How to succeed at your first month of budgeting

Photo courtesy of Marines

 

Let’s say you finally decided to make a change and create a budget for your finances. Perhaps you’ve become suitably inspired, or, like the parable of the burning building, the alternative had become that much worse.

So what do you do? Do you sit down, create 25 different spending categories, look back on five months of account activity, and spend hours getting the budget numbers just right? Let’s see: did you spend $50 or $40 on medication last month. How many times did you fill up the car? What are gas prices like this month? And how much did you spend going out to eat, exactly? What about…

Woah there, Speed Racer. While you’re impulse is admirable, you’re going to drive yourself off a cliff.

Instead, on your first month of budgeting, you need to prepare in advance…nothing at all.

Allow me to explain.

What we talk about when we talk about budgeting

In order to make a sensible budget, you must divide your expenses up into categories. That way, you can decide what to spend money on with a bit more granularity.

And you do this on a monthly basis. Why monthly? Because many of our bills happen on a monthly basis, and it’s a good length of time, not too long, not too short.

Though know here that I’m not talking about recurring, fixed bills here. Only the variable expenses, the stuff that is spread out over the course of the month, that can get way out of hand if you don’t keep track of them.

I find it best to start with the end goal in mind and work backwards for there. The goal is not to create a budget, or get wealthy, or love spreadsheets. The goal is to become focused, get on a plan, become more secure in your footing, to feel (dare I say) more at peace.

How do you do that? By being intentional. You want to command your money, not look back and see what you did. But if you’re starting from scratch with this kind of budget focus, you wouldn’t know exactly, or even slightly, how to start. (I didn’t either.)

So when you’re making categories and figuring out how much to allocate to each, why not just put in numbers and revise them until you get them right?

That would be like being a army sergeant with zero experience commanding troops. “I’ll just give orders and adjust them later.

Drop and give me $20. Photo courtesy of Tyler Bolken

Drop and give me $20. Photo courtesy of Tyler Bolken

Don’t do that. Not for the first month.

The first month

The first month you budget, I want you to set no limits at all. I do not want you to alter your spending habits in any way. Don’t do anything different.

The only work you need to do the first month of your new budgeting life is to write everything down.

I’ll say that again: Write. Everything. Down.

Don’t worry about setting categories in advance. Just record whenever you spend anything. (Round to the dollar, for sanity.)

Your “budget” for the first month will look something like this:

$12 restaurant
$6 pharmacy
$20 pet food
$37 gas
$87 groceries
$20 party food / fun (not sure)
$65 shirt

Note the informality. Note how hand-wavey the categories are. That’s fine.

Why are we doing things this way? Because you can only change one behavior at a time. Tracking your expenses is difficult and takes a lot of work, but it doesn’t require much of any preparation. You can start writing things down now. Take on any more and you’re likely to crash and burn.

The second month

After the end of your first month, this is when the next step begins. Go through and see what you spent. Create categories based on what you did. This way, no guessing is required, as it’s all right there!

When the beginning of the next month rolls around, you will now possess two pieces of information that you didn’t have at the start:

  • What you spent in a single month
  • What categories you’ll need

From here, you’ll be in a much better place to start to attach numbers to these categories. “Well, let’s see. I spent $250 in restaurants last month, so let’s set that as a base line for next month.” You can start having those conversations.

Don’t try to be an expert at the start

But for the first month, it’s important to position yourself for success. And that means to not put too much pressure on yourself to be perfect, and specifically to possess information you don’t have. Budgeting is a long-term behavior change, and the last thing you want to do is burn out due to unrealistic expectations.

This is hard work. But it is worth it. This coming month, take the first step with me and write everything down. Don’t worry about anything else yet.

But enough about me. What’s been your experience when you’ve tried to start budgeting?

Mike Pumphrey

Mike Pumphrey

I'm the founder and author of Unlikely Radical, a site to help people succeed with money, achieve their goals, and live intentionally.

I offer a free phone consultation to anyone who is interested in changing their financial narrative. Are you ready? Click here for details.
Mike Pumphrey
Posted on July 13, 2015