A Powerful Budget That Only Takes 10 Minutes

Did you know that while 3 out of 4 Americans say they have a monthly budget, over 80% admit they still overspend?  

How can that be, when most personal financial advice starts with budgeting as a foundation? Clearly, most people agree that having a budget is important, but unfortunately, there’s a breakdown between their intent and results. 

Today we’ll cover the breakdowns we typically identify when new clients express frustration with their budgeting. I’ll end with a proven strategy our clients use for confident, hassle-free budgeting success.

But first: Why do most people suck at budgeting?  

Four Obstacles to Creating a Good Budget

There are four common hurdles we see that keep clients from ensuring their intent aligns with reality. You may have heard of the KISS acronym for design (Keep It Simple, Stupid), but that also applies to the common budget issues. 

You Have the Wrong Mindset about What a Budget Should Be

A budget is just a tool that gives you better awareness about your money. It’s not a scorecard or a monthly willpower session to beat yourself up over. If you feel guilty whenever you unfold your bank statements, you’ll probably struggle to be consistent. You need to see how money flows in and out of your life. Everyone starts somewhere. Everyone needs to restart this process as life changes.  

The Budget is Too Complicated

Try to start with as few categories as possible.  The simpler this is, the easier it is for you to check in regularly. There are several apps that download and categorize your transactions from all your financial institutions. Some credit cards will categorize your spending for you on each monthly statement. Just gather your monthly statements and add up the totals spent each month. Group your spending into 5-10 categories.  

You Get Stuck on Large Purchases

I recommend excluding large expenses like a new car or a vacation from your monthly budget. Ideally, you should save ahead for large purchases- so these costs will be covered by the funds you’ve set aside, not from your monthly income. If you don’t have funds set aside for these, congratulations! Read on! 

You Don’t Have Clear Goals for Your Budget

Look, “spending less” is not a helpful goal. Again, the point of budgeting is to build awareness of where money is going and spend more effectively toward the goals that matter.

First, name those goals: 

• I want to work part-time starting at age 55. 
• I want to have $10k for a new car in three years.
• I want to give $1k/year to my favorite charity.
• I want to visit New Orleans for a week and eat at famous restaurants.

And then identify the costs.

Here’s a simple, no-stress way to budget

1. Start with your savings first.  Aiming to retire? Set up monthly direct deposit into your retirement accounts. Want to have $10k for a new car in three years? Drop $116 into a savings account monthly (1). Have a vacation in 6 months and love fancy dinners? Save the cost of one meal monthly. Set up separate bank or investment accounts for these goals and set the money aside.  
2. Pay your essential expenses next. Put these costs on autopay if you can. If you have gifting goals, put these on direct deposit also. 
3. Spend the rest.  

The 50/30/20 Rule for Budgeting

As part of your budget, the 50/30/20 Rule is a helpful guide to understand where your money should be going. Here’s how the rule works works:   

• 50% for needs
• 30% for wants
• 20% for savings or debt payments.

After implementing your budget, check in once a month and see where the money is going. 

Budgeting is a lot simpler if you start with concrete goals first.  A CFP® professional can help you identify what your goals cost and make a plan for them.  If you have questions about your budget or your investment plans, reach out to us today.

Footnotes

1)  Assuming 4.5% interest rate.

About the Author

Clinton Miller, CFP®, is an investment advisor & financial planner with an educational background in mathematics.  He enjoys making tax planning relevant for clients so they can make confident money decisions. 

He and his wife Aubrey are based in Canton, OH & have two sons.  In his spare time, he enjoys fishing, chainsaw repair, & mucking around in the woods.