3 Steps for Long-Term Budgeting Success

Budgeting sometimes feels like a New Year’s goal for weight loss.  “I’m going to stay on top of my budget this year!” “I am going to start tracking my expenses January 1st!”

The truth is, you only have so much time.  Like with weight loss, there is no magic pill but there is a long term sustainable option.  To get to this, I recommend a three stage approach:

Budgeting Step 1:  Manual process – one or two months of inputting every pain-staking expense into a spreadsheet (example here).

This hurts – but only for a short bit!  If you really want to see where every dollar goes, manually categorizing expenses in a spreadsheet is the way to go.  However, a manual process generally isn’t sustainable.  I generally recommend doing this for one or two months to see where your money is going and then switch to a semi-automated or automated format.  

Think of it like visiting the nutritionist or a personal trainer, they want to see a week or two of exactly what you’ve eaten and when.  This helps them, and you, understand your starting point.

Budgeting Step 2:  Semi-Automated process – Mvelopes app or other budgeting app that works for you.  Generally for around 6 months.

Using mvelopes, or a similar service, allows you to connect your bank accounts for automatic feeding in of expenses.  Then you can set categories and assign transactions to those categories.  For categories, you can get into specifics like electricity, water, internet, etc. or have one category of utilities to include these.  I like how easy it is to see where you are with each budgeted category.  I’m using an app right now since having a baby changed our expenses a bit.

Make it fun by setting goals for each expense category and see if you can ‘beat the goal’ by spending less than you budgeted for.

Budgeting Step 3:  Automated process – Mint.com with the ‘Big 3’ categories for long term success.

Category 1:  Home – includes only housing, transportation, utilities and groceries (suggested to be no more than 50% of take-home pay).  These are your semi ‘fixed’ costs – so a lower percentage of take-home pay is even better!

Category 2:  Investments – includes savings, debt payments, and personal investments (suggested to be at least 20% of take-home pay)

Category 3:  Miscellaneous – includes lifestyle choices from gym fees, hobbies, eating out, internet, cable, etc. (suggested to be no more than 30% of take-home pay)

Within Mint.com, you can set ‘rules’ for expenses to automatically flow to these categories.  It will take some time in the beginning, but as you frequent places this will quickly go down to a few updates a month.

Notice yourself spending outside of the budget again? or want to fine tune your budget?  Go back to Step 1 or 2.  This is a sliding step process as you find your needs change.

Budgeting is an important step in building your financial home.

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The above discussion is for informational purposes only. Recommendations are of a general nature, not based on knowledge of any individual’s specific needs or circumstances, and there is no intent to provide individual investment advisory, supervisory or management services.
If you live in a state with it’s own form of state AMT, this further complicates the matter. AMT calculations can be difficult and you may need professional help, such as that of an accountant, tax attorney, or someone experienced in complex tax returns.

2 comments on “3 Steps for Long-Term Budgeting Success

  1. Pingback: How to Change your Life with your Bonus | Tech Financial Advisor | CPA

  2. Pingback: Here's How to Easily Create a Budget | Tech Financial Advisor | CPA

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