I know it’s not yet the holiday season, but I think we need to take a minute to acknowledge a bright side to one of the worst people in Christmas story history. I’m not saying Scrooge is someone you should aspire to be, but I’d be willing to bet that he was pretty good at budgeting. In my last entry, I said that being honest with yourself was the only way to create a successful budget and stick to it (if you missed it, visit the Parker Group’s blog for this article and more). What I left out was actually HOW to go about setting spending goals and tracking them successfully. So, let’s put on our top hats while I rip off a Christmas classic to give you three steps to becoming a budgeting guru.
- The Ghost of Spending Past- You have to go back to go forward. You probably know how much you’ve spent each month on your mortgage. That’s a set amount! How about car repair and maintenance? What about eating out or pet expenses? Do you know how much you spent on maintaining your home in the past year? The first step to creating a budget is to review how much you spend on average in each category of spending. Download each transaction from your checking, savings, and credit accounts and get to adding it all up. I know it might be hard to remember what category each Amazon or Target purchase might represent but do your best. Once you have this totaled up, you’ll have a baseline for step two. I have an Excel template I use with my clients, feel free to email me for it
- The Ghost of Spending Present- It’s time to set some goals. You know how much you’ve historically spent in each category. Now you need to review each category to see if that spending lines up with your goals. Is retiring early more important to you than nice clothes? Then save more and hold off on that next Nordstrom run. Is a healthy lifestyle important? Keep the Peloton subscription and slow down on the Dutch Brother’s runs. Go through each category and set a goal on how much you want to spend each month (or year for more erratic expenses like home repair, travel, or vehicle payments).
- The Ghost of Spending Future- Have you seen an NBA “fight” recently? Gone are the days of Bill Laimbeer and Dennis Rodman. Today’s fights remind me of Congress; lots of noise but nothing actually happens. The players may look like they want to fight, but they don’t have any follow-up. When budgeting, you’ll need follow-up. Set a schedule to review your expenses regularly to make sure you’re meeting your goals. Start by reviewing weekly or monthly, but it can be less frequent once you settle into a rhythm. You can use an app like Mint or YNAB to download your transactions and help you categorize them quickly. If you get off track, you’ll know immediately so you can correct it.
So why go through all this? No investment strategy, insurance policy, or rental house is going to be nearly as impactful as a repeatable, thoughtful spending plan. Each dollar you work so hard for will end up in the place it matters most and you can sleep at night knowing you have control over your financial future (or as much as you can have).