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The Freedom 30 Program: Budgeting


If you think of achieving your financial dreams as a journey, you were putting together your itinerary when you worked on goals last month in the Freedom 30 program. This month, by addressing your budget, you’ll be fueling the vehicle to get you where you want to go.

For most people, doing a budget can feel like an exercise in restriction and limitation. To stay motivated throughout this process, it helps to flip that notion and think about doing a budget to make sure your money goes toward what you want to get out of life. For example, if you’re spending a lot of money on little indulgences each week, you could be reducing your long-term quality of life. Since you spent last month thinking about what you want out of life, you now have a better idea of what you want to achieve in the short-, mid- and long-term. A budget is far and away the best way to get there.

As a reminder: The Freedom 30 is a year-long program to help put some structure to the process of putting your money to work for you. The idea is that you dedicate a 30-minute time slot each week to achieving financial freedom – whatever that looks like for you. Each month, you’ll receive a list of 4 mini-projects to complete within a particular financial wellness theme. If you didn’t have the chance to start the program in January, don’t fret. You can always add catch-up sessions to your schedule.

This month: Budgeting is winning!

The underlying theme for this month’s activities is taking the stress out of budgeting. In fact, if you have negative associations with the term “budget,” you don’t even have to call it that. Instead, you can call it a Spending and Saving Plan. That can emphasize getting enjoyment out of your money, both in terms of what you get to spend monthly to treat yourself and what you’ll be setting aside for those big-picture dreams.

Many folks doing a budget for the first time or for the first time in a long time find that when they implement their new plan, they don’t miss the extraneous things they used to think were vital to their enjoyment of life. Additionally, they get the satisfaction and peace of mind from knowing their hard work is paying off as they watch their savings grow. You can put yourself in that category by completing this month’s tasks.

Week 1 Project: Follow the money

It’s time to become a private investigator and examine every last nook and cranny of your finances. Before you can establish a system for using your money to achieve your financial goals, you need to know where your money is currently going.

Start by downloading a monthly expense tracking worksheet. Next, fill out all the categories to the best of your ability. Try to be as accurate as possible. At this point, use your current expenditures and not your projected modifications. That part will come later.

This process is easiest if you use a debit or credit card for all or almost all your transactions. If you utilize this approach to spending, you can go online and see your digital record of where your money has gone. It helps to keep receipts for purchases at grocery or big box stores for a while so you can break down your costs into more specific categories.

If you use cash primarily, you’ll need to keep receipts and maintain a journal of your spending. It’s extra work, but the payoff can mean a huge net benefit to your bottom line – freeing up a lot of dough each month to put toward your life ambitions.
Be sure to keep in mind any bills that don’t come due each month, like annual memberships, insurance bills, or charitable contributions that only happen once a year. Also, remember to include your debt payments on things like credit cards or personal loans.

Takeaway: By the end of this exercise, you should have the expenses part of your budget finalized.
For next week: Start compiling your income sources.

Week 2 Project: Identify your sources

Using an income worksheet, capture how money comes into your various accounts. If you work, your income is probably at the forefront of your mind. However, don’t forget things like:

  • Alimony
  • Child Support
  • Investments
  • Annuities
  • Life insurance withdrawals
  • Settlements
  • Severance payments
  • Side hustles
  • Tips

Utilizing online banking can also make tracking a lot easier. Again, remember that not all transactions happen monthly, so if possible, try to look back at your income from the past year. If you share finances with someone like a spouse or partner, ask them to track down all their income sources as well.

It’s a good idea to avoid counting gifts or bonuses in this category because they aren’t guaranteed income. When you get these extra boosts, you can use them to either speed up the timeframe for your goal achievement or give yourself a little more security with an enhanced emergency savings account.

Typically, gathering the figures for the incoming portion of your cashflow equation doesn’t take as long. If you still need more time to collect all the information on your expenses, feel free to dedicate some time in this session to finalizing your expenses list.

Takeaway: A complete list of your expenses is your bounty from this week’s mini-project.
For next week: It’s about time to put all the numbers together, so start brainstorming ways to improve your cash flow situation, whether on the spending or income end.

Week 3 Project: Putting it all together

Now’s the exciting part! It’s time to compile all the data you’ve assembled into a budget worksheet. Alternatively, you can use a computer spreadsheet or an app if that suits your needs better.

Be sure to list the current goals you developed as part of last month’s Freedom 30 sessions in your budget. Include them as regular monthly expenses to ensure they’re always accounted for in your plan. If you’re not 100% sure of the exact amounts just yet, you can use estimates of what you think you’d like to put toward each of your goals.

The easiest way to transform your current spending into a supercharged, goal-smashing machine is to do a worksheet/spreadsheet with “before” and “after” columns or two separate versions entirely. It will help you keep your proposed changes straight if you have two different sets of numbers.

Now, subtract your current expenses from your present income level. If the number is negative, you have some good motivation to start looking for expenses to trim or income streams to open the floodgates on. If the number is positive, looking for ways to put as much money as possible toward your goals is still a strong move. Since cutting costs is typically easier than generating extra income, focus on this part of the equation first.

With the money you’ve cleared up from your new plan for more conscious spending, you’ve got an excellent new power source to inject into your goal attainment, whether paying off debt, upgrading your living situation, or something else.

Takeaway: You’ve now got a budget!
For next week: Get yourself psyched up to put your new plan to work for you.

Week 4 Project: Implement and adjust

At this juncture, you might be thinking that the whole point of a budget is to have an iron-clad, inflexible, unchanging mandate for where every cent of your money goes. The reality is that it’s not actually how things work out there in the real world. Circumstances change. Your preferences shift. Some things you thought would work, just don’t.

A more workable way to think of a budget is as a set of guiding principles you will do your best to stick to, but that may need some massaging over time. If you beat yourself up over going over a little bit in a particular month on entertainment expenses, your budget will quickly start feeling like more stress than it’s worth.

In the first month after you’ve put your new budget in place, there are two critical questions to be thinking about:

  1. Do the changes you’ve made to your costs and income feel workable, and does your quality of life feel good with them in place?
  2. Did the changes you made have the desired impact on your cash flow?

The first question is, of course, very subjective. That’s one only you (and possibly family members) can answer. If you cut something out, like going to the movie theatre once a month, that you now regret, feel free to reinstate that expense. Just know that you’ll need to cut somewhere else to stick to your plan. One of the goals for your spending in this overall approach is to have a quality of life that makes you feel good, so this is an excellent opportunity to determine which types of expenses give you the most bang for your buck in bringing joy and contentment to your world,

At the end of the first month of utilizing your new spending and saving plan, it’s time to do more math. Using a new budget worksheet, crunch your numbers from the past month. How closely were you able to stick to what you projected? It’s great to come up with ideas for using your available funds in the most pragmatic way possible, but you have to actually enact those ideas when you’re in the storm of temptation and emotion that is life.

It’s important to stop here to remember that nothing about this is meant to make you feel inadequate about the choices you make with your money. If things didn’t work out quite the way you expected in the first month, it’s OK. As Nelson Mandela said, “I never lose. I either win or learn.” If you had a few missteps or lapses in discipline in the first month, remember those in the months ahead and use those memories to help you make decisions more in line with your stated goals in the future.

Takeaway: You can now move forward in life knowing that all the hard work you put into earning your money will more efficiently transfer into the life you’re dreaming of.
For next week: Start thinking about debt’s role in moving you closer to – or further away from – your financial goals.

3/7/24

 

 

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