Today at TILE we talked about budgeting. Why does that word, at first glance, bring an uneasy feeling to the pit of your stomach? Why do budgets matter? What are the key ingredients for a successful budget? And how amazing does it feel when you figure it out?

Budgeting is a hard topic for everyone, young and old alike. Like the many excuses we come up with for avoiding exercise, there are some common themes in the budget battle: Cash is too hard to track; I’m not sure I really need a budget; Are the benefits of budgeting even worth all the work? To get over those hurdles, it is important to remember that a budget, especially at the beginning, is just about tracking what you do – not about setting limits or making immediate changes. To get started, you need: 1) the right mindset (understanding, not change); 2) a system to do it (a spreadsheet or your SPEND.GROW.GIVE. account); 3) a way to track cash (maybe an iPhone app, or a tiny notebook tucked into your bag); and 4) a willingness to look through a few months’ worth of data. Once you find a rhythm (just like exercise) you will find it is hard not to do it!

The next step is to appreciate that you may not get a clear picture of your spending habits right away. There are also going to be times when keeping track of every single purchase feels overwhelming and like too much of a struggle. Here are a few ways to think about budgeting that will keep you sane:

• It’s A Challenge… The Good Kind. Can you look at the process as a personal challenge? When you consider that taking control of your budget is empowering, you’ll probably dread it less.
• Finding Trends. Three days’ worth of spending data doesn’t make a budget. The most useful information comes when you can recognize the patterns or trends in your spending across weeks, months, or seasons.
• Expense Buckets. You can probably tell the difference between a fixed expense (“Need to Have”) and a variable expense (“Nice to Have”). If you start feeling overwhelmed by all of your transactions, start by separating your expenditures into these two buckets, as it could make your decision making and understanding of trends easier. That being said, only you will know if weekly mani-pedis are in the “Need to Have” bucket!
• Flexibility. Be nice to yourself. If you misplaced a receipt or a didn’t track a few cash purchases, that’s okay. Make a general category called “Other” in your budget. As long as the majority of your expenses don’t end up here… you’re doing just fine.

So why do all this work? Mostly because it keeps you more informed. Rather than scratching your head at an overdraft fee, you’ll know what to expect in advance. You can also have much richer conversations with advisors and funders about your needs today and in the future. Even more, a budget helps define long term goals like vacations, large purchases, the percentage of your income that goes to charity each year, and your investment goals. It makes you more responsible and more adult. For example, what does it mean to your budget to take one job versus another? Buy or rent one apartment over another? Achieve true financial independence from your family?

Think back to when you were a little kid and started saving for a special toy. Do you remember the feeling of pride when you added money to the piggy bank? Knew exactly how much you needed to save up in order to convince mom to take you to the toy store? Or finally saved enough? These early experiences really illustrate what a budget can do for you. It can help you make more informed choices. It can mean there is more money to invest… and more to give. It can mean taking that trip you always wanted to take. But mostly a budget is one of the best tools for teaching the essential life lesson of making choices. When you make informed and smart decisions, independence and empowerment go hand-in-hand.

- Amy