One of the biggest issues I hear from clients is they do not have a great way to track money coming in and expenses going out. For many, it is not knowing where to begin. I understand it can be daunting, so I want to pass along 5 tips to creating a budget you will actually enjoy using!
1 – Stop using the word ‘budget’
Sometimes this word can have negative or restrictive connotations for individuals. If that is you, pick a name that is fun and inspiring, such as your Money Blueprint, Treasure Guide, Freedom Map, or Prosperity Plan (my personal favourite)!
*TIP: Pick a name that resonates with you and makes you smile. This will go a long way into making the creation process more enjoyable.
2 – Keep it simple
I cannot emphasize this enough! Our brains do NOT like change, so any time we can make a change simple and easy, we are setting ourselves up for success! You are designing a new money habit with your ‘Prosperity Plan’. According to BJ Fogg, author of Tiny Habits, when designing a new habit, you are really designing for consistency. The simpler and easier a behaviour is the less motivation you need to consistently do it. [i]
Even if you are naturally detail oriented, keeping your ‘Prosperity Plan’ simple will make it feel easier to use and less overwhelming, especially if you are completely new to this process.
* TIP: You can keep your ‘Prosperity Plan’ simple by minimizing your main categories of income and expenses. For income categories, group similar sources of income together to keep total number of categories to a minimum. Or if you REALLY don’t like details (and are not required to track your sources separately for tax or other purposes), I recommended having one category that you call ‘All Income’ to record all sources. For spending and saving categories, use your largest amounts as a starting point for categorizing your spending and saving. For example, housing, transportation, lifestyle, fun, short-term savings goal, long-term savings goal.
3 – Use a method for recording and tracking that’s easy – and stick with it.
Any method you use should be easy and comfortable. This could be pen and paper, a spreadsheet (Microsoft Excel), your bank’s on-line tool or an app you like. I have clients who use each of these, and it works for them because it’s a method that is super easy, so they are comfortable using it consistently.
*TIP: Decide on one method and stick with it for at least a year. Ease of use really is key for consistent recording and tracking! And ease of use comes from repetition.
4 – Align your spending with your needs and top priorities
After taking into consideration your basic needs (food, housing, routine expenses), what is really important to you? Is it your relationships with loved ones? Your health and wellbeing? Your career? Feeling at ease about your financial future? These are just ideas, but I want you to take a moment and really think about this question…and then compare your answer to your major spending and saving categories. Do they align?
*TIP: Write down your answer to these questions: What is really important to me? Do I spend and save my money in alignment with my top priorities? If not, that’s okay! This is great awareness and now you can start looking for ways to shift your spending and/or savings to better align with what’s most important to you!
5 – Start small
Your new ‘Prosperity Plan’ (or whatever fun name you have given) won’t support your financial health and wellbeing if you do not consistently review and track your money flow. This consistency requires a healthy money habit. Research shows that when you want to successfully implement a new habit it’s best to start small…or better yet start tiny.
“BY GOING TINY, YOU CREATE CONSISTENCY; BY STAYING TINY YOU GET A NEW HABIT FIRMLY ROOTED.”
– BJ FOGG, AUTHOR OF TINY HABITS
Here are a few examples of small money habit you could implement that would support you in tracking your money coming in and going out. Pick one that resonates with you or come up with your own!
Every day I open my money tracker and input one expense made or income amount received.
Every day when I get home from work, I put my receipts in my receipt box.
Once a week I open my money tracker and input three expenses made and/or income amounts received.
*TIP: Remember to celebrate after each time you successfully complete your small money habit!
No one explains the psychology of habits better than BJ Fogg, “When you do a behaviour and feel a positive emotion about it, your brain pays attention. It essentially thinks, ‘Wow, that felt good. I want to do that behaviour again!’ Emotions create habits… and the stronger the emotion, the more deeply your brain rewires.” [ii]
Celebrating helps you form habits quickly because it makes you feel good. Feel good after you do your money habit and watch how quickly your new habit forms!
That’s it. Keep your (insert fun plan name here) simple and easy to use. If this is your first ‘Prosperity Plan’ start small…really, really small so you can build up your new health money habit with ease. Lastly, and most importantly, align your spending and saving with what matters to you. This is often the missing link for many of my clients. They’ve created a plan based on what they feel they ‘should’ spend money on and save for, instead of what they actually want to be spending money on and saving for! This feels restrictive and limiting instead of purposeful and empowering, because if you aren’t using your money to invest in what matters to you, what’s the point?
[i] BJ Fogg, Tiny Habits (New York: Houghton Mifflin Harcourt. 2020), 77, Kindle.