One of the biggest financial changes my wife and I made over the last year was to put a budget in place. It may seem strange that a fee only financial planner wouldn’t have a budget in place, but we had always done a decent job of living within our means and hit our savings targets without a budget. Sure, there were times that I felt that spending was a bit out of control, but I was willing to accept that downside given that I – like many others – assumed a budget would be an unnecessary straightjacket that would keep us from enjoying ourselves.
I was wrong.
What convinced my wife and myself to implement a budget was our desire to feel a greater sense of control over our spending, particularly when it came to things like holidays and vacations. In prior Christmas seasons, the sound of the approaching UPS truck would trigger a series of stress-raising questions – what is he dropping off this time, did we buy it, how much had we spent? Once the budget was in place, that stopped (well, mostly) as I knew that even if he was dropping off something we had purchased, the purchase was still within our plan.
Pulling together the budget was pretty straightforward, as I had been tracking our spending for about 6 months. Thus, I knew what we spent on regular categories like groceries and activities for our daughter and the like. As for ad hoc spending along the lines of vacations and holidays, my wife and I agreed upon the amounts we wanted to and could spend. We used You Need a Budget to track our budget over the year, and while that worked well the best system for you will be whatever you need to use.
We weren’t able to implement budgeting until we had some additional motivation, so if the same is true for you, below are some positive things from our experience in implementing a budget that might help motivate you.
Less Financial Stress – While we aren’t necessarily spending much less with a budget, we are spending an agreed upon amount. There is no more back and forth after-the-fact about why one of us “wasted” money on something and there is no sticker shock when we get the credit card bill. And if we needed to reduce spending at some point, it would be much easier to do so now that we know what we spend on everything.
Greater Shared Financial Values – Nothing is a clearer indication of your values than what you do day-in-and-day-out, and financial values are no different. In carefully planning and agreeing upon our spending, my wife and I have tacitly agreed upon some key issues like the importance of experiences over material goods, what to set aside for donations and charity and how much we should buy for our daughter. As a fee only financial planner, I am well aware of the amount of stress finances can cause in a relationship, so increasing the degree to which our financial values overlap is extremely important.
Financial Autonomy – It may seem counter-intuitive to think a budget has given us greater autonomy, but it has in two ways. First, we can check spending versus budget on a real-time basis using our iPhones and know whether or not there is money left in the budget for specific things. So we don’t have to check with one another to know if we can buy a bottle of wine for dinner or get lights for the Christmas tree. The budget has also helped us individually, as we both have a line item in the budget for spending for ourselves. The rule is we can get whatever we want with this money and there is no need to check with one another. This “personal spending” category has been a huge factor in ensuring the budget did not feel like a straightjacket.
We’re headed into year two with the budget, and given the benefits, I have no doubt we’ll stick with it. If you are looking for something to improve your financial well-being in 2017, a budget is a good place to start. If you’d like to speak with a fee only financial planner about putting together an overall plan including a budget, please contact us.