A Financial Planner Shares 3 Steps to Creating a Realistic Budget that Helps You Reach Your Goals

published May 20, 2019
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You know you need a budget. But there’s knowing you need one, and then there’s actually doing it—and doing it in a way will really help you.

Just in case you need any convincing on the whole budget front, consider this tidbit shared with me by Certified Financial Planner Professional Shannah Compton Game, host of the Millennial Money podcast: When it comes to reaching financial goals (think paying off debt, getting a mortgage, saving for retirement), “most people just don’t know where their money goes,” she said. “They have a loose idea but they don’t really know. It’s keeping yourself in the dark that stops those [goals] from being able to be achieved.”

Game believes that the most important part of a budget isn’t just setting guidelines for how to spend, it’s being able to look back at what you’ve spent—that’s “where you see the magic,” she said. Finding that magic is the hard part. Maybe because we don’t want to look? It can be scary, she acknowledged. But also because it’s just hard. It seems impossible to track spending when it’s split between various bank accounts, credit cards, app balances, and, you know, sometimes actual cash.

“It doesn’t mean if you look at the numbers that you’ll suddenly be able to buy that house,” Game said, but you’ll have a better idea of where you can trim your spending and route that money towards reaching your goal. “If you’re tracking your spending, you are in the driver’s seat,” she added. “You’re in control of where your money is going.”

So how does Game recommend people accomplish this? With three steps:

1. Write down all your accounts

“The first thing that’s important is to know what you’ve got,” Game said. “I always suggest grabbing a piece of paper and a pen and writing down all your accounts – banking, saving, investing, credit cards, etc. Visually seeing what you’ve got is a great way to start because you can make sure if you’re using an app, etc., you’re tracking all your accounts.” Using that, she said, create “a list on your computer that is your ‘master list.'” If you open a new account or close one, keep this list up to date so you know where you’re holding and spending money.

2. Figure out your foundation budget

Next, she said, create a foundation budget for things like rent, insurance, and other essentials that don’t change. “There are a lot of expenses that you know won’t change each month … Write down what all of those costs are so you can figure out what your foundation budget is. When you know what that number is, you can focus on the variable expenses. That way you aren’t mentally having to stay on top of all your expenses, but rather the ones that fluctuate and can cause you to go over budget and can keep you from saving money each month.”

3. Track what’s left—the variable expenses

While there’s not a one-size-fits-all approach, the key to staying motivated, she said, is to use something that breaks down your variable spending into categories. If you want an app or software for that, there are two that really rise to the surface, she said.

Personal Capital is great for someone that wants to see all their accounts in one place and will give you a bunch or financial tools. It’s very user-friendly with lots of graphs and charts so you can see what’s going on with your money in all your accounts. Albert is a mobile app that uses technology to help you find ways to automate your finances. It’s dedicated to helping you find cut costs, find savings, and automate your budget based on your spending habits and goals. I’ve really enjoyed Albert because it does a lot of the thinking for me and sends me text notifications when bills change or when I’m outside my normal spending habits.”

But not everybody likes apps, she acknowledged. So “you could do something as simple as print off your bank statements and categorize your spending,” she said. “You could keep a notes section in your phone or even post-it notes where you track weekly where they’ve spent money and how much. For most people it takes trying two to three variations till they find one that works.”

If all this sounds overwhelming, well, yeah. “If you think about creating a budget and managing all of these accounts it’s a lot,” Game said. “I always suggest focusing on one money task a day — what’s one thing you can do today to better your situation? That could be checking in on your balances, it could be calling your credit card company to negotiate a lower interest rate, it could be simply looking at your mobile app to see where you’re at. Tracking your spending always works best when you take it little by little, day by day. This is also the best way to spot trends. It’s all about balance—so if it feels overwhelming, just start somewhere small.”