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How to Get Into a Good Budgeting Mindset
Budgeting is a lot easier to keep doing when you think positively about it rather than negatively. It is important to think of budgeting as something that can help you achieve your goals instead of something that only takes up your time. I use the phrase “spending plan” because it feels more positive to me than the word “budgeting.” I will use these words interchangeably in this blog because they are the same. If you find a word or phrase that helps you think positively about budgeting, use it. It can help keep you in a good budgeting mindset!
Three Qualities of a Budgeting Mindset
A good budgeting mindset is more of a set of qualities rather than one distinct way to think about budgeting. Those qualities are positive, realistic, and determined. While there may be other qualities that help you create the mindset for budgeting, these three qualities are essential.
Positive
Thinking positively about budgeting will help you keep doing it. One way to think about budgeting is that it is self-care. You are doing it to take care of yourself now and in the future. If you think of budgeting as a chore, or you cannot do it, or it’s too much, or it will not work, or that you do not make enough, then it will not be successful. If you go at it with optimism, you are much more likely to succeed. There is a solution to every problem; you just have to find it. Budgeting can help you get your money under control, learn more about your spending habits, pay off your debt, and plan for your financial future and these things can help you have a more fulfilling life.
Realistic
At the same time, though, you have to be realistic. Realistic about your spending habits, your income, and your debts. Being realistic about all of those things with yourself will help you create a better spending plan for yourself. If you are budgeting with a roommate or a partner, being realistic can be difficult. Being honest about money with the person you live with can create a financially happier household. Without it, you will likely struggle to keep up with or limit yourself in the categories you set for yourself. This can also emotionally strain a household if you or the person you are living with are having difficulties managing money.
Determined
You also have to be determined. If you are determined to create a budget, you will be much more likely to use it and therefore be much more successful. Having a reason to budget will help you be more determined to maintain your budget, even when you don’t want to. Your reason could be anything – paying off debts, growing your assets, finding financial freedom, or just getting to know your habits better.
Whatever you choose can change over time as your needs change. You paid off your debt? Fantastic! Maybe you can finally save up for that vacation you need. You can even have multiple goals for your money, but sometimes it is easier to only focus on one goal until you complete it and that is perfectly okay as well. Making SMART goals can help keep you focused and determined, and they are applicable to any part of your life! Learn more in this article from Forbes Advisor.
Budgeting Mindset: Conclusion
How you think about budgeting and your learning style can help you determine which form of budgeting is best for you. It might take some trial and error, but eventually, you will find the one that works for you. To find a way that works for you, you could think about your personality and learning preferences. Are you hands-on, or do you prefer to let someone or something else do it for you? Do you enjoy math? Are you a person who likes to plan? Do you prefer to use cash or a card? Paper and pen or spreadsheet? There are many questions you could ask yourself to learn what works for you.
Paper and pen will take the most work, spreadsheets are moderate, and apps take the work out of the equation. Each method requires planning, but an app might help if you need prompts. The envelope method is traditionally used for cash, so if you prefer cash or are hands-on, this may be a good method for you. You can learn more about this in the article, What Are the Types of Budgeting?
Struggling to stick to your financial goals? My Financial Goals Workbook can help—learn more here.
January 30, 2023
How To Find A Way To Budget
Intro
There are several ways to budget, and it’s just a matter of finding the way that works for you. One way to do that is by your learning style – if you know which style is yours. Another way is deciding whether you want to be hands-on with your budget or not. The third way to find out is by deciding if you want to spend money on an app or do it yourself. Last but not least, I will explain the pros and cons of automating transactions.
Learning styles
There are four learning styles – visual, auditory, reading/writing, and kinesthetic. Patterns and shapes may work best for you if you are a visual learner. These can include graphs/diagrams, which you can find in apps or create in a spreadsheet.
Speaking your thoughts helps you articulate them if you are an auditory learner. This means that it does not matter if you use an app or make a spreadsheet because you would need to explain it out loud either way.
If you learn best using reading/writing, you understand information when it is in written form. Same as auditory learning, it does not matter which you use because either way, your budget will be in written form.
If you are a kinesthetic learner, you learn through doing. With budgeting, you can use personal experiences. Take what you have done in the past and learn from that. If you have not budgeted before, you can use trial and error. It would help to get to know your spending and tweak it as needed.
Hands-on or not?
Are you a hands-on person? You may prefer spreadsheets, notes, or the envelope method if you are. Spreadsheets can help you do the math, and you’ll be able to make charts or diagrams if you like. When I say notes, I mean just jotting it down on a piece of paper or in your notes app. Then with the envelope method, you can use actual envelopes or an app/spreadsheet that mimics the envelope method.
