Budgeting + Financial Planning Made Simple

Buckle up, because today we're breaking down BUDGETS and financial planning. I know you might be thinking "I DON'T like budgeting, it's so restricting!" and I hear you. Budgets can feel scary and daunting. I actually used to feel the same way (I know, crazy coming from someone with a financial background). Budgeting was something very important to my husband when we first got married, and over the years I've learned to actually love it.

So keep reading to learn the difference between budgeting and financial planning, and some tips you can implement today.

Money Mindset around Budgeting

Like I said, I never used to like budgeting. I had a mindset that budgets would restrict me and not let me do anything fun or go on any trips. I didn't want to set my budget and not be able to make my Target or Starbucks runs (anyone else? *raise hand emoji). This is a huge mindset block. The truth is, budgeting is so much more than that. It keeps you on track and allows you to spend.  It allows you to do things you want to do, without realizing you've overspent and now have to face the consequences of that.

Even though I was in the accounting field since I was 16, I still had that mindset block and hesitation towards budgeting. If I'm being completely honest, I am a spender. I like spending money, having nice (quality) things, I like to have a nice vehicle, and I like going on vacations. But it can get out of control. So having a plan in place (in personal and business finances) and knowing how we're going to managing everything keeps me in check from going on like five vacations in one year. Realistically, that's not where we need to be.

My Biggest Tip

My first tip is always to schedule monthly (and bi-monthly) money dates. With yourself, with your spouse. This is to checkin, review, and make sure you're on the same page with your goals. This goes for both personal and business finances, and looking at them with your partner too. I do business finance checkins with myself every week. On the personal side of things, my husband and I share finances so in the middle and end of the month we sit down and review everything. Every quarter we do a big look at everything where I show him what I'm doing in my business and plans for next quarter.

Schedule these dates and block out the time on your calendar. I can't stress this enough. Sometimes we miss, and if you do (or if you have it later than planned), that's ok. You can still get back on track.

What is Budgeting?

Budgeting is looking at what's happening with your finances and prioritizing where you want your money to go. You want to tell your money where to go, not let your money act on it's own and just go wherever. You want to be in control of it. To do that, you need to create a budget (and remember, your budget is allowing you to spend money). Now, that doesn't mean you can go and do whatever all the time. There will be some restrictions. Like, I can't do a Europe trip every month. But what I CAN do is set aside a specific amount of money every month in our vacation fund. So when those vacations happen and we go to plan it, I have that money set aside and have the freedom to spend without putting it on my credit card. And I can go do things guilt free.

Same thing for home renovation or decorations. Let's say you want to get a nice couch for your living room. You could put it on your credit card, let it gain interest and wonder where you'll get the money to pay it off. Or you can set aside a little bit of money each month to pay for it up front, in cash, and not stress about where the money is gonna come from.

To be able to do that and PLAN for what you want to spend, you need to look at your past data. In business and personal finances, you need to look at the last year and see what you spent your money on. With personal finances you can think of groceries, household stuff, insurance, etc. What actually happened, what was your income and what were your expenses? The idea is to manage your money so you can spend it stress-free and knowing that you've planned for it.

A good practice is to highlight things that were mayyybe not necessary. Grocery, gas, rent, those are necessary expenses. But take a look at how much you spent at Starbucks last year. I am definitely not saying to not get your Starbucks. I love it, I like to treat myself to it, but I have a certain amount of money set aside for it. You'd be surprised (or maybe not) how quickly it can add up if you go over budget! You can do a budget for both personal and business finances, and I actually have budget templates for both inside the Marketplace.

What is Financial Planning?

Financial Planning is backing up, looking at the broader picture of your whole financial portfolio, and seeing it over time. Looking at the past couple years, looking FORWARD to the couple years, and seeing where you can adjust things to meet your longterm goals. Maybe you want to go on a big trip. Maybe you want to purchase a house so you need a downpayment. Maybe, like me, you want to get a new car and pay cash. You don't have to do that, if you don't want to.

That's a big thing for me, is financial freedom and making decisions to support your goals. On financial podcasts, I'll often hear people say that "my way is the only way", or "you have to it the way I do it" and I just don't believe that. I think there's a different way for everybody, and you have to figure out what works for you. As long as you're staying on track and working towards YOUR goals, and being wise with your money. The way I handle things will be different than the person next to me, and that's ok. I see this with my bookkeeping clients as well, the way Client A manages their money is different than Client B. So find what works best for you!

The question to ask yourself with financial planning is how are you going to get from where you are now to where you want to be in 5, 10, 20 years and so forth. So how are you going to get from Point A to Point B? You want to look at what your debt is right now (if you have any). How are you going to get that paid down? What are your big goals? How are you going to protect things and balance what you're spending now while preparing for the future? I'm not a financial planner but start investing in your financial portfolio now. When you look at compound interest and everything, it's so important to start earlier. The difference between the time you start (between your 20s and 30s) is insane. Another question to think about is what legacy you want to leave behind, and what future do you want your kids to have?

Another part of financial planning is having an emergency fund or safety net. Right now some people say we are in a recession, and some people say we're heading there. I don't know. Whatever the case may be, when the economy is not ideal, you want to make sure you protect your business and be prepared. Typically you can think of a good six months of necessary expenses to be set aside for your emergency fund. And by set aside for emergencies, I mean ONLY for emergencies! Don't touch it otherwise (hopefully you never have to). You can also consider life insurance and estate planning.

Bringing it all together

With looking at your budget and financial plan, what are your financial goals? What's your plan over the next five years? What do you want to do? It's a good journal prompt, and something I need to do again honestly. Maybe you want to get married, start a family, move, sell and buy a new house. Let's say you want to buy a house, you can break down how much you want for a downpayment and break it down by year, by month of how much you want to set aside to work towards that goal. That way when the five years comes around, you're ready.

Again, looking at what debt you want to get rid of. Student loans, car loans, your mortgage, credit card debt, etc. There's debate on what's good debt and bad debt (that's a whole other blog post), but for the sake of today, plan for that.

When you look at all of these things, you're gonna want a spreadsheet or some sort of software to track your plan. I created an aesthetically pleasing spreadsheet for this very reason. Some other good software or apps out there are YNAB, Mint, and the Every Dollar app. So whether you prefer a spreadsheet or software (remember, everyone is different), find what works for you to support your budget.

Final note, remember that it can take about 6 months to get your budget right. You'll go in and make adjustments as needed, like with groceries for example. I can't tell you how many times I've gone in and adjusted our grocery budget over the last few months. And as you're making your budget, keep the whole picture in mind. If you're doing a home renovation (like we are), you might not want to spend the money on a trip that year. But when you see the whole picture of working towards a house that you'll be in for the next 20-30 years, it's worth it.