Do You Have a Household Budget?
Photo by Fabian Blank on Unsplash
Do you ever feel like it’s all too much? Every Thursday, I share one action, habit, or project you may want to undertake in order to improve your health, happiness, and sense of well-being.
PROJECT OF THE WEEK
Do You Have a Household Budget?
We’ve been spending (see what I did there?) a lot of time talking about vacation, travel, and making your time count. Now, how are you going to pay for that?
Why budget? Simply put, you should know how much money you make after taxes and healthcare.
Now, the all-important question is, do you know what your monthly and annual expenses are?
Do you know where your hard-earned money is going?
Do your expenses reflect what is important to you?
As a culture, we often define wealth as how much money one earns, the brand of car one drives, or the vacation pics one shares on social media.
Getting Started
I recommend taking a few minutes to define what wealth really means to you.
Do you value the time you spend on your career or do you feel like you are missing out on important moments in your family's life?
Do you actually love driving that fancy car or do you value having a car you like and that never has an issue?
What makes a vacation great for you? Do you value staying in luxury hotels or do you enjoy the location of the hotel, the cleanliness of the room, and the exceptional service?
Do you love having a large house or do you value having space to entertain and relax?
Now that you have an understanding of your WHY, let's talk about the HOW.
Most of us have limited budgets, some of us more than others.
What I have found fascinating, from my work organizing paperwork with clients, is that there does NOT seem to be any correlation between what one makes and how much one has in savings and retirement. I have clients that bring home $50,000 annually that have far more in retirement and savings than those making $250,000 annually.
And, more importantly, those clients who are spending most of what they earn, do not seem any happier.
There are likely many reasons for this. Below are a few observations that clients have made from our work together:
Their spending is not intentional.
They are not aware of where they are spending money and how much.
They are not spending money on things they actually value.
They are spending money to compensate for working long hours and feeling unfulfilled or stressed. Or, feel that they need to spend more on things like a house cleaner, dog walker, and other services in order to keep afloat day-to-day.
Creating a household budget is a great strategy to start improving your financial habits.
You can't make improvements until you can clearly see, on a monthly and annual basis, how much you are earning and how much you are spending.
This doesn't need to be perfect, but it does need to be realistic.
You may want to start by reviewing the last 3 months of expenses. However, this may not give you the full picture.
There are some expenses that we pay semi-annually or annually, such as car insurance, that you will have to account for.
Also, your spending may vary quite a bit, based on what you have going on. For example, maybe you cook a lot in the winter, but you eat out most days in the summer. Or you don't spend much money while you are home, but you spend a lot when you travel.
Many credit cards send out an annual summary by category, which may be helpful in determining your average expenses.
If you are familiar with Excel, you can export your checking and credit card statements into excel and then categorize them.
The purpose of this exercise is to SEE how much money is coming in and how much money is going out.
The next step is to decide how much you want to save monthly for:
Emergency Fund - 6 to 12 months of expenses.
Retirement Account(s) - Choose a percentage, so that your contribution grows as your income grows.
Goal Directed Savings - This if for things like a down payment on a house, new car, or home improvement projects.
How much spending money do you have left each month, after you set aside your savings?
Is it more than your average expenses or less?
If you have less spending money than your average expenses, know you are not alone!
This is where it is helpful to understand where you value spending your money.
Keeping in mind what you value, go through your expenses and highlight items that you can either eliminate or reduce.
Below are some ideas:
Do you love your luxury car, or would you be just as happy with a new non-luxury car? How much would this save you?
Do you love eating out every night in the summer or is it just easier because you are out all day and there is no time to cook?
Do you love staying in luxury hotels when you travel, or would you be just as happy in a non-luxury hotel in a similar location with similar amenities?
Are there reoccurring expenses for services you are not using currently? Sometimes it makes more sense to pay the higher month-to-month rate and cancel these services when you are not using them.
The final step is to type up a budget.
This is going to be a living document that you update and adjust as life happens. The key is to see your starting point.
You should be able to see clearly:
Predicted Income
Budgeted Emergency Savings
Budgeted Retirement Savings
Budgeted Goal Directed Savings
Budgeted Expenses - By Category
I would recommend reviewing this on a monthly basis. If you have a partner, make it a team effort. I would also consider including your kids in the process.
On a monthly basis, ask yourself:
What is working and what is not working?
What adjustments can I make?
If you are finding it challenging to stick to your budget, consider using cash for a while.
Each week, take out the amount of cash you have budgeted for variable expenses.
You may want to separate it into a few jars or envelopes.
Food
Car
Toiletries
Clothing
The benefit of using cash is you can SEE what you are spending and how much you have left.
If making a budget is overwhelming, consider hiring someone to help you or find a trusted friend that likes numbers and budgets.
There are a lot of apps out there that can track your personal finances. I have not found one yet that I love. There is a new one I plan to try. If it's great, I will let you know. For now, I am still using Excel!
If there is an app you are using and love, please share!
We spend thousands of hours working per year. It's worth the time and money to know where our hard-earned income is going.
Additional Resources
I highly recommend two books:
The Psychology of Money by Morgan Housel
The Millionaire Next Door by Thomas Stanley
They may change your perspective on how you view money and what it really means to become wealthy!
Happy Budgeting!!
Need Support?
If you feel excited about implementing this strategy and want some additional accountability and support to get started, the It’s All in the Planning Started Pak was designed for you!
A Note from Happy Spaces
The goal is to add value to your life. If you think this project will add value:
Estimate how long you think it will take. I would recommend doubling the time you estimate.
Look at your calendar over the next week and pick a date and time to get started.
Make an appointment on your calendar for the estimated time.
If you estimate that completing this project will take longer than one hour, I recommend doing it over multiple days. This will support you in getting started!
Prior to starting this project, take a few minutes to make a step-by-step list of EVERY action you need to take to complete this project.
It's not all or nothing. You can choose to implement only the parts of this project that add value to your life.
An Accountability Partner can be a great support in following through on your goals and commitments.
We understand how challenging it can be to implement new habits and systems. For additional support please go to HappySpacesBySarah.com.
Creating a life you don't need a vacation from! ®
Sincerely,
Sarah Weingarten
Meet Sarah
Growing up as the oldest of nine siblings in Upstate New York, I learned to use organization to create sanity among the chaos. Today, I work together with individuals, families, and small businesses to create habits, systems, and spaces that support their needs, goals, and dreams. Clients often refer to our work together as "life-changing" and "better than decades of therapy". What I love most about my work is the lasting impact it has on real people's lives. Nothing makes me happier than hearing the many success stories of clients I have worked with.