Budgeting isn’t about limiting yourself, it’s about making the things that excite you possible.Unknown
The budget is the life-blood of a financial plan. It doesn’t just track money inflows and outflows, it is a way to protect your income. It is where you will put your money to work on the things that matter the most to you and your family.
Contrary to popular belief, budgeting is not just for individuals who are struggling financially. Many affluent individuals accumulate a higher net worth because they use their budget to fuel wealth creation.
Before we dive into the steps, let’s take a look at two major things that can dramatically increase the success of your budget.
Focus on the Benefits:
I’ve consumed a lot of content on budgeting and personal finance, the vast majority of it is focused on the sacrifice and pain of budgeting. The focus is on cutting, cutting, and more cutting however, I don’t believe there is enough content on the benefits of budgeting.
Clear Creek see 7 benefits of budgeting:
- Uncover Life Values
- Lower stress
- Reveal more opportunities
- Prioritize spending
- Give more
- Attain financial goals
- Cultivate financial independence
Stay focused on the benefits of the budget and you will begin to notice a big boost in the power of your budget.
Focus on the Results
At its core, the budget process is very simple.
Your income should be greater than your expenses allowing you to put money towards your financial goals.
There are a number of different types of budgets. A few popular ones are the zero based budget, the 50/30/20 budget, or the traditional budget.
It doesn’t matter what type of budget you choose, the most important thing about budgeting is to do it and to stay focused on the results.
People can have beautifully designed budget spreadsheets and a seemingly perfect budget process but if the desired results are not there, the process is worthless.
Our financial planning tools help to aggregate all your financial data into a single platform. We would love to help you get a #ClearView into your finances.
The absolute most important part of your budgeting process are the results!
Now, with those two concepts under our belt, let’s dive into the 8 simple steps for creating a family budget.
The 8 Steps
- Create Family Goals
- Know your WHY
- Pick your budget process
- Gather financial information
- Organize the data
- Crunch the numbers
- Take Action
- Track, Analysis, Revise
1) Create Goals
Your family’s financial goals give your budget and financial plan a destination. Without goals your budget and financial plan will lack power and focus.
A few examples of financial goals are saving for a bigger house, a new car, a fun vacation, retirement, home remodel, college fund, starting a business, or even building a generational trust.
We recommend using the SMARTER goal framework to create your goals.
SMARTER stands for:
“S” – Specific
“M” – Measurable
“A” – Achievable
“R” – Relevant
“T” – Time-bound
“E” – Exciting
“R” – Readjusting
Having goals that are (S)pecific and (M)easurable keeps us focused. (A)chievable and (R)elevant goals keep our feet firmly in reality while connecting to a deeper purpose. Goals that are (T)ime-bound bring accountability through target dates. (E)xciting goals keep us internally motivated. (R)eadjusting speaks to the realities that life is unpredictable. Things we wanted 15 years ago might not be the things we want today.
To learn more about family goal setting, check out our article “How to Determine Your Family’s Life & Financial Goals”. We also created a Goal Planning Worksheet that walks you through the entire goal setting process. Feel free to download it, “Financial Planning Goal Worksheet”.
Goals are one of the most important parts of creating a budget. Your goals not only set the priorities of the family’s spending habits but also uncover your families “why”.
2) Know Your WHY
Your WHY will keep you going when you and your family encounter resistance and obstacles. It is your WHY that will get you through the hard moment. It is your WHY that will keep you focused on the benefits of budgeting when you are in the thick of sacrifice.
Let’s say one of our clients are planning on retiring in two years and wants to purchase a vacation home in Princeville, Kauai. They want it to be a place their whole family can gather a few times a year to play on the beach and enjoy the waves. While the financial goal might be to buy a $2MM vacation home in Kauai, the WHY behind the goal is a love for family.
Your WHY is important to all the other aspects of your life. Your financial independence is just one part of the overall picture.
3) Pick your budgeting method
A quick Google search will show you half a dozen different types of budgeting methods.
A few popular ones are:
- 50/30/20 Budget
- Zero-based Budget
- The No Budget
- No Spend Budget
- The Envelope Budget
Do not get too focused on the process. Every person is unique and you will quickly find out what works best for you and what does not. Don’t be afraid to mix and match. As Marissa Zen, a popular family minimalism blogger, says when it comes to picking the perfect budget method, “embrace your weirdness!”
4) Gather Financial Data
Gathering financial data for your budget can be time consuming but it is absolutely worth the effort.
It can take 3 hours on a Saturday morning to accumulate a year’s worth of bank statements, credit card statements, Venmo history, and Tithly data. Fortunately, Clear Creek has some excellent financial planning tools that can make this process a little less frustrating. Financial planning tools can aggregate all your accounts including credit cards, bank accounts, and investment accounts making data collection much less time consuming.
There are also a number of budgeting apps that you can download for free to help you aggregate the data. Be careful what app you use and make sure it is a reputable company with plenty of security measures to protect your financial data.
Once you have gathered all the data, the next step is to start organizing it.
5) Organize the Data
If you are using a financial planning software or an app, this part can be automatically done.
But if you prefer to use a good old fashioned spreadsheet, here are a few ideas to make organization more effective.
List all your monthly income and expenses for the last year or so, making sure to categorize your spending.
Some easy examples are:
- Rent / Mortgage
- Health Insurance
Take a look at Money for the Mamas budget categories list for more ideas.
6) Crunching the Numbers
Ok, you’ve gathered and organized the data, now it is time to calculate what income is coming in and what expenses are going out.
Add up all your monthly expenses and subtract the total from your monthly income. Hopefully you have a balanced budget where income is greater than your spending levels. If this isn’t the case, don’t lose hope. The fact that you are looking at this data means you can begin to improve it.
7) Take Action
Now it is time to put your budget to work!
This is one of the budget’s greatest characteristics, using it to take action towards reaching your financial goals, generate wealth, and cultivate healthy financial stewardship in your family and life.
Take a look at the entire snapshot of your spending and decided how to prioritize spending based around the goals you created in step # 1.
Can you spend less in some categories to contribute more resources to your financial goals?
Are there opportunities to increase your income?
What actions can you take to divert more resources towards your family goals?
Write down all the action items and assign each them to family members.
8) Track, Analysis, and Revise
With your action list in hand and assigned to the family, it is time to get to work.
Begin regularly tracking expenses and income. You could sit down every Friday evening or Saturday morning and input all the receipts from the week. Or you could input them at the end of each night.
Make sure you are tracking our income and savings goals as well as our spending habits.
Regularly analyze your progress to make sure we are on track and on target.
If for any reason you find that something isn’t working or can be improved, revise the budget and if appropriate, the weekly tasks.
Clear Creek Conclusion
Creating a budget doesn’t have to be complicated. The ultimate purpose of the budget is to help you reach your financial goals more efficiently!
Start your budget creation process by defining your goals and understanding your WHY. Once you have these, start gathering your financial data and organizing it it a way that allows you to crunch the numbers and begin to take action. Be sure to track, analysis, and revise your process and budget as you learn more about your spending habits and what motivates you.
The long-term benefits of a budget far outweigh the short-term time requirements. Having a disciplined approach will help you and your family stay focused and reach your financial goals!