The Reason Most People Hate Budgets
When the word budget is mentioned, many people have images of restrictions, tedious tracking, and foregoing everything they enjoy. But that doesn’t have to be the case. Good financial management starts with understanding how much money is coming in and how much is going out.
You can’t have a successful business or meet your personal financial goals without having a plan in place. Financial freedom and financial security come from creating a plan. But it doesn’t have to be the boring and tedious budgeting that you imagine.
Today’s blog talks about a different way to think about planning for income and expenses.
Here’s Why Budgeting Gets a Bad Rap
Constrictive Constraints: One of the main reasons people loathe traditional budgets is that they often feel limited by strict categories and allocations. The thought of assigning fixed amounts to different spending categories can suffocate the sense of financial freedom and cause you to avoid the activity altogether.
Tedious Tracking: Let's be honest – manually tracking every single purchase and expense can be time-consuming and mentally taxing. Traditional budgeting can feel like a chore rather than a helpful financial tool.
All-or-nothing Mentality: Traditional budgets tend to promote an all-or-nothing mindset. If you overspend on a category, it can make you throw it all out the window because you feel like you’ve failed already so why bother?
Why Crafting Your Personalized Spending Plan For Financial Management Is a Better Alternative
Creating a spending plan might sound an awful lot like creating a budget, but a true spending plan will allow you to manage your money realistically without feeling like you must set up and meet some fixed amount of spending to make your plan work. Instead, a spending plan takes your goals and spending habits into consideration.
Here are the steps to develop your spending plan:
Step 1: Reflect on Your Financial Goals: Start by identifying your short-term and long-term financial goals and writing them down. I recommend starting with your personal financial goals. Your business goals are important too but the things you do in your business should support what you want to do in your personal life. Do you want to pay off debt? Save for a vacation? Buy a house? Increase your savings account balance? Defining your financial goals will give your plan purpose and make it more meaningful for you, which will help you stick with it.
Step 2: Track Your Current Spending: For a week or two, track your spending without judgment. Review your bank activity, and receipts, or if you use a budgeting app review that to see where your money is currently going.
Step 3: Create Broad Categories: Instead of rigid categories, group your expenses into broader categories. For instance, you could use things like "Essentials," "Quality of Life," and "Investing in Future" as spending categories.
Step 4: Set Flexible Targets: Set a spending target for each category based on your tracked expenses. Keep the targets flexible by using a spending range instead of fixed amounts. That way, you don’t have to hit a specific number which will keep you from feeling like you’re not on track.
Step 5: Regular Check-ins: Decide what frequency of checking in on your numbers works for you without making you feel like you have to track everything daily. During your review, look at your progress, make adjustments if needed and most importantly, give yourself credit for progress and meeting goals.
Step 6: Embrace Adaptability: Things happen. If there’s one constant in life, it’s change. Remember this as you review spending habits or if you have a setback. View your spending plan as a tool in your arsenal to manage your business and personal finances. But realize that things happen. Don’t let life’s circumstances throw you off from meeting your financial goals.
Final Thoughts: We All Want Financial Security
Nothing makes us feel less in control in our lives than if we have money troubles because we don’t have a plan in place. By creating a spending plan and using it as a tool for your business finances and personal finances, you’ll feel less anxiety about your money because you’ll have a better idea of where it’s going, and you’ll be able to see progress on meeting financial goals. The key is to keep your plan fluid and adaptable to keep it from feeling like a tedious chore that you’d rather avoid.
As women entrepreneurs, we usually have variable income which can make planning more challenging. Curious how your personal and business goals should work together toward your financial security? Stay tuned for my next series of posts where we’ll dive into how to pay yourself, pay taxes, and more.
