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Finances Without Fear

You May Be Doing Your Budget Wrong

Updated: 6 days ago


During the first months of working with a new couple, I often hear the same thing regarding the budget.


"I never realized the budget could be so flexible!"


Do you ever think of your budget like a corporate company? At the beginning of the month, you create the budget and it is set in stone. You better stick to the budget or else!


If this is you, let's talk about why you need to change your mindset surrounding your personal budget.


Your family is not a corporate company. Your life doesn't function like a company, and your budget shouldn't either. Your budget should not be concrete. It should be fluid and flexible.


I know this sounds strange, so let's talk about how this works!


When you make your budget, you should be tracking every single transaction throughout the month. This is how you know whether or not you are overspending. This is how you actually follow your budget.


If you make a budget at the beginning of the month and simply check back at the end of the month, chances are it's not working. I would be willing to bet that you are over budget in many of your categories.

Your budget will not work if you don't consistently track your transactions! I recommend tracking your transactions daily. If you're "type A" like me, you could even track transactions right after you spend! Seriously, I sit in my car before I leave the grocery store and track what I spent.


**This is super simple using the EveryDollar budget app!


When you are tracking your transactions daily, you know exactly the status of each category as the month progresses.


So how do you adjust the budget and still make sure you aren't overspending??


Throughout the month, you may notice you won't hit your estimated spending amount in certain categories. Some categories may be underestimated. If you don't adjust these categories, you will probably be over budget in one category and under budget in another. This can be frustrating! You may think you aren't good at budgeting or it's just not working for you.


In reality, your overall budget is still on target. You just need to adjust the individual categories. As long as your overall number doesn't go in the red, your budget is just fine!

Here's an example:

You begin the month with a $1000 grocery budget. During the last week of the month, you realize you are going to go over in the grocery category. That party you hosted meant you spent more than originally planned!


So, you decide to look through the budget to see if there are any categories that are going to be under budget. You find that you added $100 in the vehicle maintenance category thinking you would need an oil change this month. The oil change can wait a week and be added to the following month, so you change the vehicle maintenance category to $0 and add that $100 to the grocery category.


Done! Your budget is now balanced. You can now spend an extra $100 at the grocery store without going over budget.

This can apply to those small unexpected expenses that come up as well. Think birthday gift for that unplanned birthday party your daughter was invited to. Maybe you didn't put any money in the gift category this month. That money needs to come from somewhere, so you adjust the budget to allow for spending $20 on a gift.


You can adjust your budget in any of the categories as long as your overall number doesn't go in the red. In this EveryDollar example, I added extra to the grocery category without decreasing another category. This puts me in the red, meaning if I spend everything planned in this budget, I will overspend. You may be able to get away with this one time, but if you do this consistently, you will get yourself in a hole!


Whether you are budgeting for the first time or you're already using a budget, keep in mind that the budget is not concrete. It is fluid and flexible to match your ever changing life.


 

As a financial coach, budgeting is a big part of what I teach. I walk you through building your first budget and navigating the ins and outs as you get used to using it.


I help you make financial goals and make a plan to achieve them. As learn to budget, we will work on building new money habits that will make a huge difference in your finances.


To find out if financial coaching is a good fit for you, book a free Discovery Session. We will talk more about your specific situation and see how what the plan looks like for you.





 

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