I know, I know. Just the thought of having to put a budget together reminds a lot of people of going to the dentist when they haven’t been for a few years. It’s that fear of, “What am I going to find out? And, “Whatever it is, it’s going to be painful.” Before you run off to another blog site let’s try to come to terms with both the fear of budgeting and the reasons why you absolutely have to go through this process. And…it might actually be fun! Yes, I really did use the word fun in the same paragraph as “dentist” and “budgeting”. Hear me out on this.

Why is budgeting so painful?

I believe it’s because many of us know we have “leaky” behavior so it’s a matter of “the truth hurts”. Leaky behavior is what I call those expenses that may not seem like a big deal but over time they add up to thousands of dollars. Money that could help you reach your retirement savings goal; things like daily Starbuck’s coffee runs, eating out every weekend, weekly shoe shines, having a yard guy (or gal). You get the idea. At the risk of being called the “fun police” let me state that you don’t have to automatically cut out all of those enjoyable expenses but when it comes to finding extra dollars to invest for your retirement those are areas we want to look at first. That’s why it’s important to know what they are in the first place. And that is where the pain comes into play. Many people upon learning of the amount they spend on these various behaviors often bring their hand to their forehead and cringe. There’s the pain. We are often resolved to our income and know it well but we “hope” there is enough money at the end of the month instead of vice versa.

How Can a Budget Help?

First, you start form a position of strength. You take control of the monthly expenses instead of the expenses taking control of you. In other words you have a game plan. Imagine if your favorite sports team started the game with no real plan, just a vague idea of how they hoped the game would go. They know they want to score more point than the other team and they have a pretty good feel for how they have done it in the past so off they go. What do you think the chances of victory would be? Well, that’s how many people treat their personal finances. They hope their income will cover their expenses. Your budget is the foundation of your game plan.

How Does the Budgeting Process Work?

It begins with gathering the data that makes up your financial history. Next, you use this information to do a cash flow analysis. That’s taking a look at your income versus your outgo. You will calculate what’s called your net cash flow. That will tell you whether cash is coming in faster than it’s going out…or vice versa. Then we need to know your net worth. In simple terms, your net worth is the sum of everything you currently own minus the sum of everything you currently owe. Why is this important? It gives us a snapshot of where you are today…financially. This is the foundation of our game plan. It tells us form where we are starting. Just like a team at the beginning of the season. They need to know what they have to work with and go from there.

Once we have the snapshot of you financial situation, then we start looking at your money goals including retirement, college funding, social security, healthcare just to name a few. Of course not all of these may be on your list of goals depending where you are in life…at least not yet. We have to set priorities and timelines.

Budgeting is not a one-time deal or a once a year deal like paying taxes. Yes, we have to revisit that bad boy on a regular basis. So like anything else that can be a chore to do we have to make it as enjoyable as possible. Thanks to technology even budgeting can be fun. Yes, I used that “fun” word again. Well, even if it isn’t fun it can become bearable.

Check out my Budgeting That Makes $ense course. Click here to Learn More and check it out!

Check out our Budget Tracker tool here. I know that you will find it helpful. You can also get a FREE copy of our Net Worth Calculator here.

Question: How do you feel about the idea of building a personal budget? You can leave a comment by clicking here