Get Your House in Order: Budgeting Made Simple (Part 1)

Disclaimer: I am not a financial adviser or CPA. The details of this podcast are shared for informational purposes only. Please seek assistance from a certified finance professional who can help you with your unique situation.

Budgeting is like eating right and exercising---things everyone knows they should do, but few do them effectively. Although 67% of Americans claim to have a budget, 74% of American workers are living paycheck to paycheck (and 1 in 4 of households making over $150,000 a year).

1. Step 1: Develop a positive mindset about budgeting.
   • Many people self-sabotage from the beginning because they see budgeting as limiting or restrictive.
   • The reality is that budgeting can actually be liberating if done well.
   • You should see budgeting as making a plan for your money, rather than a list of things you can’t have.
2. Step 2: Recognize your strengths and weaknesses regarding your spending habits.
   • Most people tend to have either “spender” or “saver” personalities. Both come with their pros and cons. It’s important to recognize the value of your financial spending style so you can plan for it.
3. Step 3: Make sure you understand the difference between wants and needs.
   • Needs = Food, Shelter, Transportation and Clothing (“4 Walls”)
   • Wants = Almost everything else
   • Prioritize assets over liabilities (“Rich Dad, Poor Dad”). Wealthy people use their assets to buy liabilities.
4. Step 4: Choose a budgeting tool that works for you.
   • In other words, don’t try to force yourself to use pen and paper if you prefer an app. If you’re uncomfortable with using a certain budgeting method, you won’t stick to it long-term.
   • These days, there are more financial resources at our disposal than ever before. Feel free to experiment with different budgeting apps and products until you find one that’s right for you. The right tool can actually make budgeting fun!
   • A few apps I personally recommend: Mint, Every Dollar and YNAB
5. Step 5: Seek help/accountability if you need it.
   • If you’re married, this is your spouse. If you’re single, choose a close friend or family member to hold you accountable.
   • If you’re not knowledgeable about money and budgeting, consider taking personal finance classes or hiring a financial advisor to help you learn the basics.

Action Step: Figure out where you are on the list of steps mentioned in this episode, and work your way through the rest.

Resources:

1. "Fewer Americans are Budgeting in 2019 -- Although They Think Everyone Else Should" https://www.prnewswire.com/news-releases/fewer-americans-are-budgeting-in-2019----although-they-think-everyone-else-should-300824384.html
2. "A shocking number of Americans are living paycheck to paycheck" https://www.marketwatch.com/story/a-shocking-number-of-americans-are-living-paycheck-to-paycheck-2020-01-07
3. Episode 5: “5 Personal Finance Books That Changed My Life”