Budgeting 101
Subject: Business
Objective: Students should understand the core concepts of how to setup and manage a budget by the end of this lesson
Maybe your goal is to travel the world, or to take your family to somewhere they’ve always wanted to go like Amsterdam (seen here) or Disney World, that’s where your Focused Savings comes in.
Intro
Here’s the first thing you need to know about a budget: a budget is only as good as you can make it, and it will only function as well as you’re able to keep it.
With that said, you don’t have to keep it 100% of the time, life doesn’t end if it’s not perfectly adhered to, but the more detailed, focused, and realistic you can make it, and the more you can keep to it, the better it will work. Some people REALLY struggle with budgets, they find them restrictive and difficult to operate within - but here’s the thing, often it’s a matter of mindset. Perhaps you simply need to view a budget as you giving yourself a better view of your reality and your goals, then consider it also you giving yourself permission to purchase things (within constraint). Let’s keep a positive mindset and dive in!
FIRST FOCUS
Remember, budgeting is a focused FORECAST of planned financial incomes, outflows, divisions and allotments. That means that it’s focused on building a plan for the future! Start with figuring out where you are (current assets and liabilities) you can expect (projected incomes and debts) for the period you’ve chosen.
IT IS A GOOD PRACTICE TO NOT BUDGET TOO FAR IN ADVANCE
SECTIONS
Start with taking an assessment of what you have presently by running through your bank and credit card statements for the past few months for things like the following:
Needs - Utilities, Mortgage/Rent, Food, Fuel/Transportation, Vehicle Payments and Insurance, etc. (Sound like a familiar definition?)
Emergency Savings - Financial guru Dave Ramsey recommends saving 3-6 months of financial expenses as his “Baby Step 3.” I’m not promoting his approach over others, but rather suggesting that much like the Scouts suggest it’s always good to be prepared.
Focused Savings - Here’s where you save for your larger life objectives. Please don’t consider your emergency savings to be anything other than just that: emergency savings. Focused savings should reflect you putting aside for things like larger life focuses such as a home, vehicle, education, wedding, startup capital for a business, etc.
Life - Here’s where you put aside for the costs of… life! Do you need a membership to a social activity? How about to replace those old jeans that everyone judges you for wearing? Time for your dog to get neutered? Maybe you can finally repaint your main floor entirely blue. This is that section of the budget.
Splurging - This is where you can start getting a bit more silly. Time to buy yourself a pumpkin spice latte or some other such completely unnecessary whatever! The key is to not judge yourself for it, you’re giving yourself permission to spend within constraint!
SECOND FOCUS
You’ve done the details, now let’s get it to last!
Write it down, review it, have an app remind you or have an accountability partner if necessary! There are lots of software options which will help you with keeping on top of your spending. There are some who would advocate for simply traveling with cash over credit cards/debit (as it’s easy to spend when you only have to tap), but that’s a personal call.
THIRD FOCUS
Review, adjust, keep moving forward! No budget is perfect for life. Your life will change, and so should your budget - to reflect those changes. Don’t make budget review a random occurence, schedule it into your life frequently, perhaps every 2-3 months.
Stats ABOUT BUDGETING
Taken directly from the Findings from the 2019 Canadian Financial Capability Survey
Compared with non-budgeters who are time-crunched or feel overwhelmed, Canadians who budget are less likely to be falling behind on their financial commitments (8% vs. 16%). Budgeters demonstrate more effective management of their monthly cash flow: they are less likely to spend more than their monthly income (18% vs. 29%) or to need to borrow for day-to-day expenses because they are short of money (31% vs. 42%). Interestingly, Canadians who use digital tools for budgeting are among the most likely to keep on top of their bill payments and monthly cashflow. In addition, compared with Canadians who feel too time-crunched or overwhelmed to budget, those who budget are 10 percentage points more likely to be taking actions to pay their mortgages (35% vs. 24%) and other debts (57% vs. 47%) down more quickly.
Video Supports
There’s a lot to take in, and I understand that it’s quite a bit for those of you who don’t particularly enjoy the written format of learning. If it helps any feel free to check out these two videos from YouTube as they’re pretty good at summing up some key concepts.
Assignment
This approach may not particularly work for you, but my assignment for you is to at least try it. If it doesn’t work for you initially, try to get to the root of WHY it doesn’t suit you, then adapt and find something that does! The stats above from the Canadian financial consumer agency speak for themselves, so please, take a shot, and take charge of your finances.