failed. It will take practice, and the more you practice budgeting, the better you’ll get. Your budget will not be perfect, but you’ll know where your money is going and how much you’ll have to spend. That’s a WIN my friend!

Create a financial vision

What are your financial goals? What do you want your finances to look like in six months? What about one, five, or ten years from now? How much money do you want to have in your retirement account when you retire? You need to be asking yourself these questions. Without a vision, how can you reach your goals? 

What if YOU CAN create a vision and make it a reality? 

You have to start somewhere, and that somewhere is with a budget. It's essential when aligning your finances with your vision. A budget sets boundaries, so you can put money toward the things that mean the most to you, instead of wondering where it went. A budget is a plan for making financial dreams a reality. Make your vision real. The more detailed your vision, the better you picture it, and the easier it is to achieve. Create a unique vision for yourself.

"A budget is a plan for making financial dreams a reality"

You CAN accomplish your financial goals with a budget

Budgeting is not so scary. Don’t make it complicated or overthink it. Start simple. It takes a little work at first, but the payoff will go a long way. You’ll have to move money around within certain funds from time to time. You may have an unexpected medical bill, but you keep moving forward. Do not expect perfection. In fact, your first three months of budgeting will serve as a rough draft until you get the hang of it. You’ll keep improving as the months go by.

Use a budget as a tool to make an impacting impression on your wealth. I want to give you hope that you can accomplish your vision, financial goals, and build your wealth. I want you to feel freedom in a budget by telling your money how you are going to spend it, instead of wondering where it all went. 

A budget works, give it time! You can be debt free, increase savings, invest money, and build wealth. Do all of this by having a clear vision, written goals, and using a not-so-perfect working budget. What are you waiting for? Go build your budget! (Insert budgeting how to post here)