Tips for Financial Preparedness: Budgeting

Do you have a budget? According to NerdWallet.com, 75% of Americans do not live off a budget. Additionally, half of Americans cannot produce $400 in an emergency. How can we change this? We decided to ask an expert.

For more than a decade, Tana Gildea has served as a CERTIFIED FINANCIAL PLANNER™ and a Certified College Funding Specialist. She is also the author of The Graduate’s Guide to Money and an instructor for our Certified Financial Planner™ Program. Here are some of her thoughts on the best ways to budget your money:

Budget Isn’t a Bad Word
Budgeting is a word that has such a negative connotation to it – money jail, rigid, confining. Who wants to be trapped in some awful spreadsheet? Let’s start saying, “spending plan” or “spending strategy” or “spending priorities” or “path to freedom.”

Your money is your power. It gives you choices – no money, few choices; lots of money, lots of choices. Let’s treat it with the thoughtfulness that reflects how hard we worked to bring money into our lives.

Let’s deploy our dollars toward our sustenance, development, and fulfillment of our dreams. Let’s create a path to our ideal futures. Isn’t that so much better than using some canned formula to create a spreadsheet?

Think About Your Life
First, before thinking about math, think about your life. Not some movie star, I have all the money in the world life, but your life, now in the moment. Think about what you most enjoy doing. Think about your ideal living space that fits your lifestyle now. For example, if you are young, single, travel for work, and are very active, you are probably not spending a lot of time alone in your apartment. If that’s the case, should a lot of your money go toward a luxury apartment?

On the other hand, if you love to cook, have friends over, and you work from home, it makes sense for more of your money to go into having a great living space. If you love concerts, adventures, and travel, is there money allocated to those things? If you want to buy a house, travel the world, start a business, be an inventor, own a farm, or pursue some other big audacious goal, is money being put toward that every month? What is the most important thing in the world for you to do, be or achieve? Is your money being invested in those dreams?

Spending Money
Now, look at how you are actually spending your money. Go through last month and create categories that are meaningful to you – fewer may be better. I like the categories:

• Living (gas, food, rent, insurance, etc.)
• Stuff
• Entertainment
• Debt repayment
• Goals and dreams
• Personal development
• Savings

Add giving if you are regularly giving to charity. Add categories that mean something to you and your life. Now sit with your numbers and see how you feel about where your money went last month.

Money is emotional so feel what you feel without judging or using “should” or “must” or “supposed to.” How does your allocation of your power feel to you? Is it in alignment with your goals and dreams for yourself and your family?

5 Defining Questions:

1. Do I feel safe with the cash that I have saved up to protect me and my family from disaster?
   • If not, channel more money into your “feel safe” fund.
2. Am I building toward financial freedom? (Some refer to retirement but retirement is for old people and we’ll never be that old! Let’s talk about a freedom fund so someday, we don’t have to work for money; we can work for fulfillment and a sense of being valuable, contributing, and making a difference. We can do the things that are important to us without concern for paying the bills.)
   • If not, allocate some more money to the company 401(k) plan or your own investment account.
3. Am I living in balance between the cost of “sustaining life” (food, shelter, and other must haves like insurance, cell phone, dry cleaning), the cost of “living” (the fun stuff – adventures, travel, feeding our souls when we are not working), and the cost of accumulating stuff? Does it feel good to me?
   • If not, how can you start to shift toward what is truly important, feels good, feeds your soul, fuels your biggest dreams, educates and develops you as a person, and meets your needs?
4. Where am I spending on things/activities that are not important in the long term or enjoyable to me and are not powering my dreams?
   • Those are areas where you can pull money in order to fund the big, important components of your life.
5. Where am I spending money now that I could obtain for free or for lower cost?
   • Have you checked your library rather than buying the book/video/audio book?
   • Can you use Pandora rather than buying music to download?
   • What subscriptions do you have but don’t use? (Look at monthly apps, magazines, channels, etc.) Could you cut those or get the benefit for free? (Think health club vs. YouTube video or running outside.)
   • Where is convenience costing you?
   • If your social life revolves around happy hour, dinners at restaurants, movies, etc., can you shift to drinks on the deck at home, cooking at home, or finding other things to do with friends to get the social without the hit to the wallet?

Going through this exercise is not a one and done. It is a process of constantly and consistently refining, evaluating, reallocating, correcting and shifting as life comes at us.

Use your power to fund an extraordinary life or let your power drip here and there at the whim of your friends or your mood or advertisements or a reaction to whatever happens.

It’s your money, your life and your dreams, and it’s also your choice. Think carefully and choose wisely.

See Tana’s tips on tax prep and saving here.