Going Beyond “Making Ends Meet”: Budgeting for the Future

The journey toward financial wellness starts with an age-old concept – “making ends meet.” But what does that phrase even mean? And how does a person accomplish it?

Making ends meet means having just enough money to buy the essentials we need to survive. To get there, we have to know what those essentials are and how much they cost. We need to know how much money we have. Then we need to figure out whether our money coming in is enough to cover the essentials. If it is, we have enough to “make ends meet.”

And now not only do we know how to make ends meet, but guess what else? We have the essence of a budget.

The power of a good budget goes well beyond just enabling people to make ends meet. Budgeting forms the most fundamental building block of a solid financial plan. Budgets give us peace of mind, confidence, and freedom from stress. Having a sound budget in place, working it to our advantage, and adjusting it over time lays out a roadmap toward a financially secure future.

Budgeting is Simple…Not Necessarily Easy

As the introduction shows, budgeting is a simple process. That doesn’t mean it’s easy. Many people struggle with traditional budgeting methods that can make the task feel like a chore. But smart budgeting leads to positive behavior change, which in turn improves financial wellness.

You can budget using several different methods. For example, in the popular 50/30/20 method, you allocate 50% of your income to essential “needs,” 30% for discretionary spending on “wants,” and 20% to savings and debt payoff. Zero-based budgeting has you start from scratch and assign a specific purpose to each dollar – always making sure your income minus expenses equals zero. With the envelope system, you split cash into separate envelopes for different spending categories (e.g. groceries, entertainment) and when you’ve spent all the cash in a given envelope, you can’t spend any more on that expense for the month.

Regardless which method you choose, budgeting has three key steps:

1. Track your earnings and expenses.
2. Work to keep expenses lower than income.
3. Review and adjust over time.

As you can see, the steps are simple. Sticking with them proves more of a challenge for many people.

Start from the Right Perspective

When you can see that budgeting is simple, it brings positive financial change within reach. Adopting the right perspective is the first stage – meaning stepping back and honestly analyzing your financial situation with a positive eye. With the proper perspective, you can avoid making decisions based on negative emotions like fear or greed. Viewing your situation rationally allows you to set realistic goals based on your own unique circumstances and time frame.

Next, these are the basic steps in the budgeting process:

• Calculate your monthly income.
• Separate expenses into “fixed” (you pay the same amount every month, e.g. mortgage or car payments) and “variable” (the amount you spend varies, e.g. groceries).
• Pay yourself first. Think of “paying yourself” as an essential expense. Pay into an emergency fund, retirement account, or savings account for major purchases.
• Plan for discretionary spending on things you want (e.g. clothing, dining out).
• Compare your expenses to your income and make adjustments.
• Implement your budget and monitor spending.

Paying yourself first is the most vital piece of adopting the right perspective. When you look at saving as an expense just like any other essential need, you set yourself up to reach your goals and achieve financial security.

Simplify

You can simplify the budgeting process in several ways. Here are a few:

• Automate everything. You can find many online platforms that enable you to fully automate your budget. You can automate your bill payments through online banking. Set up automatic transfers into your savings and retirement accounts to put “paying yourself first” on autopilot.
• Combine budget categories. For example, all your separate insurance accounts (life, auto, home) can be lumped together as “insurance.”
• Consolidate accounts. The fewer financial accounts you have, the fewer accounts you have to monitor – and the lower your stress.
• Set a regular schedule. Budgeting is not a one-off chore; it’s a lifelong strategy. Think of your budget as a regular maintenance task, like getting your oil changed or doing laundry. Schedule time to review your budget regularly.
• Consider hiring help. An accountant, financial planner, financial coach, or tax professional can provide valuable budget guidance.

Budget for the Future – Not the Past

Everyone should have access to a budget that looks to the future, rather than relying on outdated information from the past. When you review your progress, be sure to consider how your circumstances are likely to change across the next time frame. Your income and expenses are likely to change when you experience important life events like marriage, having children, buying a home, or retirement.

Simplifying your budget, carefully tracking your progress toward goals, and having the right mindset empower you to prepare for a positive future. Budgeting with an eye ahead takes you much farther than just “making ends meet.” It gives you the peace of mind to enjoy life now, while you secure the future lifestyle you desire.