I’ll admit, budgeting is one of my least favorite financial tasks to do. It seems so mundane compared to all the other exciting financial things we could be doing, right? However, I’ve come to learn the importance of budgeting because of the protection it provides. Let me use a little analogy to show this a little clearer.
Here in Montana, we have one of the most beautiful drives in America that links Southern Montana and Northern Wyoming to Yellowstone. It ascends up to almost 11,000 feet through the Beartooth Mountains and was hence named the Beartooth Highway. The road is only open during the summer months and closes during the winter due to heavy snowfall. Every Spring, road crews have the task of clearing the road and also repairing the damaged guardrails that are taken out by avalanches. The road doesn’t open until all of the guardrails are repaired.
Budgets are like guardrails. If you don’t properly establish and maintain them, you will eventually find yourself off course, or even in a dangerous situation. While they may seem annoying or unnecessary at times, they help to provide us protection at times when we might be vulnerable.
While the process of budgeting may not be entertaining or exciting, it can, over time, become an efficient process that is less painful.
Embracing Imperfection for Progressive Financial Growth
First, let’s look at what budgeting is not. It’s not perfect. It can be a difficult task to assign a quantitative value(a number) to our personality, but even if we can’t get it perfect, we can get close as we get better over time.
Just like a guardrail along a highway, there will be times when our budget gets completely obliterated and we have to start over from scratch. However, even if it has to be rebuilt, it most likely resulted in less damage than if it were never there in the first place. Budgeting should be looked at as a way from keeping from going off the edge, not to keep you in the middle of the road the whole time.
Financial Momentum is the Key to Maintaining and Updating Your Budget
A good budget requires good maintenance; there are no two ways around it. On top of that, we all have busy schedules, changing needs and expenses which can make it hard to stay on track at all times. Just as we discussed in the first point, consistent progress forward is what makes the difference. Establishing a set time every month to review and monitor progress towards goals is essential. Establishing someone to keep you accountable, such as a spouse, close friend, colleague etc. can also help to make sure you are staying within the guardrails you established.
Another item to recognize when maintaining a budget is that, just like guardrails, there will be drift from the “perfect budget” at times. During your monthly review, keep an eye out for trends that pop up. We are humans, and we operate with certain behaviors and habits and are different from everyone else. If you notice your budget is too light or too heavy in certain areas, changing these budgets when you recognize them can help you to best accommodate your way of doing things.
Keep in mind that I didn’t say “go ahead and overspend” when reviewing your budget progress. There is a key word that you must abide by during evaluating spending and budget allotments. That word is balanced. At the end of the month, the total amount of your budget cannot exceed your income. Hard stop.
Leveraging Tech for Smart Budgeting
There are many ways to use technology to make the budgeting process more efficient. Many budgeting apps can link to your credit/debit card or bank account and automatically pull in your transactions, compile your spending, and give you trends over time. Our clients have access to RightCapital, which automatically uploads their spending right into their financial plan, which makes updating and monitoring their budget a breeze.
Reward Yourself Within Your Financial Plan
If you feel like you have been a slave to your budget for forever, it might be time to take a breather and set a time to celebrate! Many times, we give ourselves too little credit for the progress we’ve made and only count success at the finish line. You can give yourself a big psychological boost by allowing yourself to spend an extra 5-10% on a budget that you know would give you the motivation you need to keep going.
One caveat to this point is that it is important to keep your criteria consistent and accountable to time. Budgets only work if they are met on time. ie – if you ended the month under your budget, you allow yourself the extra spending reward. However, if your budget was met with half of the month left, it’s time to buckle down and find other areas to reduce spending until you begin the next month. It can be tempting to change the timeframe for meeting if you’ve overspent in a category or otherwise get off track. However, keeping this timeframe consistent is just as important as paying monthly bills or other recurring monthly tasks.
If you have yet to develop guardrails for your budget, or need some help getting them in place, Get in Touch with us today.
This content is developed from sources believed to be providing accurate information. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Evergreen Financial Group, LLC is a registered investment advisor offering advisory services in Montana and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training. This communication is for informational purposes only and is not intended as tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. This communication should not be relied upon as the sole factor in an investment making decision. All opinions and estimates constitute Evergreen Financial Group’s judgement as of the date of this communication and are subject to change without notice. Evergreen Financial Group does not warrant that the information will be free from error. The information should not be relied upon for purposes of transacting securities or other investments. Your use of the information is at your sole risk.