Did you know that budgeting begins with awareness? Before we can budget, we need to take stock of every single money spending event in our lives. Think about when you:
- Swipe your credit card
- Add to cart and then checkout online
- Pay a bill in the mail
- Buy a coffee on your way to work
You need to know how all of these expenses fit into your budget. What category do they roll up into?
That’s all budgeting is. It’s saying “Oh, this is where I spend money in my life,” and then making sure you’re not spending more than you make.
Where to begin?
So, where to begin? Start by writing down what you’re spending money on each day. Think about every transaction that takes place. Is it a bill? Is it a sinking fund? Is it something you saved for? Where is it coming from?
Budgeting is not about restricting you and saying you can’t spend money, it’s about building a budget around your existing life to make sure everything fits in. It’s knowing that budgeting begins with awareness, an awareness of how you spend money in your life.
If you make a super restrictive budget that doesn’t allow you to have fun AND it doesn’t account for irregular expenses, you are NOT setting yourself up for success.
Build your budget around your life. Design it in a way that makes it easy for you to follow and make adjustments. We have been using YNAB for 6+ years, and we love the software. It allows us to calibrate when we overspend in a category (hey, it’s going to happen – we are human!) It syncs with our credit card and checking account so that we can book every expense that comes in. It’s an incredible checks and balances system.
Everyone should budget
I think even gazillionaires need to budget. It’s not about how much money you make. It’s about telling the money that you do make, where to go. If I make a gazillion dollars and I want to donate a million of it to charity, then I should have a line item in my budget that allocates $1M to charity. I mean, how many times do we hear about lottery winners spending all of their money? Every time I hear that, I’m so sad, because those people didn’t have the money management skills they needed to handle that amount of money. They needed structure and a system to be able to tell that money what to do. Having a budget doesn’t mean you don’t have a lot of money. Having a budget means you have a PLAN for your money. We need to reframe budgeting, normalize budgeting, and make budgeting cool again.
I mean, what’s more empowering than knowing exactly what’s going on with your money at all times? You have a clear picture of all of your accounts, you understand what flows in and out of them, you are aware of savings goals and future money needs. You are acting in a proactive way, not reactive.
How to build awareness
All of this to say, the first step in your journey towards budgeting is awareness. It’s very simple. Just being aware of how you are spending money, taking note of what causes you stress, keeping a journal nearby to denote pain points. Here’s an example:
You get a bill in the mail for your student loan. You immediately feel anger and regret. You really don’t like making payments on a loan. You quietly wonder how many more payments you need to make (what is the balance, anyway?) You’re not sure how to access your information online. You toss the bill on the counter, and vow to deal with it later.
The awareness piece I’m asking you to take hold of is capturing these thoughts:
- What is the remaining balance on my loan?
- When is this bill due?
- Can I automate this bill and pay online?
Start a spreadsheet or journal page where you write out this information. Follow the acronym WWWWWH (who, what, when, where, why, how). For example:
- Who: What is the name of the company that facilitates my loan?
- What: What is the purpose of this loan?
- When: When is the payment due?
- Where: Where does the payment come from? Which account?
- Why: Not always an answer here, but another opportunity to reflect
- How: How is this bill paid? Manually? Automatically?
This act of info-gathering is what will set the foundation for budgeting later on. One of the biggest mistakes people make (in my opinion) is writing out a budget, or buying budgeting software, before they begin with awareness around their money and get organized.
In my course, Household Management: Creating Systems for Household Success, I spend two weeks in the Cash Pillar creating awareness around our accounts and expenses. We work in our workbooks and spreadsheets to document all of our accounts and expenses. Where do they live? What amounts? How are they handled? It is only after we’ve taken inventory and gotten organized that we can move forward with a budgeting software or system.
So, what do you think? Do you feel ready to start being aware of your money? Do you believe that budgeting begins with awareness? Awareness is easy, because all we’re doing is calling attention to things and gathering information. I know you can do this! This is the first, and most important, step towards creating a realistic budget.