Last week we worked on forming the simple habit of tracking your spending. Hopefully at this point you’ve set up an account with someone like mint.com (no affiliation) and have started getting used to the process of categorizing your expenses.
Once you’ve spent a month or so simply getting into the habit of tracking your spending, you’re ready for the next steps. Today I’ll talk about how to view your budget as a whole and how to begin the process of changing it to fit how you want to live.
Viewing your budget as a whole
I’m going to talk about this process as if you’re using mint.com, as I’ve previously suggested. The basic process should be the same no matter what, but know that descriptions of specific steps will assume that you’re that specific tool.
Once you’ve have at least one month’s worth of transactions categorized in your mint account, you can go to their “Budget” tab. This is where you enter the monthly amount you want to budget for each category. At this point, you shouldn’t be trying to determine the amounts. You just want to set up the appropriate categories, using the same categories that you used when categorizing your transactions.
Where you’ve set this up, you’ll have an initial picture of where your money is going each month. Obviously some of these amounts will fluctuate from month to month, but many of them will be relatively consistent. At the very least it gives you a starting point.
Keep your goals in mind
At this point, before we get into making changes, it’s worth taking a minute to remind yourself of the reasons that you’re working to improve your finances in the first place. After all, the whole point here is to use your financial decisions to help build the life you truly want you and your family to have.
Take some time to think about your end goals. What are you working towards? How do you want to be spending your time? Are there certain things you would like to be saving for? I have a couple of posts (part 1; part 2) that were meant to help you think about these things, and you can re-visit them now if you’d like.
Looking for opportunity
With your goals in mind, take another look at your big picture budget. First, find some places where your spending pattern is already lining up with your goals. Give yourself a little pat on the back there.
Then, find a few places where you see an opportunity for change. It might be a particular area where you feel that you could cut back on spending. Or it might be a savings goal that you’re not currently putting money towards. Don’t beat yourself up over it. Simply recognize that there’s an opportunity there for you to be improving your situation.
Create one new habit at a time
When you first start budgeting, there are probably a lot of things that you’d like to change. That was definitely the case for me. For right now though, it’s not helpful to try and focus on all of them. That will just dilute your effort and make things harder, making your budgeting habit much less likely to form and stick.
Right now, focus in on a single opportunity. It doesn’t have to be the biggest one. It should be one where you can identify a single change that will make a difference. Your goal is to form a single habit that moves you positively in the direction of improving your financial situation.
Let’s say you see that you spend a lot of money on eating out, a common area of over-spending. Maybe your single habit could be to bring lunch to work for the next week. No big commitment, just an effort to try out a new habit that could improve your budget. Or maybe you could resolve to make dinner at home on a specific night each week that you would normally eat out.
In any case, the key is to make the habit singular, simple and regular. You want to make progress, not solve all your problems all at once. By focusing on one simple habit at a time, you’re building the foundation for long-lasting change.
Rinse and repeat
What you’ll find is that if you start small and keep things simple, it will probably feel a little foolish at first. But you’ll also realize that those small changes really aren’t all that difficult. And once you get one down, you can move on to the next one.
Take it one opportunity at a time, focusing hard on forming a single regular habit that moves you closer to one of your goals. String enough small changes together, and you’ll end up with some pretty big improvement.