Plenty of advice on how to build a basic budget, but how do you strike that balance where you're saving and investing for financial freedom and independence while still having fun now with the kids? We'll find out how today!
What's the Best Budget for You?
Budgets, spending plans – whatever you call them, people have strong feelings about them.
Over the past ten years, I've talked to and interviewed couples and families about reaching big goals – financial or otherwise.
I noticed certain patterns or habits that they shared.
One of those is how they handled their money. Here's the strange part that might surprise you.
While they all some spending plan for their money, they had different types of budgets they used.
That's good news in a way because that means there's no one size fits all aproach when it comes to budgets.
The challenege though is discovering which method is right for you.
So how do you do that – how do you find and create a budget that fits your family?
We're going to tackle that today!
In this episode we'll go over:
- Creating a budget you'll love and stick with
- Three effective, yet different budgets to look at
- Choosing the best one
Let's get started!
Resources to Help You Create a Budget Quickly and Easily
If you're ready to get your budget up and running, here are some handy tools and resources you should check out!
- Best Budget and Money Apps: Personal Capital, Tiller, Mint, Honeyfi, Zeta
- Free 401(k) Analysis: Blooom
- Grow Your Stash Faster: High Yield Savings with CiT Bank
- Jumpstart Your Marriage and Your Money
- The One-Page Financial Plan: A Simple Way to Be Smart About Your Money
- How to Talk to Your Spouse About Money
- Real Life on a Budget: 17 Practical Challenges to Live and Thrive on a Budget
Thank You to Our Sponsor Coastal
Support for this podcast comes from Coastal Credit Union!
If you’d like someone to work with you on your goals, Coastal has the people, accounts, and services to help you hit your goals.
How to Create a Budget You'll Love and Stick With
What's the point of a budget?
First off a budget isn’t about what you can’t spend or have, it’s about what you can.
Very loosely, a reasonable budget typically cover three areas:
- Essentials & necessities – roof over your head, food in your belly, clothes on your back
- building wealth – saving for retirement, getting of debt, seed money for a business
- fun – quality of life options
When I speak with families who are having a hard time with their budget, one of those three goals are missing or aren’t being addressed properly.
When you can’t pay the bills or they’re late, one or both of you are stressed.
If you don’t have much saved up, or you struggle to pay down the debt, you’re worried about any hiccup that can come up. (And they do!)
And if you don’t have some fun with that money now, you’ll start to resent the spending plan (and the person who came up with it).
If you want to create a budget that you both keep and stick with you have to hit each of those goals.
Why Most People Break Their Budget
There are plenty of myths and assumptions people have about budgets that aren't true.
Myth #1: Budgets are time-consuming.
Truth: Budgets are time savers.
Initial setup does take time, but once you have it, it's easy to check.
Most of us have fairly consistent expenses. There might be some shifts here and there, but you easily adjust those bit and pieces.
Automating it through bill pay and transfers makes managing the budget pretty much checking in once a week or paycheck for a minute or two to verify everything went through.
Myth #2: Budgets are about restrictions.
Truth: Budgets are about respecting your time and money.
The key to a budget is hitting those three goals I mentioned earlier and that includes having some money to enjoy.
3 Popular Budgets You Can Try
On our YouTube channel, this week's money tip went into detail on the different budgeting methods out there.
I want to share three effective and popular ways families are budgeting to hit their money goals and still have room in the budget for some fun now.
As the name suggests, your money goes into one of three ‘buckets’ of expenses.
- 50% Essentials: This covers your ‘needs’ like rent/mortgage, food, utilities, and necessary transportation.
- 20% Financial Priorities: This money is allocated for your future such as investing for retirement and taking care of important money goals now like having an emergency fund and paying off your debt.
- 30% Wants: These are your lifestyle choices. What do you two enjoy?
It’s encouraging to see at least 20% being devoted to financial goals.
Another plus with the 50/20/30 budget is how easy it is to set up bank transfers and bill payments. You two can set it up one evening, giving you more time for things you enjoy.
Since one of the goals here are Simplify & Enjoy is to share how you can move towards financial freedom, I want to modify this budget just a bit.
Instead of saving for 20% and spending 30%, I'd like you to switch those around.
Save 30% (or use it to pay down debt) and have some fun, guilt-free spending with 20%.
By the way, other bucket system approaches are the 60% solution and balanced budget. The percentages shift, but it's the same idea in that you take your money and out it into buckets.
Pay Yourself First/Reverse Budget
Most budgets begin with your expenses – bills, credit cards, student loan payments and so forth.
Once those are plugged in, you go ahead and split up rest to savings and fun money.
The reverse budget is about beginning with you. You take out your savings and whatever key goal you're saving up for first. You then take out the bills and so forth.
This can be really helpful if you really want to or need to hit a particular savings goal. Maybe you want to get that emergency fund up and running ASAP. Or you need to build up that house downpayment pretty fast.
The downside of this approach can be that you may have trouble allocating enough for your other expenses. This can come up especially if you haven't ad much traction with budgets so far.
Zero Based budget
You got to admit, at least these budgets are named properly.
So we talked about using a budget to divvy up your money into buckets.
With zero based budget, you're really focused on taking that income that you're bringing in and giving every single dollar a purpose.
This method is used by Dave Ramsey's budget tool – you guess it- EveryDollar.
This can be a great budget for detailed minded families who want or need to track every single dollar. This strength can be a hurdle as well.
One hang-up people have with budgets is that they have to do a line by line review of all their expenses and income.
For those new to budgets or people who are busy already it can seem overwhelming.
How to Choose the Right Budget for You
There you have it – three budgets that have worked for other family.
The question is what will work best for you?
As we've went through the different budgets you may have felt drawn or even repelled by one of them. That's okay. There's more than one way to budget.
If you're trying to figure out what's best, start with where you are now?
Take a look at your current budget or spending plan. Is it more high-level buckets or down in the trenches with transactions?
How well is it working for you? Sometimes you look at the numbers it doesn't seem as bad.
Speaking of numbers let's look at them, but instead of tallying up the expenses, I want you to try out a different approach.
As a planner, he's worked with couples, and many times, the budget is a source of stress.
So to take the tension out, he suggests looking at the expenses and asking yourselves, did I get value out of that?
Was eating out out something that made me happy? How much? Go over it together and review your own spending? No judging, just asking.
What we're trying to do here is define those expenses in the context of – is it something you need? Is it bringing you closer to your big goals? Or is it something that you're enjoying now?
Because your budget is a mix of that.
When we had Drew Snider the beginning of this season, he talked BOUT soccer, how that wasn't going to get cut out of his budget.
For me, I have to have something set aside for meals with friends. I enjoy it.
Besides discovering your must-haves don't be surprised or feel ashamed if you also realize that some spending doesn't fit any of those categories.
Maybe you see that eating out with friends once a week is valuable, but grabbing something at the drive-thru isn't.
Being able to see your expenses through this lens allows you to create a values-driven budget. And then the budgeting method is less a concern as you now understand it's just the tool to make sure your money is working for you.
Speaking of hitting your money goals, have you ever thought about what it would be like to be completely debt-free, including the house?
Next week we’ll look at the pros and cons of paying off your mortgage faster!
So if you haven’t already, make sure you’re subscribed. You don’t want to miss that episode.
We’re on iTunes and wherever you get your podcast from!
Our music today was from Lee Rosevere.
Finally and most importantly, thank you for your support!
If you have any questions or ideas for the show, please email me or join our free and private Facebook group Thriving Families.
We’re all about encouraging one another with our goals. I hope you have a wonderful week, take care!