Often, one of the first reasons that people will start to seek out financial advice is because they cannot quite wrap their head around their increased spending. They can’t seem to get their budget under control. Little do they know that by taking this first step to find the right balance in their budget, it can open up the world of opportunities in other parts of their life, both financially and professionally.
Maybe they have come to seek help because they now have more money to use, but their lifestyle has also grown faster than the income increases. Or, they might have added kids to the mix, which comes with a whole other layer of spending concerns. And, yet still, others may see a decline in their earnings which has forced their hand.
Whatever the reason, finding the right balance for your budget requires a mix of legwork and a willingness to ask yourself an honest question: What do I need, enjoy or use in my spending?
By asking this question, you can then determine what’s less needed within your budget. Through this exercise, you will pinpoint items that you can cut.
The Budget Question to Ask
How does this work in reality? When my wife and I started taking ownership of our spending a number of years ago, we started to see that one restaurant kept popping up. This restaurant, a local asian-fusion joint, was a place that we would only go to if we were too tired or lazy to cook during the week. (I don’t want to name the restaurant here, so let’s just call it A-Fusy.) The problem? Every time we went, it cost us $40 to $50. Yet, we didn’t even really enjoy the food. Instead, it sat near our house so we ate there.
One of the first cuts to our budget was removing this spending. But this gave us a tool to analyze the rest of our budget. As we went through our spending, line-by-line, we asked ourselves, “Is that an A-Fusy purchase or do we need or want this?” Anything that we felt mimicked our A-Fusy spending, we would cut.
By naming the spending, it went further. Even after we had cut our spending, when new purchases arose, we would ask “Is that an A-Fusy buy?” If we felt it might be, we didn’t make the purchase.
The Value of Getting Your Budget Under Control
This proved incredibly useful for us and our finances. Through this process, we developed a plan to pay back student loans and start aggressively funding retirement. But we never felt the brunt of budgeting because we cut items we didn’t need.
In your own financial life, getting the budget in order will be key to how much you can save, what your debt level looks like and how much you can fund future needs. In order to get started, it’s vital to find you A-Fusy, and then go from there.
This doesn’t mean, however, that you no longer spend money. Or you never do anything fun or enjoy nights out at restaurants. Instead, it’s about finding the spending that you actually don’t want to do or need, then cut that.
By doing so, you’ve created two layers of resources. Some of the extra money can go to long-term goals, like retirement or saving for your kids’ college education. Meanwhile, the other extra money can go to things you actually enjoy doing.
The goal of finding your A-Fusy in your budget isn’t to make life more difficult. In fact, when done right, it makes it more enjoyable since money is going where you want or need it to go the most.
The Budgeting Pool
Budgeting creates a pool of funds that you can consider for use. Inside the pool, the money goes to retirement or debt repayment or other long-term goals, as well as fixed costs, like your mortgage and utilities. In this pool is what you have to live on and enjoy in a given month. It’s with this money where the pool will grow the better you budget.
But within the pool, it does not require penny pinching. If you have enough money in the pool to afford the expensive restaurant, the nice clothes or another off-the-cuff purchase, then it’s for spending. What you may find, however, is in the pool you begin to eye the spending on how much you will need or enjoy the purchase. It might just turn out that you would rather use the money to take a professional course or invest in some new real estate or add additional funds to your 401k.
It’s here where budgeting has opened up the world of finance to you. And it’s all because you recognized a concern and then found the spending you don’t need.