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How to Create a Budget

How to create a spending strategy that really works—a free audiobook excerpt from Money Girl’s 10 Steps for a Debt Free Life!

By
Laura Adams, MBA,
Episode #137

Today's article will help you stay on the straight and narrow when it comes to personal finances. It’s about creating a budget, I mean, a spending strategy. Doesn’t that sound better?

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Why You Need to Budget

If you always have plenty of money to pay your bills on time, in addition to maintaining a healthy emergency fund, investing for your retirement, and saving for all your other goals, then you probably don’t need a spending strategy.

But if you’re struggling at all with your cash inflows and outflows, you need a simple spending strategy. That’s because it’s difficult to improve what you don’t measure. What you believe is going on can actually be very different from the reality of a situation. You may think the amount you spend on groceries or entertainment is reasonable, for example, but do you really know exactly how much that is, on average, each month? Until you dig a little deeper into your spending patterns, you won’t have all the information necessary to make good decisions and beneficial changes.

Create a Spending Strategy

I’m intentionally not telling you to “create a budget,” because if you’re like me, that mandate just sounds too stringent. A budget, for many, implies doing without and never being able to enjoy oneself. But a “spending strategy,” on the other hand, embraces the fact that you’re going to spend. It’s just a matter of making sure that you do it in a deliberate and smart way with your end goal in mind. The purpose of creating a spending strategy is to analyze where your money goes and to put you in control of your cash flow.

It’s All About Money Management

A spending strategy embraces the fact that you’re going to spend; it helps you spend smarter.

There’s a black hole that seems to suck up our money when we’re not looking. An essential element to eliminating debt and saving money to meet financial goals--like saving for a vacation or for retirement-- is to keep your money away from the black hole by improving your money management skills. That starts with doing a spending analysis to monitor all the many ways you pay bills, splurge, give to others, and possibly fritter away money.

I believe that a spending strategy should not make you miserable; otherwise, you’re apt to rebel against it. Its implementation should get you excited, because it’ll move you closer and closer to what’s truly important to you—living debt free and having money for what matters most. In fact, you may get so excited about reaching those goals that you’ll enjoy cutting out spending on the things that don’t matter to you. It can become a game for some people who really get fired-up about seeing their goals become a reality.

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