Picture of a woman with a calculator and blog title (the one thing most people forget when budgeting)

The one thing most people forget when budgeting

The one thing most people forget when budgeting


Just about every other goal starts with a plan – your finances should be no different. The best budgets are simple, realistic and plan annually, not monthly. Doing so allows you to be consistent, and helps you avoid the “one-offs” that ruin your progress.

Let’s all be honest here – saving isn’t easy.

We often have great intentions – we really do – but real life throws us off course.  The (car, lawnmower, house) needs to be repaired.  The appliances need to be replaced.  And that’s not to mention all the things we do to pull us even further off course – we upgrade our wardrobe, splurge on travel or buy that new smart phone (because last years’ model just won’t do).

I came across a startling fact the other day – that only 40% of Americans keep a budget.  What’s worse – only 40% are adequately prepared for a $1,000 emergency.  I think one is absolutely linked to the other.

Now I hear you, the word budgeting can make you cringe.  It belongs in the same camp as the dentist and flossing.  You know you should do it, and you know all the good reasons why… however, it’s easy to avoid doing it.

But my question to you is this – how do you plan on succeeding if you don’t create a plan?

Just about every other goal starts with a plan… yet we treat our finances differently.  If you wanted to lose weight, it’d make sense to build a workout schedule and maybe even a meal plan.  Similarly, you wouldn’t start a construction project or home renovation without first taking measurements and drafting a design.  The idea of planning is the cornerstone to so many things… why would your money be any different?

I believe better saving starts with better budgeting (and budgeting discipline!).  Your plan should be simple, realistic and you should plan annually, not monthly.  Most people agree on the first two, however the idea of planning annually is pretty unique.  Let me break it down for you…

Keep it simple

First, the process doesn’t have to be big and scary – Excel spreadsheets aren’t mandatory, and it shouldn’t require you to set aside a full Saturday morning each month to track.  To stay committed to it, you need to keep it simple.  Don’t over-complicate the process.  When you build your budget, keep it to a couple of “big buckets” to track your spending.  Remember, sophisticated doesn’t always equal better. 

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Be realistic

Secondly, you need to make sure you’re true to yourself.  Be realistic about your current financial situation and own it.

Part of the process is to be very clear on how and where you’re spending your money.  It’s much better to be realistic about your financial situation and improve it than be overly optimistic and run short every month.  If you like to buy your morning latte, that’s great – just be sure to budget for it!

Before you start budgeting, track what you currently spend.  Take stock of how much you spend eating out (those cafeteria lunches add up!) and where your money actually goes.  After 2-3 months of this, you’ll have a good idea of how and where you spend your money regularly.  Only then can you map where you’d like to pivot.

Any future changes should also be realistic – don’t expect to save $500 a month if you’re just getting by.  Continuing with our gym analogy, one of the best ways to stay committed is to show consistent results… even if it’s small!  Seeing the scale slowly ratchet down when you’re trying to lose weight ignites the fire necessary to hit the gym the following week.  Same thing goes for your savings.  Consistently meeting your small savings goals will only encourage you to save more.

Budget monthly, plan annually

This is likely a new approach for most people.  Typically, budgets are done monthly.  Ambitious-savers track things like rent, groceries, clothing, etc. and see how much they save each month.  This is a good starting point, but it can’t end there.  Doing so means you don’t account for the one-off things that arise every year (Christmas, birthdays) or things they may already know well in advance (weddings, vacations).

While some people try to account for this through some type of “slush” fund, it’s too abstract and you can miss the mark if you have a lot of one-off things (like 6 weddings in one summer!). Without planning annually, you run the risk of completely wiping out your monthly savings or the nest egg you’ve been working all year on!

Usual Budget Items
(tracked monthly)
Guaranteed One-Time Spend
(usually not budgeted)
Rent Birthdays
Utilities / Internet Anniversaries
Groceries Christmas/Holidays
Clothing Vacations
Cell Phone Weddings
Entertainment Car Maintenance

One of the best ways to avoid this trap is by extending your monthly budget into a yearly financial plan.  The idea here is to not just budget savings in a month, but rather plan out a year.  That’s what my wife and I do.  We typically use the Christmas holiday season each year to update our budget as well as gently plan for any big spend items over the next 12-18 months.  By no means is it a perfect science, but I’d say the process really helps.  Not only are we better suited to manage the expected, and we’re also much more prepared for the unexpected.

SWP Action Steps

Beginners – For those of you who haven’t created a budget, I encourage you to try!  First, get clarity on what you spend every month.  Don’t cheat yourself!  Capture every little bit.  After 3-4 months of this you’ll start to get a clear picture of where your money actually goes.  After this, it’s time to map your budget.  Keep the process simple at first.  Write it down on a piece of paper, and each month review it.  You’d be surprised how a little structure can help.

Intermediate / Advanced – For those seasoned budget-ers, I invite you to take a different approach and plan for the year ahead.  Personally, this change allowed me to increase my savings by almost 25%!  I’d also encourage you to create regular check-ins, continually adjusting your budgeting goals.  If you’re too aggressive, pair it back a bit so you’re not constantly discouraged.  If hitting your savings target is a breeze, try trimming your expenses even further and saving or investing more.  You want to ensure you’re maximizing your savings, but also not stretching yourself to the point budgeting becomes a chore.

Think it through

  • Do you need to be more realistic with your existing budget? Where are the obvious “gaps”?
  • How would your budget change if you took a long-term view?
  • Have you budgeted for “savings”? What role does that play in your budget?

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