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How to Plan Before You Set a Personal Budget

Choosing not to use a budget is like setting off on a trip without a plan. The more adventurous and spontaneous among you may find that exhilarating, but if you don’t set financial goals, your trip is not likely to go far.

Now, I get it. Budgets have a reputation for requiring too much effort. Who wants to sit there and track every dime that comes into and goes out of your bank account? Well, some of you may find that fascinating. Thankfully, there is more than one way to make a budget fit with your personality.

There are two sets of steps you should take before settling on a budget strategy. I know you expected to jump right in, but the reason so many people fail to stick to a budget is because they fail to plan

The first set of steps are mental steps. These are really just assessments of where you are.

Before you do anything with a budget, decide why you want the budget. It’s not a question of need. Everyone needs a budget, but decide for yourself how the budget is going to help you. Maybe you’ve accumulated debt and need to find a way to dig yourself out, or maybe you have no debt but are having trouble setting money aside for a major purchase. Remember that whole business about setting goals? Think of the top three motivators and rank them in order of importance, and yes, splurging is an acceptable goal. A good budget will make allowances for your frivolous spending.

The second thing you want to do is to be realistic about your specific situation. In my case, as a blind individual, I understand the challenges that come with finding a new job. Despite all the talk of diversity and inclusion, society still struggles with taking a chance on blind applicants. If I lose my job today, I can’t just walk down to the burger joint and count on them hiring me to flip patties, so my first goal was to set up an emergency fund to protect myself against an unexpected period of unemployment.

Assess your own circumstances. If you have children, their needs need to be factored into your budget outlook. If you are married, your partner’s needs also need to be accounted for in your budget, as is only fair that your needs be reflected in theirs. If you suffer from certain health conditions and know you may need comprehensive treatment, this too may be a reason to be more aggressive in using your budget to set aside money.

The other piece to assessing your reality is figuring out your weaknesses. It’s okay to have a propensity for shopping, for example. A good budget will help you set money aside to feed your shopping tendencies, but it’s going to be a little easier to make sacrifices if you know what temptations you are guarding against.

Taking stock of your natural spending habits will help you learn about your tolerance levels and set realistic goals. There’s no sense in planning to save 25% of your monthly income if you’ve never been motivated to save before. If you get overly ambitious, and fail, you’re going to talk yourself out of budgeting.

The second set of steps are more concrete. They’re not complicated, but you need this second set of steps to merge with the first set.

First, before you pick a budget strategy, figure out how much you’re actually bringing home after taxes and any other deductions. This is your net pay. This will give your budget its body. If you know exactly how much ends up in your bank account, you can establish goals that are achievable.

The second concrete step is to study your spending patterns over the past 90 days. I’m choosing 90 days as a somewhat arbitrary timeframe. You want a sufficiently long period to be able to see the patterns emerge. These patterns are going to go a long way in helping you learn your financial weaknesses. Are your trips to the mall isolated incidents, or are they part of a broader trend? Remember, the point here is not to create shame. Rather, it is an attempt at helping you assess where your money naturally flows when it is not being monitored.

Budgets do not have to be a hateful burden. You would be surprised at the amount of stress financial mismanagement can create. Spare yourself the pain by deciding to plan for a budget strategy that will fit with your personality. We’ll get into those budget strategies in the next installment.

What steps did you take to prepare for your budget? If you have not started a budget, what’s been keeping you from doing so? I look forward to your thoughts in the comments!

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