Contrary to popular belief, the purpose of a budget is to help you get what you want, not to deprive you of having fun.
A powerful tool, a budget can lead you to your dreams, but only if you avoid these classic mistakes:
Not beginning with what you value.
Guessing how much you make.
Neglecting less-than-monthly expenses.
Not holding yourself accountable.
When creating a budget, people typically start with lists of expenses and a variety of budget formats. This might seem sensible, but a successful budget is built on personal values, not facts and figures.
My definition of success is getting more of what will make you truly happy. If you are going to be successful, you must know what you need. Do you know what you need? Can you define success for yourself? To discover what will make you truly happy try the following exercise.
Begin by finding a quiet space, going for a nature walk or talking with a close friend. Now, ask yourself these questions and record the answers in a journal. You’ll want to come back to them later when you’re evaluating budget choices. If you have a partner, ask him or her to join you, so your joint budget can reflect your shared values and vision.
What brings you deep and lasting pleasure?
What’s on your bucket list?
What would you like your legacy to be?
Who are six people you would like to spend more time with?
What activities help you be the best version of yourself?
With these answers in hand, now determine exactly how much you make each month. Be honest and accurate. It’s easy to go astray here. Frequently, people figure a “close enough” budget, which allows them to ignore reality and leads to trouble.
If you earn a salary, this step is easy. Look at your pay stub and budget based on your regular take-home pay. If your income varies month to month, you’ll need to estimate your income and enter the actual amount when you get paid. This also means you’ll need to eliminate expenses when your income is less than predicted so underestimate your income and be pleasantly surprised by a surplus.
Most people remember their regular monthly obligations, debts and bills. Ignoring those less-than-monthly expenses is where trouble lurks. A key to a successful budget is setting aside money each month for specific, future expenses. For example, you might want to check an item off your bucket list each year. By saving 1/12th of the cost each month, you’ll be able to pay cash for your most important experiences.
The mistake that can sabotage all of your hard work is failing to hold yourself accountable to your spending plan. To spend only what you’ve budgeted, use cash for discretionary expenses such as groceries, restaurants and entertainment. A cash-envelope system is an effective tool to help you meet your spending goals. Use it.
By avoiding these common mistakes, your can get more of what you want, have fun and achieve your dreams.
email@example.com. Durango resident and personal finance coach Matt Kelly owns Momentum: Personal Finance. www.personalfinancecoaching.com.