Mastering the Art of Budgeting: Your Path to Financial Freedom

Your doctor tells you to eat right and exercise.  Your financial advisor tells you to create a budget and then stick to it.  It’s standard advice that is easy to give and not so easy to implement.  I am not a health expert so we will leave diet and exercise to the side for a moment, but I can tell you that in order to fully take charge of your financial life you do need to create a budget.

Why You Need a Budget

The purpose of a budget is not necessarily to reduce your spending, it’s to help you make more intentional decisions about your spending.  With tap to pay credit cards, online ordering and subscription services everywhere, people are increasingly detached from their money.  Putting it all on paper (or in an app) allows you to understand where your money is going and if it is really going to the things that bring you the most joy and satisfaction, or it’s just…going.

In addition to helping you be more intentional about your spending, a budget can also offer several other benefits.  One key benefit of creating a budget is that it can reduce your financial stress.  Having a plan for where your money is going and how you will deal with unexpected expenses can go a long way towards making you feel in control and less stressed.  Additionally, having a budget allows you to make progress towards meeting your financial goals.  By setting up savings and investing goals, you will ensure that you are planning for the future while also enjoying the present.

This post will cover the basics of budgeting including creating a budget, monitoring a budget and some tools that can help you along the way.  While budgeting is unlikely to be your favorite activity, it is a powerful tool and does not have to be complicated or time consuming.

The Basics of Budgeting

A budget is the tracking of income and expenses.  Simply put, it’s a tool to track the money that comes in and the money that goes out.  As a first step, you need to create a view of the current situation.  Once you understand where you are now, you can start to layer in goals and build a roadmap of where you want to be.  This process is the foundation of financial success.

Gathering Financial Information

The first step in creating a budget is to gather information on income and expenses.  You can use pay stubs, bank statements and credit card charges as a starting point.  Don’t forget to include expenses that you pay once or twice a year, like insurance.  If possible, start with at least three months of data so that you include expenses that happen periodically but not necessarily every month.  This can be a lot of data to start, but once you get it all organized, things will be much easier going forward.

Setting Financial Goals

As you gather data, this is also a good time to think about financial goals.  Do you have major purchases that you are planning for in the next year?  Are you saving for retirement?  Have you created an emergency fund with three to six months of expenses in cash? Start to write down these goals so that you can build them into your budget.  Include both short- and long-term goals, whether it’s a family vacation next summer or retirement in twenty years.  By starting to think about and plan for these goals, you will be much more likely to achieve them.

Creating Your Budget

Now that you have all of your income and expense data, and have outlined your financial goals, it’s time to create your budget.  There is no right way to build a budget.  I am a fan of budgeting tools like Mint and YNAB because they automate much of the data collection and categorization.  But there are plenty of free budget worksheets online that you can download as well.  The goal is to group all of your income and expenses into a handful of categories like Housing, Utilities, Food and Entertainment (note: while your credit cards provide this categorization it neglects the full picture of your financial situation).

I also recommend tagging each category as fixed, flex or periodic.  Fixed expenses are things like rent or utilities that are the same (or relatively the same) each month.  Flexible expenses are those things like food and Amazon that can vary widely depending on the month.  Periodic includes those expenses that only come up a couple of times a year, think car insurance or taxes.  The flex category is typically the one that destroys the budget and is also the first place to look if you need to cut back on things.

Once you have everything categorized, this is where you can really start to learn something.  Take a look at each category and see which ones surprise you.  Is that daily trip to the coffee shop adding up to a whole lot more than you thought on a monthly or yearly basis? (No judgement on the coffee, if it makes you happy do it, but I promise there will be one or more categories that shock you when they are all totaled up).  This is also where you start to see the levers you have to pull.  Is there enough going into the savings bucket?  If not, what are some of the categories where you feel you are spending too much that you can pull back on?

Sticking to Your Budget

Creating the budget is just the first step in the process.  Once created, you must follow it.  Much like diet and exercise, the easier you make this on yourself the more successful you will be.  Step one is automate, automate, automate.  Have retirement savings taken out of your paycheck by your employer, set up auto transfers to savings to happen on each pay day, set up auto pay for those fixed expenses that are the same each month.  By having that all happen automatically, it ensures that it gets done and prevents financial fatigue for you.

Once everything that can be automated is automated, the hard work begins.  For the things that are more flexible, you actually have to be more intentional and make decisions every day.  If eating out is costing you more than you would like, then set a limit for yourself.  And monitor it.  Once you hit your number for the month, decline the invites to checkout a new hot restaurant.  Or if you know a friend has a big birthday and the end of the month and will want to go out, eat at home more at the beginning of the month.

Monitoring and Adjusting Your Budget

While creating the budget is a big milestone, it’s not something you do once and then set aside forever.  Your situation will evolve over time and your budget will need to evolve as well.  I recommend to my clients that they set aside one night a month to update their budget.  Put it in the calendar and stick to it.  Once you have the framework created, a monthly update should not take much time unless something big changes in your life.  But the exercise gives you the opportunity to reflect and think about where you are making decisions that support your goals and where you are making decisions that detract from them. 

Having a handle on your budget is also helpful when life takes unexpected turns.  A sudden job loss or unexpected medical bill can be easier to handle when you are financially organized.  Understanding all your income and expenses enables you to quickly see where you can cut back or shift things around to deal with challenging financial circumstances.

Celebrating Financial Milestones

The hardest part of saving for the future, especially things like retirement that could be decades away, is that it’s hard to imagine that far into the future.  It’s much easier to see how buying a new pair of shoes will bring you joy now, than how saving that (relatively small) amount of money into your retirement account can pay dividends in your future.  Set smaller, more achievable goals – your first $50,000 or $100,000 in retirement savings for example — and celebrate them!  Throw a student loan or credit card payoff party.  Being financially disciplined takes work and you should acknowledge and be proud of it.

Conclusion

Budgeting is not the most exciting topic, but it’s recommended by every expert because it works.  There is some work involved in creating a budget, but there are numerous tools available, whether apps or templates, to help you get started.  Once you create your budget, develop a process to monitor and update it regularly.  Taking these simple steps will go a long way toward creating a worry-free financial future.

If you are interested in learning about how I can help you take charge of your finances as a newly single woman, please contact me at  or schedule a free 20-minute consultation.

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