If budgets don’t work, what does? We have three top tips for setting your bank account up for success and setting you up for financial freedom.

Top 3 Ways to Create a Budget That Helps Set You Up for Financial FREEdom

By Jen Sapel, ChFC | June 16, 2020

As many of you have probably experienced first-hand, dieting doesn’t work in the long run.  Sure, almost any diet can help someone lose weight for a few months

But the truth is that 95 percent of us (yes, that includes yours truly) gain back our lost weight within the next one to five years, and 41 percent of those folks are gaining back more than they initially lost.

Similar to diets, yo-yo budgets don’t work.

Budgets are restrictive. Even just using the word makes me naturally want to rebel (don’t tell me what to do). This feeling of rebellion typically shows up in one of two ways: procrastination / avoidance OR splurges, where we ended up spending more than we would have typically if we weren’t given the restriction. As you can imagine, neither of these outcomes are productive in a pursuit of financial health.

Budgets just feel so judgmental. It’s nearly impossible to predict (and therefore budget) your annual expenses. If you have a pet, you may encounter fewer or more vet visits in any given year. Same goes for children and emergency rooms (you know what I’m talking about Nav.igator moms).

For my home owners out there, this always comes with at least one surprise in store for you. My most fun was a lightning bolt that surged power into our house via our cable line. Good times.

All this to say, every month you have a  “locked in” budget, you will find that you are always “wrong” or “off-budget.”  It’s no wonder we resist a consistent negative feedback loop. 

So what should you do instead?

Are budgets hopeless? Not if you implement F.R.E.E. principles.

According to Nav.it Money Mavens, “FREE stands for financially resilient, empowered early. The sooner you understand your financial picture and personal finance behaviors, the sooner you can implement a plan that builds good habits.

“Like any other health or wellness plan, small changes over time amount to big wins. These consistent routines empower you to weather financial setbacks and fund goals — regardless of income. It’s a plan anyone can achieve at any stage along their financial journey.”

And that’s awesome because it falls right in line with my three top tips for setting your bank account up for success if you haven’t had much luck in the past.

Get empowered. Increase your financial awareness.

Going back to the dieting analogy, Dr. Sandra Aamodt divides eaters into two categories: intuitive and controlled. 

You can probably guess, intuitive eaters are better at maintaining a healthy weight. She suggests becoming mindful of your eating. Tracking how you feel at and after meals, and allowing the signals of your body to determine when you are full. 

The same approach works for money. Instead of restricting or trying to predict your future expenses, simply pay attention to where your money is going each month and how you feel about it. The Nav.it app helps you do this with little to no work on your end. Just put in your bank or credit card information and let it pull your financial summary into view for you.

If you’re going to go the spreadsheet route, it does require you to sit down regularly (I suggest weekly to start and monthly once it gets easier), categorize and acknowledge what you’ve spent. The intention here is purely to increase your awareness and arm you with data. Even if you use an app, make sure you’re reviewing and tracking key learnings regularly. 

Unlike a budget where you are keeping score, there’s no reason to feel guilty or place “good” or “bad” judgements on any transactions. 

Get resilient. Automate your savings.

As humans, we generally lack discipline and patience. Coincidentally, both are required ingredients to building wealth, and for that matter, most things worth acquiring in life (healthy relationships, bodies, businesses, etc). 

If you want to get to the point where working is optional, save 20 percent of your pre-tax income annually. Frankly, as long as you are doing this, what you spend every month or year is 100 percent irrelevant (I still advocate that you are aware of it, but that’s just to check in on your values, and make sure your spending aligns). 

The best savers will tell you to automate. For example, let’s say you are contributing 10 percent of your income to your employer sponsored 401(k). That’s great! Now automate the other 10 percent,. Ideally, set up a direct deposit from your paycheck (just like your 401(k)) into an account (pro-tip: go for a high-yield savings account) that you don’t have super easy access to, and viola! 

You are now on an effortless path to financial freedom and health.

(Pst… Your nav.it money app has a built-in automated savings platform perfect for travel funds, holiday saving funds, and to set money aside if you don’t already have an emergency fund.)

Be strategic and stay true to yourself.

If you find yourself in a position where you are unable to save or invest 20 percent of your income (where my city slickers at?) or you set up the direct deposit but transfer money from that account each month because “something came up,” don’t sweat it.

Make the immediate changes you need, be patient, and have discipline. The trajectory you are on is much more important than your current circumstances. Start by looking at your large expenses such as rent/mortgage and transportation. It’s tough to save 20 percent of your income if Uncle Sam is entitled to 20-30 percent of it, and your housing is taking up another 30 percent.

 In this example, if you only have 40 percent of your income to live on, it’s much harder to invest 20 percent, or half, of it. See how this plays out if you are making $100,000/year and $30,000 (or 30 percent) is going toward housing costs. 

You can make some changes (of varying levels) to address this. A more extreme change like changing your housing lifestyle and renting a room out for $500/month takes your housing cost down to 24 percent. A much smaller change may be skipping the daily $5 coffee run five days/week, which saves you $1,300/year or 1.3% of your budget. 

One of these changes will sound more painful to you than the other (I for one will move before I give up my coffee), but no one else should tell you which changes to make. They should be based on your choices and the life you want to live. (Bring on the caffeine, in my case.) 

Get in the habit of asking yourself, can I get the same result of this expense in a thriftier way? And for the things that are important to you (maybe a pedicure because it’s your quiet date with yourself), you shouldn’t feel any guilt in keeping them as part of your anticipated expenses.

The budgeting bottom line.

Go out there, pay attention to what and how you spend, be kind to yourself,  and be intentional with who you want to be financially. You’ve got this, Nav.igator!

We’re changing the narrative around money but change can’t happen with a one-sided conversation. That’s why we’re excited to bring different voices and experts to share their wisdom. Send us an email and let us know what you think. And remember the nav.it money app offers you free tools for budgeting, automating your savings, and more.

You can download it at Google Play and the Apple Store.

Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). OSJ: 3585 MAPLE STREET SUITE 140, VENTURA, CA 93003, 909-399-1100. Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is an indirect, wholly-owned subsidiary of Guardian. Utor Wealth is not an affiliate or subsidiary of PAS or Guardian. 2019-90632 Exp. 12/21

Material discussed is meant for general informational purposes only and is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary. Therefore, the information should be relied upon only when coordinated with individual professional advice. This material contains the current opinions of the author but not necessarily those of Guardian or its subsidiaries and such opinions are subject to change without notice.

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