Budgeting Basics

First of all, congratulations on taking the first step in your journey to financial wellness! Budgeting is one of the most important things you can do for your financial future, and it's especially important for young professionals or couples who are just starting to figure out finances together. It is a daunting task. But when you have a plan, when you're both on the same page about your money, it can help you reach your goals and avoid conflict.

As a disclaimer: anyone can benefit from budgeting. It is not just for young professionals, or couples. However, due to the nature of this blog, I am focusing on the basics for starting a budget and following through. Regardless of your age or stage, this blog may be helpful for you.

Don’t be afraid of money just because it isn’t talked about in day-to-day conversation.

In this blog post, we'll discuss an overview of budgeting, how to create a budget that works for you, cover some common budgeting mistakes to avoid.

Why is budgeting important?

There are many reasons why budgeting is crucial to your financial wellbeing. Here are a few:

1. It can help you save money. When you have a budget, you are more aware of the comings and goings of your money. You can see exactly what you are spending your money on and make adjustments so that you can save more. For example, if you see that you're spending a lot of money on going out to dinner, you can try planning out your meals and cooking at home.
2. Planning for larger expenses. Some expenses may not fit into your monthly budget such as buying a new car, house or even something like a new computer or that espresso machine you’ve always wanted. Budgeting helps you categorize where your money is allocated and stay on track to meet your goals.
3. It can help you pay off debt. When you know how much money you have coming in and going out, you're less likely to overspend. Making your regular payments plus some will help you pay down that debt quicker and smarter. Plus, it may leave you with more expendable cashflow in the meantime.
4. Sets an expectation for spending that can be adjusted as needed. Expectations can be a very good thing when talking about money. If you lay everything out upfront, you can avoid some hurt down the road. Being honest with yourself or your partner is the first step, so take note of the things that may cause tension and work through it.

So here are the small things (Use this as your checklist):

• Track your income. This may depend on your pay frequency and how consistent your income is, but I usually suggest looking at your recent bank activity (the last few months or so) to find the average amount that is deposited into your account on a monthly basis. DO NOT base your budget on your full listed salary (remember part of that will go towards taxes and insurance) – You will want to track actual money entering your account. (Pay close attention to pay periods and keep in mind you may be paid more in some months than others based on how often you are paid)
• Next sit down and discuss your expenses. This is the most important step. You need to know where your money is going. There are many different ways to track your spending. You can use a spreadsheet, a budgeting app, or even just a notebook and pen. Try downloading the last few statements you have from your credit card company or bank and categorizing your expenses into “major” categories. – If you need help with this, Raymond James has a great template to help you categorize your expenses that I would be happy to send you!
• Set financial goals. We talked about this in the last blog post. What do you want to achieve with your money? Do you want to save for a down payment on a house? Pay off debt? Retire early? Once you know your goals, you can start to create buckets for those goals.
• Make the budget. Now it's time to put everything together. And this can be the hardest part. Start by listing all of your income sources. Then prioritize your expenses. What is most important to you? Monthly rent or mortgage payment, groceries, then utilities and phone bills. You can be specific here too if you need to be. Give yourself that general “Amazon” budget. Have a fun money expense that gives you the freedom to spend on what you want! List those and do some quick subtraction so you can see your cashflow.
• Evaluate. Is your income covering your expenses? To what extent do you need to pay attention to each expense listed? Are there any expenses you need to cut? These are the questions to ask yourself, but know that you can always adjust.
• Adjust your budget as needed. Your budget is not set in stone but should be taken seriously. As your income and expenses change, you can adjust your budget accordingly. Take advantage of your recent raise and give yourself more freedom You can save a little extra for your vacations or donations or put more money away to enjoy in retirement. Regardless, you are in control of your financial wellbeing and better off for it.

Now that we have created your budget, here are a few common budgeting mistakes to avoid:

• Not tracking your spending. This is the biggest mistake people make when it comes to budgeting. If you don't know where your money is going, you can't make a budget that will work for you. Monthly tracking is easy with technology so use it to your advantage. If it is easier to pay for an app that will do most of the work for you, it is a much lower cost than the alternative.
• Not setting financial goals. If you don't know what you're saving for, it's easy to get discouraged and give up.
• Not sticking to your budget. This is probably the most common budgeting mistake. It's important to be realistic when creating your budget and to be prepared to make adjustments as needed.

Budgeting may be time-consuming but at the end of the day, it will be worth it to you to take the time now to find out what works best for you. Keep in mind that you are doing this for yourself and your family. These types of habits have been shown to make a positive impact on children even from a young age. Budgeting isn’t always easy, but when you create lasting habits, you are more likely to save money, reach your financial goals and avoid conflict.

Finally, don't be afraid to ask for help. If you're struggling to set financial goals or stay on track, ask a trusted friend or family member for guidance on how they did it or talk to your financial advisor. We have tons of resources to help you in your financial journey.

Any opinions are those of Gil Brandon and not necessarily those of Raymond James.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Raymond James Financial Advisors do not solicit or offer residential mortgage products and are unable to accept any residential mortgage loan applications or to offer or negotiate terms of any such loan. You will be referred to a qualified Raymond James Bank employee for your residential mortgage lending needs.