First Budgeting Session

Whether you are a saver, a spender, or somewhere inbetween, whether you are flying solo or have a family to support, a budget helps you to answer hard questions. In order to have a budget though, you have to MAKE one. Since finances can be a touchy subject, here is a how-to guide for your first budgeting session - and bonus! The first part doesn’t even include money!

WARNING!!!
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If you (or your partner) have not eaten within the past 2 hours or are hyperly stressed over something, STOP HERE. Return when you are both refreshed and at least semi-happy. Also, make sure that you have essentially unlimited amount of time for this session. The last thing you want is to be making good progress only to have to dash out the door halfway through! 

Lifestyle

The first part of an initial budget planning session begins with a simple question - “If I (or we) had an unlimited amount of money, what would we want our daily lives to look like? (and, if applicable, what kind of lifestyle would we like to raise children in?)”. 

Please give yourselves adequate time to discuss these and related questions, and for heaven’s sakes avoid being “realistic” about what you can “afford” to want. If a multimillion dollar mansion is truly your dream home, that’s great! (Don’t be surprised, though, if you realize that you rather enjoy the idea of an unlimited middle class lifestyle, without the frills of extreme wealth). Truly ponder the daily activities you would want, the hobbies you would pursue (archery range in the backyard anyone?), the opportunities you would (or would not) want to provide family members, and how those dreams would culminate in your oldest years when the daily ins and outs of life begin to be more difficult. In case you are having trouble, here are some questions to help you flesh out your dreams:

• Would we want to live in the country, in the city, or somewhere inbetween? Is there a particular climate or location that we would want to be? 
• How often would we want to travel? Locally, domestically, or internationally? 
• Would we want to stay home with kids? Or would we work simply to have another aspect of life other than parenthood and marriage?
• How independent (“off-grid”) versus interdependent would we want to be?
• What kinds of educational opportunities would we want to have, both for ourselves and our kids? 
• Would we rather age in place in our dream home, or would it be better to liquidate it at a certain point and move elsewhere? How would we know it was time to relocate? 

Do NOT rush this phase of discussion. Give yourself a willing suspension of disbelief here and trust me - it will build your relationship (even if all of these “we’s” are “I’s” and that relationship is with yourself!). If you and your partner are having disagreements about your dream destinations, table the conversation for another time and come back to it after significant reflection. It may take several tries. Start by defining your very broadest goals (do you both desire homeownership? Travel? Children?) and work your way towards a slightly more specific future. In general, it is wise to have a geographic location, family size (or range), home size, and levels of travel predicted before continuing with your budgeting session. 

Future vs Present

If you are normal, you probably are not living the perfect, dream life you just created in your mind. In fact, there are probably some gaping chasms between reality and your dreams. Rather than get discouraged, take some time to explore these disparities through the following exercise.

Expense Tracking

Log in to your bank/credit card account(s) (or grab your paper statements if that is more your thing) and locate the first date of the previous month (unless that month is December and you celebrate Christmas. Then please use November, or even October if you typically buy Christmas presents in November - we want a “normal” month). Scroll down until you reach the end of the month and simply look at the number of transactions that you made. 

Did you have more purchases than you were expecting? 

That is common. Please don’t beat yourself up right now. That is counterproductive to change and long-term growth. Simply observe your surprise, and, if you’re curious enough, count how many transactions took place. 

Alright, now that you have glanced over, look and see if there are patterns in your purchases. Do you buy a daily latte? Do you tend to destress at Target on a Friday night? How many Amazon buys did you make? 

If you and your partner have separate bank accounts, take some time to glance over each other’s statements (NO harsh words allowed). This is a team effort, and both parties need to help each other in order to be successful. 
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Now for the real question - “Does our current spending reflect our long-term dreams?”. 

Just from the lookthrough you did, there are probably partitions that you know you can cut down on. Let’s take a look at how to know how much to cut from where. First, the hardest part - assign every single transaction to a partition (for example, if you went to Fred Meyer three different times to buy groceries, add those three times together and label “groceries”, and then add in that last minute Winco trip you took to that total. This is when you will want to pull out a handy dandy spreadsheet to help you). Here are some common Expense partitions that are likely to emerge from your statement:

• Coffee/cafe trips
• Clothing
• Personal Care Supplies
• Eating out
• Subscription Services
• Movies
• Clubs
• Other Entertainment
• Groceries
• Gifts
• Charitable Giving
• Rent/Mortgage
• Renters Insurance
• HOA Fees
• Electricity
• Water
• Sewer
• Garbage
• Internet
• Cell Phone
• Auto insurance
• Gas/Fuel
• Auto Maintenance/Repairs
• Medical bills/copays
• Debt Payments
• Alimony/Child Support

Note that this list is certainly not all-encompassing. There will almost certainly be some on your list that aren’t here, and some that are here that aren’t on your list. The most important thing is that every… last… purchase... has a partition in your budget. Do NOT fall into the “Miscellaneous” trap! That being said, also notice “hidden” categories. Maybe you ate out every night for a week because you were on vacation. If you don’t normally eat out that much, maybe it’s better to count those meals under a “vacation” partition rather than “dining out”. If you use a meal shipping service like Hello Fresh, it could go under subscriptions, but it may be better to count it with groceries instead to get a more accurate depiction of how much you spend on the food you eat. Use your judgement and talk with your partner so that you are on the same page. 

