10 Steps To Building A Budget

In our last blog, we discussed the Steps To Build Financial Health in which we talked about putting our financial house in order. One important step toward improving our family’s financial health is to build a budget. Taking the time to sit down and prepare a monthly budget is positive step we can take to get a better hold on our family spending and finances. We can look at the task of building a budget as setting a goal for ourselves and our family to be held accountable to. As we prepare to establish a financial budget, it is important to prepare ourselves beforehand by taking stock of our resources in order to better our chance of success. We need to take into consideration our spending patterns and habits, our current spending levels and purchase decision making behaviors (such as compulsive tendencies), and decide on how much to cut back on discretionary spending so that we can create realistic budgets that will stand a good chance of being adhered to. In Luke’s Gospel we are told the parable about the builder who is advised to consider “For which one of you, when he wants to build a tower, does not first sit down and calculate the cost to see if he has enough to complete it?“ Luke 14:28. Building a good budget takes work and may involve giving up some things, and changing the way we spend our money but as Catholics we should be used to sacrifices, right? These little sacrifices that we may have to make can actually be offered to God as a prayer. As we grow more disciplined, the process will get easier with time as we learn to master it.

Guidelines For Preparing A Budget To Help Ensure Success

1. Involve the entire family. Everyone in your household of reasonable age that will be affected by the budget plan needs to be involved. This is very important, when everyone is on the same page, there will likely be far less tension, plus it builds accountability amongst members of the family to keep on track. It is important that everyone is in agreement on goals and spending limits to help ensure success.

A helpful tip would be to have periodic family discussions to talk and share about how the budget is working and each family member can share any comments, concerns or ideas. It is important to foster open communication and dialog amongst each other. The fruit of this shared activity should help strengthen family bonds and bring everyone closer together. A prayer can be offered before and after these meetings to invite the Holy Spirit to help guide conversation and to protect against any quarreling and to lead the family in a peaceful conversation.

2. Know Thy Spending. One of the key ingredients to preparing a successful budget is to gather the last several months of household expenses and to organize them in categories. For example:

  • Mortgage/Rent
  • Car payment
  • Utilities
  • Groceries
  • Dining out
  • Clothing and so on…

One we have a grasp of how we have been spending, we should have a benchmark to use for assigning monthly budgets. There will be some months that we have large recurring bills, such as annual or semi-annual property tax and insurance payments. We would suggest that we allocate some cash each month toward each of these so that when the bill is due, we have already set aside sufficient funds to pay for it. An easy example would be if you have a $600 semi-annual (every 6 months) insurance bill in July, simply allocate $100 in each of the preceding monthly budgets, which in this case would be each month starting in February through July.

3. Simple to Start. This is critical, especially at the start! A budget that is overly complicated can be intimidating and can easily lead to excuses. We have to do our homework and set realistic goals and keep the budget fairly basic the first couple times around so we can hone our skills until starts becoming natural.

4. Set a Time Period. Prepare your monthly budget for a time period that’s long enough for you to see results, three to six month-to-month budget for beginners is a good initial target. Once you get accustomed to the budgeting process, you can prepare for one year at a time. Month to month budgeting can accommodate everyday living expenses and bills, but a yearly budget can help you plan for larger and more infrequent expenses.

5. Build an Emergency Fund Into Your Budget. An emergency fund should be an essential component of every budget. Setting aside an emergency fund can help you finance unexpected expenses like major auto repairs or medical bills so you don’t have to take on excess credit card debt at high interest rates.

6. Moderation is Key. Making sacrifices is part of good budgeting, but be careful that you set realistic spending limits that you can be faithful to. After all we do need to enjoy life, but it is important that we use this exercise to grow in virtues, such as temperance and prudence.

7. Keeping Track of Your Progress. As important as it is to put in the effort to build our budget, we also need to keep track of it. There are many different ways to track our budgets and spending such as, online budgeting programs like Mint, Quicken, or even in Excel, use the one that works best for you.

8. It’s Not Set In Stone. Review your progress periodically, if the results results don’t match your expectations you may have identified areas that are in need of adjustment, this is very common early on in budgeting. The areas that are off will actually reveal what the real spending norm is, so pay attention to what it is telling you. For example, if you budgeted to spend 8 percent of the family income on groceries, and you find after tracking for two months it’s more like 13 percent, then you need to take a closer look. It would be useful to start asking more questions about how money is being spent, questions that might arise could be: Are we paying enough attention to how we spend? For example, there might be some ways that you can save money on groceries, such as using coupons and shopping the sales.

9. Try Adding On Instead Of Only Cutting Back. Keeping a budget usually means reducing discretionary spending or cutting some costs out completely. However, if reducing the amount of money going out just isn’t enough, it might be time to look for ways to increase your income. Depending on your situation, the need to increase income could be a short term or more permanent need. If just temporary, maybe it is as simple as selling something of value that is just sitting in your closet taking up space. If the need is expected to be longer term, such as Catholic school tuition then maybe its time to ask for that raise at work, take a part time job, or maybe start a side business in order to earn the extra funds needed. One important note, it is very important to keep a healthy work-life balance. If sending your children to a more expensive school means getting a second job and your relationship with your children may suffer because of increased tension and stress, coupled by less quality time spent spent with them, then consider all of the factors and make a family decision together.

10. Keep Your Faith In Your Budget. At the end of the day, it is important that we work to keep our priorities in check. Our lives belong to God and it is our duty to be good and faithful stewards of the gifts that He has given us. Our spiritual life, family relationships, health all come before our finances, it is important that we keep them prioritized in that order. That does not mean that our family finances are not important because they are, but they are not the most important. Keeping our priorities right and living below our means are keys to successful budgeting and creating a Christ Centered Savings Plan. Remember to give generously to the Church, “Give and gifts will be given to you; a good measure, packed together, shaken down, and overflowing, will be poured into your lap. For the measure with which you measure will in return be measured out to you” Luke 6:38.

About InvestingCatholic

InvestingCatholic is an SEC Registered Investment Adviser. Our clients can open and manage their investment accounts online 24/7 through our custodian, Folio Investments Inc. We are a fee-only fiduciary adviser with a focus on providing our clients with globally diversified, investment model portfolios screened for Catholic values. Our firm is run by Catholic financial advisers who are dedicated to their faith and are here to serve Catholics and anyone else who shares our moral beliefs, especially the belief in the protection of life from conception until natural death. All investments we provide to clients are screened for Catholic Values per the U.S. Bishops Socially Responsible Investment Guidelines.

We provide discretionary investment management to our clients through risk-based model portfolio “Folio” allocations which we provide through our custodian.  Our focus is to serve anyone who wishes to invest in Catholic values investments, without minimum investment amount requirements. InvestingCatholic provides our clients with investment choices including our low-cost Indexed ETF Portfolios as well as our Ave Maria Mutual Fund Portfolios. All investments are carefully screened for Catholic Values and built using asset allocation in order to maximize potential return for each level of risk.

InvestingCatholic serves individuals, families, religious organizations and small businesses. Please visit us at www.investingcatholic.com and learn more about InvestingCatholic and how we can serve your investment needs!