The other day one of my girlfriends asked me for some help with budgeting. Of course I said yes! right away. If there’s one thing I love more than money and budgeting, it’s teaching it and helping others along. I don’t get the chance to do so very often so when someone asks for help I jump at the chance! I’ve been doing a lot of thinking about what I’m going to tell her because she’s a really good friend and I definitely want to encourage her and not overwhelm her. She’s also several years younger so I want to make sure I’m a good financial influence! Here are a few key point I’m going to make sure we hit when I first talk to her about budgeting.
First Things First. You Have to Know Where Your Money is Going.
This goes beyond just knowing what bills you are going to have to pay in any given month. If you’re really serious about having a budget and managing your money well, you have to know where every penny goes. After doing an initial spending analysis I think it’s really important to set limits for yourself in different spending categories. When I first started with my budget I had very specific dollar amounts allotted in each category. My budget evolved and changed a lot over the years but the most common categories were: Rent, Utilities, Gas, Food, Entertainment, Savings.
Pay Yourself First
This is so big in the PF world and I wish more people lived by this! One of my friend’s primary financial goals is to build up her savings and pay off her debt so it’s definitely important that she stick to this! If you don’t put money in your savings and towards your debts right away, I promise you will find somewhere to spend that money. So one of the things I’m really going to encourage her to do is put money in savings and towards debt immediately when she gets her paycheck.
Have a Plan Stick to Your Plan
It doesn’t matter how good your budget is if you don’t use it. You can have the best intentions, the most detailed savings plan, the most amazing debt payoff spreadsheet…but if you don’t have the self-discipspline and drive to stick to it, it’s never going to work. I think my friend has really struggled with this in the past and this is one of the points I’m going to stress the most when we talk budgets.
Beware of Lifestyle Inflation
I think this is especially important for young professionals such as my friend. She’s gotten 2 promotions within six months and is really concerned that she’s just going to aimlessly spend the money from her newest promotion. I think there’s a healthy balance between living a little more comfortably with a little more money coming in and not letting your lifestyle get overly inflated. It’s really easy to find somewhere to spend that money rather than putting it towards your saving or debt payoff goals.
Take Home Message: Just Do It
Seriously. Have an awesome budget, but actually use it. Have amazing savings and debt payoff goals, and actually do it! You can have the best laid plans, but if you don’t dedicate yourself to them it’s never going to happen!