Budgeting Help for Financial Freedom

If you need help with finances – maybe you’re in debt or you’d like to focus on working toward financial goals – a budget can be your best friend and ally. A budget is something you create, a plan you follow, to keep you on track with your goals. Everyone can benefit from budgeting help. The term “living on a budget” has absurdly become equated with being “poor” but there’s not a Fortune 500 company in the world that doesn’t operate on a budget! The more complex your life is, the more critical it is to have a budget.

How Can a Budget Help with Finances?

Think of a budget as your reality check and roadmap for how and where to spend your money. Creating a budget, based on your own income and expenses, as well as your debts and dreams for the future, is very empowering. Whatever financial picture your budget paints, we’ll be able to see what the problem is, which is the first step toward solving it. 

There are three main issues that affect your budget:

• Not making enough money to cover basic needs
• Living above your means (often unintentionally)
• Lack of visibility and control over your finances

With a personal budget, you can gain visibility into your finances to help you figure out what is impacting your financial situation. Everyone can benefit from a budget, but those who share their finances with other people (spouses, partners, dependents, etc.) should particularly utilize a budget so that everyone is following the same plan and working towards the same goals.

How to Create a Budget

Let’s say you have a take-home pay of $2,000 a month. How does that breakdown so you can pay for housing, food, bills and debt repayment with the flexibility to allow for extra expenditures and wealth building? This is where budgeting can help.

Step 1: Define Your Financial Goals

This is where you start taking charge of your financial life. Rather than reacting to all the bills coming in and putting out financial fires, stop and think about what you want to happen. Do you want to be able to buy a house? Get out of debt? Start a business? Save for your children’s college or your retirement? Be able to take a vacation without maxing out your credit cards? Maybe at this point, all you want is to be able to set aside some savings. Start wherever you’re comfortable, but don’t be afraid to dream big. 

Step 2: Take a Financial Inventory

This is the reality check. You need to see where your money is going. You can do this with a Debt Planner spreadsheet tool, or you can also use popular apps like Mint, Personal Capital or You Need a Budget (YNAB). How you do this matters less than doing it. Here’s what you need to list:

• Total income
• All expenses – regular monthly bills, groceries, clothes, everything
• All debt balances and monthly payments
• Savings and investments – what you allocate monthly 

If you need help, budget coaching can walk you through this process.

Step 3: Categorize Your Expenses

Use the 50/30/20 rule as a general framework to break your expense down into categories. The categories are: Needs, Wants, Savings & Debts. It works like this:

Needs – 50%
Half of your income should be allocated to the things you must pay and are necessary to live. This would include your rent or mortgage, food, transportation, insurance, healthcare, etc. It should not include things like dining out, entertainment, etc. Just what you absolutely need to survive. 

Wants – 30%
These are things you spend money on that are not absolutely essential but are the fun things that make life more enjoyable. Dividing items between your Needs and Wants may not seem like a clear line at first. So look at it this way: You need food but you don’t need to dine out. You need clothes but you may not need any more than you have right now. You need exercise but you don’t need a gym membership. 

TIP: For many things you need, you don’t need the more expensive version of it. You need a car to get to work, but want a Lexus. You need a place to live but you want a huge house in an upscale neighborhood. It’s the same for your wants. You want to watch sporting events but you can enjoy them on TV rather than in person. You want to dine out but you can enjoy the experience at a less expensive restaurant.

This is where you and your financial coach can have a healthy, open discussion about your spending. Align your values and put your expenses in their proper categories.

Savings & Debts – 20%
This is the often ignored part of a budget, but it’s as important as the other two categories. If you want to get out of debt, stay out of debt, get ahead, and experience true financial freedom, you have to take savings as seriously as your above Needs and Wants. Savings is power.

Ideally, even your savings should be divided into categories, but if you’re just now starting to save, one will be a great start. Get in the habit of allocating 20% of your income to savings – unless you have debt. 

TIP: What eats up your savings is debt. Debt goes into this category. Any credit card or other debts you have, other than your mortgage and car payment, should go into your savings category. The reason being, you’re going to have to devote a chunk of what would be savings to paying down debt. Once the debt is gone, all that can go to savings.

Step 4: Analyze & Modify Your Budget Allocations

This is where you start making wise decisions about how you’re spending your money. If your expenses are more than your income, your savings are going to debt payments, or there’s just nothing left after Needs and Wants, you have to rethink and reallocate.

The easiest things to remove financially (but not emotionally) are items in your Wants column. That is the area with the most flexibility. You don’t have to deprive yourself of all joy to achieve financial freedom. Total deprivation, while it may be effective, won’t teach you smarter money habits in the long run. In fact, when you’re able to introduce many ‘Wants’ back into your budget, you may find yourself in the same trouble you were once in because you’re back to your original habits. Instead, a budget coach will help you learn smarter money habits to reach your bigger goal of financial freedom. 

Step 5: Track Your Spending

Chances are when you wrote down all your expenses, you left out several little things that add up. You may not realize your true spending habits until you created a budget and became more aware of them. Make note of every expense, no matter how small or large. 

Revisit your budget after a month, with your lists of things you left out, and adjust from there. Do the things on your new list fall into Needs or Wants? Are any of them more important than what’s already in your budget? What is the easiest to cut back on? 

It may take several months to really iron out your budget. It’s worth spending time on each month. Check in and make sure you’re on track.

 When to Get Help with Finances

Remember, the most successful businesses hire professionals to help them manage their money. Getting a financial coach may be exactly what you need to get your finances in order. It’s a good idea to get some budget coaching if any of these apply to you:

• You tried budgeting but can’t get it to work
• You realize you’re living beyond your means
• You don’t make enough money to cover your Needs
• You and your partner need an objective third party to review your budget and help you allocate
• You feel you don’t know enough about finances to make good decisions
• You would do better if you had someone to help you get started 
• You know you would do better if you had someone to hold you accountable