Budgeting is not a dirty word! Knowing what is coming and going is the key to your financial success.

I grew up in a household where making ends meet was always a struggle. When I look back on it, I am amazed at how my parents did it with their low income and five children to feed and clothe.  We didn’t have much extra compared to many of my peers, but I never felt significantly deprived. The only way that could have happened is that my parents were really good at budgeting.  And they still are! Now in their mid-80’s, they still live below their means even though their only source of income is social security.  And although I am in a vastly different financial situation than when they were raising our family, some of that budgeting gene passed on. 

When I talk about “budgeting”, what images come to mind for you? Is it arguing with your spouse at the kitchen table over what is being spent? Is it tightening your belt so that you can squeeze out that extra 1% of savings?  If that is what you see, no wonder you don’t want to do it.  Well, it doesn’t have to be like that.

Budgeting is really just financial planning.  But before you can plan, you need data.  And for budgeting, the data that you are looking for is “income” and “expenses”.  What is coming in? What is going out? And what is left over?  Once you know those things, you can start making the adjustments that will help you achieve your goals faster. 

What is coming in? Most of us have a pretty good handle on this one.  We know what our salaries are and the various sources of income that we may have.  Ideally, you have more than one source of income:  maybe your spouse or partner has a job, maybe you have a side gig with 1099 income on top of your W2 position, maybe you generate some passive income from real estate or other investments.  Categorize each of these areas and project forward how you expect it to change over time.

What is going out?  This one is a lot less controlled by most families.  We know the fixed expenses like utilities, mortgages, student loan payments, etc.  But the rest of the  discretionary spending frequently gets lost in the shuffle of multiple credit cards or spenders. When was the last time you added up all your streaming subscriptions? Do you know how much you spend eating out each month? What about entertainment costs? This is the area where you can really make a difference in your finances by making choices. 

As a financial planner, I don’t tell people what to spend their money on.  That is not my role.  Everyone spends a little differently because people value different things.  My goal is to help people spend their money on what they actually value, and very often that is not happening.  Instead, money comes in and money goes out and nobody really knows where it goes.  You can waste a lot of money that way.  A surprising amount of money!  More than anything, for high income earners, that is why budgeting is so important.  A periodic review of your spending will help you know where your money is going and to make adjustments so that you spend it on things that make your life better.

What is left over?  This is the fun part.  If you live below your means, then you get to make decisions that will create true wealth for you in the future.  How much of that extra money do you want to save (think: emergency savings funds, planning for a big vacation, paying for a new vehicle in cash)?  How much do you want to invest (workplace retirement accounts, backdoor Roths, taxable brokerage accounts, a new business, a rental property)? And how much do you want to spend? If you have paid yourself first and met your savings and investing goals, then whatever is left over is guilt-free spending.  Go enjoy it! 

If you review your income and expenses and there is nothing left over, you need to make some changes if you ever want to become wealthy and no longer reliant on your paycheck.  And having a large paycheck does not necessarily ensure that you have money left over to save and invest.  In my book, The Physician’s Path to True Wealth, I talk about the difference between being rich and being wealthy.  Being rich is living large, spending all your income on fancy stuff that brings immediate gratification and makes you feel like the top 1%.  But that is not true wealth.  True wealth comes by living below your means, saving, investing and being disciplined with your spending.  As you do that, your net worth grows. Your assets eventually start working for you and will ultimately replace your income.  That is when you are financially free!  And it all starts with budgeting.  So, look at it as an opportunity, not a chore!

To make things easier, there are a lot of budgeting software tools and apps available to you (most require a subscription.)  I personally use QuickBooks because I have a couple of business accounts in addition to my personal finances.  There are others that are simpler: Quicken Simplifi, Monarch Money, YNAB, Rocket Money.  If you don’t want to spend on that but just want a good old Excel sheet, I have created one and put it on my website under the financial tools page.  You can download it for free and modify it as you see fit. 

The most important part about budgeting is that you do it and you do it regularly.  It doesn’t have to be monthly.  Some people do it quarterly or annually.  Make it a habit and do it with your significant other.  Involve your kids—it’s a great way to teach them about money! Look at the process as a cooperative effort to accomplish your goals, not a time to be critical and judgmental over your partner’s spending habits.  Unless you are completely aligned on the relative value of everything you spend your money on (rare), there will need to be some give and take.  That is okay! Just try to make it fair and keep your overall goals in mind and it shouldn’t be an unpleasant process.

So, good luck and God speed! If you want to know more about the other steps to True Wealth, you can download my book for free if you subscribe to my website, or it is available on Amazon.