Introduction
We'll try not to bore you by waxing poetic about the 'Age of Instant Gratification' and the need for things to be delivered quicker and quicker, solely because of our shrinking attention spans. (Again, I said we'll try.) But when it comes to money and financial security, unlearning this modern 'need' for instant success is one of the best – and hardest – early lessons you can adopt.
The Elephant Analogy: Taking the First Bite
One of our favorite analogies about incremental progress (something we find to be highly underrated) begins with a simple question: "How do you eat an elephant?" I'm sure many readers have come across this little nugget of wisdom. And while it's an image that makes us a bit sad (poor elephant), it's one that rings true in a way no other does. The answer to the question is simple: [Matthew McConaughey voice] "One bite at a time."
How do you reach that seemingly impossible goal of owning a house? How do you finish a 120-page thriller that knocks the socks off any reader? How do you create the most striking digital image that's a perfect combo of nostalgia and nuance? You take that first bite. This analogy can be applied over and over again to just about any ambitious endeavor, but today, we'll apply it to your finances and, more specifically, your budget.
"A budget is more than just a series of numbers on a page. It is an embodiment of our values." – Barack Obama
Elephant = Your Financial Goal (security, buying a house, paying off credit card debt)
First Bite = Your Budget (understanding the money coming in and the money going out)
Building Your Budget: The Foundation
My fear is that many readers have groaned at least twice if they've reached this stage. Fair. Budgeting isn't the most glamorous financial topic (that crown belongs to investing), but it's certainly the bedrock of any financially secure future and, if done well, will get you there quicker. Your monthly budget can be created in minutes, but it takes just seconds to blow it up, like a house of cards in a hurricane.
First up is understanding your non-negotiable expenses per month. This includes your rent or mortgage, grocery shopping, and essential bills. These are the things that simply have to get taken care of. Set this number aside for now; we'll come back to it.
Next up is the money coming in per month. This is your paycheck or tips. Let's be honest about this number and really get granular: this is the amount you get after taxes are taken out. Now, simply take your monthly income and subtract those non-negotiable expenses. Here lies the opportunity. This golden number is your ticket.
Smart Money Management: The Buffett Way
If we're taking Warren Buffett's advice (always take his advice!): "Do not save what is left after spending, but spend what is left after saving." This golden number is precisely the opportunity to reach your goals. But there's a snag we've caught ourselves on far too many times: the thought is, "Great, I'll just save all this extra dough and be good to go." While we're quite ambitious at Onward, we've learned our lesson about being too ambitious at times. If we go to the extreme, the habit rarely sticks long-term. It's about setting yourself up for sustainable success above everything else.
So, how much of this golden number do you save? A classic budgeting technique is the 50/30/20 rule: 50% of your income to needs (non-negotiables), 30% to wants (eating out, entertainment, etc.), and 20% to savings or debt. This absolutely works! But, as I mentioned earlier, we have a habit of being ambitious, so we usually like to challenge people to switch that: 30% to savings and 20% to wants. It seems like a minuscule adjustment, but this is exactly where the incremental progress comes in. It's helpful to calculate the exact number of savings you want to put away. Let's convert that percentage into a hard number so you've got a north star to follow.
Making It Work: Values and Implementation
Now that you have the amount you're looking to save locked in, we can move onto the fun stuff: the wants. This includes eating out, movie tickets, shopping for clothes – all the things that, if you had to, you could do without. Let's be aspirational here: instead of looking at your transactions (we'll do this in a bit), put down a reasonable number for each category (dining out, entertainment, shopping, miscellaneous) that you think feels right to spend per week. THEN, once you have these numbers, add them up and compare them to that 20% you have left after the non-negotiables and the savings. How are we looking? Need to rearrange things?
It's important to be honest with yourself. Budgeting and where you choose to spend your money says a lot about your values and the person you are/want to be. With that said, you likely know the things that genuinely make you feel happy, alive, that bring a level of joy that far outweighs the expense. Dinner with a friend: massively important for our soul. Going to see live music: massively important for your heart. That yoga class that feels like a luxury: massively important for your body and mind. It's all about picking and choosing the best ways to spend money for you.
Now, more than ever before, we can lose track of our spending. You can purchase things in seconds that you forget about in minutes. Anyone else received an Amazon package that you forgot you even ordered? Just me?
The last and possibly most important step here is going through your transactions. Log into your bank account and print last month's transactions. It's a tedious process, but one that will truly solidify the budget you've built. This process is all about seeing where you can cut down. You're checking if those numbers you created for your 'wants' actually match up to what you've been spending. Notice where you can adjust your spending for each category and get excited about doing so. These are the small steps, the counting the pennies and letting the dollars follow, that make reaching your goals feel actually attainable.
Conclusion: The Power of Consistency
It's not about doing well for a month, or two, or three. It's about showing up for yourself and your goals time and time again. It's all about a set plan you can mindlessly follow to reach the heights you want.
If you haven't already, check out our Budgeting feature in Onward. It has everything you need to build on the disciplines you set in place today. Plus, it auto categorizes your transactions so you know, in a moment, exactly where you stand for your budget.
There's no question, certainly after reading this, that the way we approach our money and our daily habits has a significant impact on everything that follows. By creating healthy financial habits, you can reduce your stress, build the foundation to achieving more, and feel healthier throughout your entire financial journey. We wish nothing but the best for you!
