We can do two things with our money: spend it or save it. For most people, spending is the priority and a lot more fun. Yet we all know that we should be saving money. I myself have found budgeting more difficult with a growing family. I’m about to welcome the newest and 6th member to our family and have definitely found that budgeting becomes more difficult with kids. It seems the more you have, the harder it is. So, after a good deal of thought and research, the Tiffen family is flipping the process around. Rather than seeing how much we spend and then saving the rest, we’re determining how much we need to save, and then spending the rest — what I’m calling “goals-based budgeting”.
Many financial planners suggest that the first step toward reaching a spending-saving goal is analysing your spending and creating a budget. But there are few problems with traditional budgeting:
- It’s difficult to monitor every specific category eg: utilities, food, clothing, entertainment etc — and make sure you’re spending an exact amount
- It can be time-consuming and tiresome
- It focuses more on spending — and often the restraint of spending can feel like a straitjacket
The benefits of my goals-based budgeting:
- It doesn’t require you to track every cent
- It doesn’t require you to remember how much you’re allowed to spend on each category. Rather, you just keep tabs on one important number…how much you have in the bank!
- Money is kept in separate accounts and labeled with specific purposes MORTGAGE /BILLS / SAVINGS etc
- For those who find spending difficult (not my wife), this provides peace of mind that important goals are being funded
Sound good? OK. Here’s how to do it.
Step One: WHAT TO SAVE
Goals-based budgeting begins with — surprise! — your goals. Once you’ve identified them, you have to figure out how much they’ll cost and how much you need to save on a regular basis to achieve them.
Step Two: COMPARE TO SPENDING
Now you need to make sure your savings calculation is compatible with your expenditures. This is where having a record of past spending comes in handy. If you figure you’ll have to save 40% of your income to meet your goals, yet you spend 80% of your paycheck, you’ll have to adjust your spending, your goals, or both.
Step Three: TRACK IT
One App I have come across while searching for a better budget tool was trackmyspend. It’s a great way to set goals and track your spending. And the best part is you can link it with your spouse hahaha!
Step Four: KEEP AN EYE ON IT
This system requires that you check your monthly expenses account once or twice a week to make sure you’re not running out of money before the month’s end.
In the end, do what works for you! And remember - having any plan is better than none at all!
Having a plan for every dollar is probably ideal from a financial perspective, but that system doesn’t work for me. A goals-based budget is another way to approach the process and at this point, it’s a work in progress for myself and my family.