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7 Steps to Build A Better Budget
talessi@ariesfoundation.org
You Cannot Save Until You Know What You Spend
My belief has always been that there are 3 kinds of people when it comes to having a budget; the first knows exactly where everything is spent. They have spreadsheets and trackers and can tell you exactly where they stand. Person #3 has no idea; money comes in, money goes out, there is no plan or worry about what's ahead. And then there is person #2, who thinks they are a 1, but really acts more like person #3.
Where do you stand?
No matter where, or which number may be a fit for you, we want to give you some ideas to help get your budget started, or be better prepared with the one you are using.
1. It's An On-Going Process
The best way to set yourself up for budgeting success is to understand that budgeting is an ever-evolving strategy you will use to live your life financially fit. Instead of thinking of budgeting as a one-time or occasional chore, it’s better to think of it as something that needs to be done on a regular basis, much like doing your laundry.
Like financial goals, your laundry is an ongoing responsibility that cannot be avoided, ignored or forgotten without some serious problems cropping up. Getting your head wrapped around that when you begin your brand new budget that you are committing to a regular and ongoing process will help you maintain your budget, which is far more important than just creating one.
2. Know What Your Income Is
For anyone who receives a salary from a traditional employer, this part will be very simple. You’ll just need to take a look at your most recent pay stub to see how much you earn per paycheck. You can then multiply that by number of times your paid (26 or 52) and divide by 12 to get a monthly figure.
However, if you work as a freelancer, have side hustles, earn hourly pay or overtime or rely on tips or commission, it isn't as easy to calculate your monthly income. We suggest using an averaging process of the last 3 or 6 months of earnings. This can give you a geeral idea of how much you earn on an average monthly basis.
3. Must Pay Expenses
We refer to these as "hard dollar" costs. Those items that need to be paid in order for on-going living expenses. Most people have a basic sense of their fixed, or recurring, expenses. For instance, you know exactly how much you pay for your rent or mortgage each month. However, some of these expenses can be variable, like groceries, or medications, car repairs, which makes it harder to track. For variable expenses, it’s a good idea to calculate the monthly average over the last 12 months. (If there are expenses that don’t come up monthly, add up the total annual amount you have spent and divide that amount by 12 to determine your monthly average.)
4. Pay Yourself First
We've talked about treating yourself like a bill, so you had better have "YOU"
as a line item in your budget. And contributing to building up your Emergency Reserves Bucket (see "What's In Your Buckets?") should be objective numero uno. Add in if you plan to also contribute to a retirement plan, or make debt repayments, then add those in as well.
5. Discretionary Spending
What we refer to as "soft dollar" expenses. Here is usually where our plans or budget go sideways. What we allocate for this spending typically is the one that gets away from us, usually really, really quickly. Think of these items as all the "fun" stuff we spend our money on. Which is fine, unless we don't know how much or how often we are spending and what that "fun" is really costing us (see "Track Your Figures"). This can be an eye-opening experience for some, especially those who have never really looked at what is being spent on a weekly basis for; coffee, snacks, or even lunch. Take the time and get a handle on what you are spending for soft dollars on a regular basis.
6. Compare & Refine
Just because you've put all of your numbers together doesn't mean you're done. Now you need to review the whole picture. You need to compare your expenses to your income. If the expense number is lower than or equal to your income number, then your budget is balanced. In that case, you are ready to implement your budget.
If, however, your expenses are higher than your income, then you need to adjust your spending. You can do this by playing with your "soft dollar" or variable expenses. Understand that the idea about adjustments is that you should focus on the discretionary spending or variable spending (such as your grocery budget) before you reduce or modify the Pay Yourself First line items. This will help ensure you reach the important financial milestones that matter to you.
7. Take Action & Track
If you have a balanced budget, you’re ready to put your plan into action. Start spending and saving based on the budget you have created. Implementing your new budget is about more than just keeping your spending limits in mind, however. Remember this is an ever-evolving process, so keeping track of your spending to identify any weak spots is key. There are many ways to track, but if you are just starting we recommend to begin with a pen and paper for a short period and then transfer to a spreadsheet or app. As you implement and track your budget, you’ll notice patterns over time. These will help you make changes as needed to your budget and figure out what is important to you.
Got Questions? Ask Us. We Can Help With That!
The ARIES Foundation for Financial Education, Inc.
is a nonprofit oprganization dedicated to the mission of trying to help everyone ahve a better relationship with their money.
