Take Control of Your Finances: 3 Proven Steps to Making Budgeting Work for You

Budgeting can be challenging, but it’s an essential part of managing your finances effectively. Whether you’re trying to save for a big purchase, pay off debt, or just make sure you have enough money to cover your expenses, having a budget can help you stay on track and achieve your financial goals.

Remember, budgeting isn’t about depriving yourself of everything you enjoy, but rather about finding a healthy balance between your needs and your wants. By creating a budget and sticking to it, you can achieve your financial goals and feel more in control of your money!

Having coached over 50 clients with their finances, I've found that successful budgeting almost always involves the following three steps. No matter what app, planner, or spreadsheet you use, these three steps used consistently will transform your relationship with money and help you reach your financial goals.

Note: You might try these instructions and find out that they’re easy for you. You might try them and find out they’re hard. The biggest question is, can you follow them for three months in a row?    

That’s how long it takes to make the magic happen. After three months, you’re comfortable with that process of going through all three of those steps, and you feel like the system is working. It won’t feel like an impossible mountain to climb. By the end of the fourth month, you’ll start feeling a real sense of control with your finances!

Alright, enough about the desired results, let's get into the first step...

Step 1 - Make a month-specific plan for expenses

A key to successful budgeting is recognizing that it's not a once-and-done process. Every month you want to create a new budget. It can be largely based on the previous month, as most of your expenses haven't probably changed much, but trying to keep everything the same without accounting for month-specific events, annual expenses, or changes in your lifestyle will make it less effective and more frustrating.

For example, if it’s March, and you have a birthday in March, you write in how much you plan to spend.    Also, if you are planning for a special expense, like a vacation or biannual car insurance, you write in how much you plan to save for that expense. Perhaps in the month of March you want to save $100 towards your vacation in June, and $100 towards car insurance. Then, of course, you would add in or copy over the usual things.

That’s it! That’s step one. It is not necessary to stress out about how accurate these estimated expenses are in the first month! For things you are certain of, like your rent or mortgage or car payment, be accurate to the dollar. For things you’re uncertain of, just give it your best guess. If you find that your plan exceeds your income, you can adjust the plan, or come up with some creative ways to earn more income that month.

Now of course, a plan without actual data ends up being as worthless as the paper it's written on! That's where the second step comes in...

Step 2 - Track and Categorize all Expenses

Now, before you run away screaming, I get it. This is not an easy part.  

Or, it might have been easy in the past, but you never identified any real benefit and therefore feel it’s  a waste of time. (That’s why there will be a third step!)

Or, whether or not it was easy in the past, it might have been just plain discouraging.

The first few times you do this, it’s going to be a process heavy on reality, forgiveness, and determination.

The reality is, your actual expenditures may be a bit shocking.    

You may be eating out a lot more than you thought Buying a lot more for the kids than you thought. Paying a lot more fees than you thought.

Put your brain into neutral, record the numbers, and keep moving.  

If you get frustrated, remember that an unforgiven financial self is practically guaranteed to never get good financial results. It’s OK to forgive yourself when “being human” happens to you!

Keep determined to do this process, every week at least, no matter how much you like or dislike the results.    There’s one thing I can stake my career as a financial coach on, and that is, you will never regret that you tracked and categorized your expenses!

Never.  

But I have seen a lot of regret when this step isn’t done.

Here are a few things to beware in this step. You might get stuck on something more technical, like knowing what categories to have in the first place, or whether you should use an app or a spreadsheet. You could dread the task, or simply forget. You could have a big financial event mid-month that is either so good the pressure is off to keep to a strict budget, or so bad you think “What’s the point if stuff like this is going to happen?!”

This is why it can be helpful to have an accountability partner! Someone outside of your budget, who you can get those 🙌 from. You’re doing something most people aren’t willing to do!

Some people join groups for this sort of thing, some people have a family member or friend they can trust to be involved (and not over-involved!). Some people have a financial coach :)

Alright, enough with the tracking, let's talk about where the REAL magic happens...

Step 3 - Adjust and Reallocate

Step three is to go back and for any category that you have already overspent or are likely to overspend, CHANGE your “budgeted” or (or planned) amount to match the spent (or actual) amount. This usually should happen at the middle and again at the end of the month.

For example: Let's say you have a grocery budget of $750. On the 15th of the month, you find that you've spent $823, $73 more than you planned. We therefore need to change the budgeted $750 to $823.

But we’re only halfway through the month, which means, to finish out the month and feed your family, you'll need to add to your grocery budgeted amount!    

In that case, you might change the budgeted amount to $950. This leaves us $127 for the remainder of the month ($950 budgeted - $823 already spent).  

So where do we pull the extra $200 from ($900 now budgeted vs. $700 originally budgeted)?

You have three options:  

1. Spend from your savings

2. Go into debt

3. Adjust other spending categories so that your planned expenses line up exactly with your income again.

Don’t judge yourself if you end up using the first two options…at least you now KNOW where your money is going, and that’s a win! But always aim for the third option! Do the best you can. If you’re in the middle of the month, take a look at the other categories. Maybe you budgeted $100 for eating out, and you’ve only spent $15. You might now feel that you can cut that category down to $30. The extra $70 can go towards groceries.  

Of course, if you’ve been overspending your income for the past seven years, it’s not likely that will change right away!    

For today, you’re just getting data. Remember I said doing this for 3 months is important? Habits take time to develop. But once you have the correct information, you can make new choices. You can’t make good choices with your money based on a “general idea” of where it’s going. You need specific, reliable data.  

The state of your finances will never be better than the quality of your information.

So what do you think? Will this work for you? I'd love to hear about it! You can send me an email at [email protected].

And if you're struggling with these three steps and want me to go more in depth on how you can apply them to your situation, I'll be doing a 3-part LIVE training in the next few weeks! Just make sure to sign up for our email newsletter (down below) so you get all the details!