If you are a hands-off person, you might prefer forms of budgeting that require less control. If you have a steady income, budgeting like this could look like setting a budget and then creating auto transfers within your accounts. Some apps help you do this as well.
Spend on an App or do it Yourself?
One thing you have to consider when deciding to spend money on a budgeting app is the cost of doing so. There is almost always a free version of an app, and it is best to try that version first. That version is more than enough for your needs most of the time. If it is not, you could consider trying other free apps, but if you are dead set on one app, then spending the money on it might be worth it. Investopedia has a list of budgeting apps that they recommend here.
The risk involved in using a budgeting app is also something to consider. Apps connect directly to your accounts to pull data from so you can use the app. This means that your accounts could be hacked because you have to allow that app constant access to them. Your bank could be hacked even if you do not use an app, but the more your information is out there, the higher the chance that something might happen.
The reward associated with using an app is also important to think about when deciding to use one for budgeting. Using an app could take less time than budgeting by hand or using spreadsheets. Apps may also have reminders or notifications that you might find helpful. These things might allow you to focus more on the things you want to focus on instead of spending time doing something you do not want to do.
Pros and Cons of Automating Transactions
The Pros:
1) It can make things easier if you do not want to transfer money around your accounts every time you get paid. Your bank will transfer the money for you at the time you scheduled for it to do so.
2) It can make things easier if you have a money disorder. This can include gambling or impulse spending. Automating transfers can help you keep your money safe in case something happens.
The Cons:
1) It can make things difficult if you need full liquidity. People who need full liquidity are usually people who live paycheck to paycheck. A lot of the time, automating transactions can make your money less liquid, and when you live paycheck to paycheck, you need as much liquidity as possible in case something happens.
2) Forgetting about automated transactions can cause you to overdraw your account. If you automate and do not have a consistent paycheck or forget the schedule you set when you automate transactions, you could overdraw your account.
Struggling to stick to your financial goals? My Financial Goals Workbook can help—learn more here.
January 18, 2023
Why You Should Save Money
Essentially, saving can help you attain financial independence. Saving will help you get ahead of expenses, which can mean saving for a house, car, and even more minor expenses like a flat-screen TV or a new phone. Actively saving money means you will be prepared for both planned and unplanned expenses, like saving for a vacation or setting up your emergency fund for a rainy day. Retirement is another reason to save money. Saving for retirement is a bit different than the rest of your savings – when you save for retirement, you will most likely be investing that money. Last but not least, you should save for medical emergencies. Your savings in this category could cover future costs for prescriptions, glasses, co-pays, etc. Here are some budgeting resources so you can get a head start on saving!
Preparing for Expenses
These expenses can either be big or small. Big expenses might include a down payment on a house, buying or putting a down payment on a car, and buying furniture. The small(ish) expenses you could be saving for are buying a tv, phone, or laptop. Most of these smaller expenses might have financing options, but you need to be careful with interest rates and fees, and saving for these smaller expenses can also prevent your finances from being tied up in the future when you need them.
Unplanned Events
Another thing you should consider when you save is saving for planned and unplanned events. Most of us would rather not think about the possibility of getting fired or laid off, but we should plan for it just in case. When saving for this example, generally, three months is the recommended minimum that you should save, but it is best if you could have six or more months in savings. More unplanned events can include replacing household appliances such as a fridge, washer, dryer, dishwasher, etc.
Planned Events
A planned event you should consider saving for is vacation. When you save for a vacation, you invest in the health and well-being of your future self, and you deserve that. The same goes for dates, family outings, your children’s college funds, or whatever you have planned.
Retirement
Retirement is an incredibly important thing to save for. When you save for retirement, your money will go into an investment plan specifically for the purpose of retirement. I will go more in-depth on this in another article. There is so much unknown about the future. Social security may or may not exist when gen z gets to retirement age. Climate change may or may not make the planet uninhabitable. But you should always plan for “just in case.” Worst case scenario, all that does happen, and you have a bit of cash to blow. In the best-case scenario, you have extra income to go with your social security benefits, and you can have the retirement of your dreams.
Medical Emergencies
This category includes the things your insurance does not pay for. Surprise procedures, emergency room visits, glasses, braces, prescriptions, co-pays, etc. If you can save for this category, I highly recommend that you do so. It will ensure that you have it covered if you ever need anything medically. This can be in a savings account or an FSA/HSA if you have one. In some cases, your employer may contribute to these accounts. I will cover this topic further in another article.
January 16, 2023