Learn more www.ariesfoundation.org
Have you ever noticed how New Year's resolutions seem to lose their sparkle by the second or third week of January? If so, you’re not alone. Statistics show that most people abandon their resolutions within a few weeks of setting them. But why does this happen? The reasons often lie in how we approach our goals and the mindset we carry into the new year. One of the biggest culprits is setting unrealistic goals. Many of us feel a surge of motivation on January 1st and decide to aim for major life changes all at once—like losing 30 pounds in a month or working out every single day without fail. While ambition is admirable, these types of goals are often unattainable in such a short period, leading to frustration and eventual burnout. Another common issue is the lack of a clear plan. Resolutions often start as vague statements like “I want to get fit” or “I’ll save money this year.” Without actionable steps or measurable milestones, it’s easy to lose track of progress or get overwhelmed by the enormity of the goal. Without structure, even the best intentions can falter. Motivation fades quickly after the excitement of the new year dies down. Motivation is often fueled by novelty, but real change requires discipline and consistency—two traits that are harder to maintain over time. By mid-January, the initial enthusiasm often gives way to old habits, especially if we don’t have systems in place to reinforce new ones. Social and environmental pressures also play a role. Life gets busy, and as the demands of work, school, or family creep back in after the holiday lull, resolutions take a backseat. Pair this with temptations like junk food or the comfort of skipping the gym, and it’s no surprise that many people give up. Finally, many people don’t account for setbacks. Whether it’s missing a workout, overspending on a shopping trip, or indulging in an unhealthy meal, one slip-up can feel like a failure. This "all-or-nothing" mindset often leads to abandoning the resolution entirely instead of adjusting the plan. ________________________________________ Strategies to Overcome Quitters Day Breaking the cycle of quitting isn’t just possible—it’s entirely within your reach with the right mindset and strategies. Let’s dive into how you can overcome the challenges of Quitters Day and stick to your resolutions long-term. 1. Set Realistic and Measurable Goals The key to success lies in creating goals that are specific, measurable, achievable, relevant, and time-bound (SMART). For example, instead of saying, “I’ll get fit this year,” try “I’ll exercise for 30 minutes three times a week.” By breaking big aspirations into smaller, manageable steps, you’re less likely to feel overwhelmed and more likely to stay on track. 2. Build Consistent Habits, Not Just Motivation Motivation is fleeting, but habits are sustainable. Focus on creating daily or weekly routines that make progress automatic. For instance, if you want to eat healthier, prep your meals in advance or stock your kitchen with nutritious options. Building habits takes time, but once established, they become second nature. 3. Accountability and Support Systems Having someone to hold you accountable can make all the difference. Share your goals with a trusted friend, family member, or even a coach. Better yet, join a community or group with similar objectives. Knowing that someone is rooting for you—or counting on you—can keep you motivated during tough moments. 4. Reframe Setbacks as Learning Opportunities Setbacks are inevitable, but they don’t have to derail your progress. Instead of viewing a missed workout or a bad day as failure, see it as a chance to learn. What triggered the setback? How can you adjust your approach to prevent it in the future? Remember, growth isn’t linear—it’s a journey filled with ups and downs. 5. Celebrate Small Wins Big goals take time, so it’s important to recognize and celebrate progress along the way. Did you stick to your exercise routine for two weeks? Treat yourself to something meaningful, like new workout gear. Celebrating small milestones helps reinforce positive behavior and keeps you motivated for the long haul. 6. Focus on the Process, Not Just the Outcome Instead of fixating on the end goal, shift your mindset to enjoy the journey. For example, if your goal is to write a book, celebrate the act of writing every day rather than stressing about completing the manuscript. When you focus on the process, progress feels more achievable, and the outcome will naturally follow. 7. Leverage Technology and Tools Apps and tools can help you stay organized and motivated. Habit trackers, fitness apps, and budgeting tools make it easier to monitor progress and stay accountable. Life happens, and sometimes your resolutions need to evolve. Check in with yourself weekly or monthly to assess progress. Are your goals still realistic? Do you need to adjust your timeline or strategy? Being flexible ensures that your resolutions remain relevant and achievable. ________________________________________ With these strategies, you can break free from the Quitters Day trap and turn your resolutions into lasting change. The key is to approach your goals with patience, self-compassion, and a focus on progress rather than perfection. Change doesn’t happen overnight, but with consistent effort, you’ll be surprised at what you can accomplish.
Budgeting and dieting are two of the most common self-improvement goals people set for themselves. Both aim to bring about positive changes—whether it's financial stability or better health. However, many find that sticking to a budget is just as challenging as sticking to a diet. Here’s why: 1. Restrictive Nature Both budgeting and dieting often start with a restrictive mindset. Just as a diet might cut out all your favorite foods, a budget might eliminate all your discretionary spending. This restriction can lead to feelings of deprivation, making it harder to stick to the plan. Over time, the temptation to "cheat" becomes stronger, whether it's indulging in a dessert or splurging on an unplanned purchase. 2. Unrealistic Expectations Many people set themselves up for failure by setting unrealistic goals. In dieting, this might mean expecting to lose a significant amount of weight in a short period. In budgeting, it could mean expecting to save a large portion of income without considering necessary expenses. When these high expectations aren't met, it can lead to discouragement and abandonment of the plan altogether. 3. Lack of Flexibility Life is unpredictable, and both diets and budgets need to be flexible to accommodate unexpected changes. A rigid diet plan doesn't account for social events or cravings, just as a strict budget doesn't account for emergencies or spontaneous opportunities. Flexibility is key to maintaining long-term success in both areas. 4. Emotional Factors Emotions play a significant role in both eating and spending habits. Stress, boredom, and happiness can all trigger overeating or overspending. Without addressing the underlying emotional triggers, it's challenging to maintain a diet or budget. Emotional awareness and coping strategies are essential for long-term success. 5. Short-Term vs. Long-Term Mindset Both dieting and budgeting often focus on short-term results rather than long-term sustainability. Crash diets and extreme budgeting can lead to quick results, but they are rarely sustainable. A more balanced approach that focuses on gradual, consistent changes is more likely to lead to lasting success. 6. Lack of Support Having a support system can make a significant difference in achieving goals. Just as people might join a weight loss group or hire a personal trainer, having a financial advisor or joining a budgeting community can provide the encouragement and accountability needed to stay on track. Making It Work To make both budgeting and dieting work, consider the following tips: • Set Realistic Goals: Aim for gradual progress rather than drastic changes. • Allow Flexibility: Build in some room for treats and unexpected expenses. • Address Emotional Triggers: Be mindful of how emotions affect your habits and develop healthy coping mechanisms. • Seek Support: Surround yourself with people who encourage and support your goals. • Focus on Long-Term Changes: Develop habits that you can maintain for life, rather than quick fixes. By understanding the similarities between budgeting and dieting, you can approach both with a more balanced and sustainable mindset. Remember, it's about progress, not perfection. Watch our Think With A Drink episode for ways to be better at handling your expenses: The Dreaded B Word
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Completing these financial tasks before year-end can help set you up for financial success in the New Year.
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