This process is time consuming, but IT IS WORTH IT. Please take the time to truly see your spending, with no judgement, name calling, or blaming. Simply observe your current reality. If there are expenditures that you truly don’t remember what was purchased or why, set them aside (for now). 

Budgeting

At last, we come to the budgeting part of your session. You are armed with information - you have a vision of where you want to go, and a clear snapshot of where you are. 

On the same spreadsheet you used to make your partitions, discuss possible changes that would reduce spending in certain areas to free up options in others (especially savings!). There are two ways to make major changes - gradually, and cold turkey. There are benefits to each, but whichever you choose, you need to choose together. You may also have a combination approach (for example, reduce the number of times you eat out, but completely eliminate your Amazon purchases).

Gradual

Gradual adaptations to your spending require restraint without elimination. For example, if you have been getting coffee and a cinnamon roll at the cafe three mornings a week, could you choose between coffee and the roll? If you tend to shop to decompress, would getting a gym membership provide a healthier outlet for your frustrations? If half of your fresh fruits and vegetables got thrown away last week, do you need to buy fewer vegetables, or do you need to plan for healthier meals? Should you agree to wait 24 hours before making a purchase to reduce the “impulse buy” tendencies marketers bank on? 

If you are in a relationship, both partners should be reducing money consumption, regardless of who has breadwinner status. How much and across which areas will vary greatly depending on income levels, individual tastes, and current spending patterns, but if one partner is doing all of the sacrificing all of the time, resentment will build. Each partner should be volunteering what he or she should give up, and it would be best for the other partner to refrain from suggestions unless expressly asked. Each partner should also fully recognize “free-loading”, particularly if you have separate bank accounts - if one of you consistently does the grocery shopping and the other person consistently eats food, then you both are responsible for the grocery spending, regardless of who swipes the card. This allows for a more harmonious atmosphere to your budgeting session. 

After discussion, compare your Expenses total with your Incoming Money total (from the previous post). If Expenses exceed Incoming Money AND your Savings are set at zero, adjust your budget until you are balanced. (While Savings is extremely important, it is more important to make your changes sustainable. Savings will be the topic of a future budget session if your savings is insufficient for your goals). 

Set goal numbers for each partition. (Unless your spending is completely out of control, it may be wise to reduce by 10% or less in any given partition, unless you favor the cold turkey method to excessive spending, in which case, rock on!). 


Cold Turkey

Counterintuitively, it is sometimes easier to eliminate a partition altogether than to make gradual changes to it. For example, you could agree to not purchase any food or drink from anywhere except a grocery store for one week (and no, the Starbucks inside your local Albertson’s does not count). This would give you the opportunity to experience life without that thing, get accustomed to not having it, and see if it actually brings you any extra happiness when you do have it. The beauty of the cold turkey method is that you only have to make the decision once, so you never find yourself trying to justify any “extenuating” circumstances that warrant breaking your budget. 

The trick with cold turkey is to give yourself reasonable time windows. If you declare that you will never buy anything ever again, you will quickly get discouraged (and also, you don’t want to starve). The timeframe should be long enough that it is a sacrifice, but short enough that you don’t feel truly deprived. There is a sweet spot between these two that you will need to identify together. 

Due to the inner mettle required, I don’t recommend trying to eliminate more than two partitions at a time (unless they are closely related, such as coffee/cafe purchases, eating out, and bar tabs). Subtract your Outgoing Money from your Incoming Money - unless your spending is well in the red, simply decide which 1-2 partitions to eliminate and roll with it. If you find yourself running a large negative balance, agree to both reduce and eliminate whatever is necessary in order to achieve a net zero at the end of the month (with the understanding this is a one month trial). 

Upkeep

Congratulations, you have ALMOST completed your First Budgeting Session. But before you are finished, you MUST agree to an upkeep schedule. 

If you have made large changes to your spending habits, I would suggest daily check-ins where you simply report on the day’s spending, and a weekly sit-down review of all your purchases to see how closely you are aligning with your monthly goal. For less intensive changes, a weekly tally may be all that is necessary. Once you are more established in your financially prudent habits, you may reduce your report sessions with each other (or, as it were, with yourself), but I would not recommend doing that for at least 6 months. At your next budgeting (not reporting) session, plan on setting new spending goals in your Second Budgeting Session. ​