As we enter into 2025, now is the perfect opportunity to set your financial intentions to pave the way for a prosperous year. Budgeting is a great way to do this. By creating actionable, practical strategies to help you take control of your finances and align your spending with your goals, you will be able to build habits that lead to long-term success. Let’s explore the myths that stop people from working on a budget, how to set up a sustainable budgeting system, and strategies to stay on track in the new year.

Budgeting myths to avoid

Financial misconceptions can be harmful because they discourage people from adopting good monetary habits, create unrealistic expectations, lead to poor financial decisions, and create anxiety. Below are examples of some common budgeting myths. Are any of these myths holding you back?

• Budgeting means giving up the fun. Don’t waste your money on things you don’t care about. Instead, concentrate on saving for the things you do.
• Budgeting is only for middle- and lower-income families. High earners often get comfortable and spend more as they make more, leading to less saving. Budgeting can help you balance saving more while also increasing your lifestyle.
• It’s all about the numbers. Budgeting focuses on helping you spend money on the things you care about most.
• We need to set a budget and review every single category. Setting limits across multiple budget categories can actually get in the way of sticking to your budget. It takes way too much time to keep up with.
• We should feel guilty if we can’t stick to it. Just like anything in life, there will be hiccups. Learn from the experience, iterate, and continue to move forward.
• Checking in once a month is enough. If you want to end the month on target, you should spend a few minutes each week to check your numbers and see if you’re on track.
• Only one person needs to be involved. A budget won’t work unless both partners have an understanding of the numbers and the goals. Do it together for success.

Key concepts of effective budgeting

Many of us excel at setting goals but may not be so good at achieving them. By breaking down your objectives into bite-sized morsels, your chance of success greatly improves. Here are some tips:

• Focus on the process, not the outcome. Even if you are meeting your budget, get in the habit of looking at your spending.
• You don’t have to make drastic changes. Instead, concentrate on creating small, sustainable habits.
• Goal setting doesn’t have to be boring! Give yourself something to get excited about. Instead of “I want to retire,” change your mindset to “I want to spend one month per year in a different European country.”
• Don’t disregard your starting point. It’s easy to forget the progress you have made. Don’t just look forward to your goal, look backwards to see how far you’ve come.

Building a budget starts with (seven) baby steps

This is when the fun begins. While the process of creating a plan may seem overwhelming, breaking it down into increments makes the process more manageable.

Step 1: Start with your values and priorities. Before diving into the numbers, you want to figure out what you want your money to do for you. What do you enjoy doing as individuals, as a couple, or as a family? Knowing this will help you align your spending with what you want to get out of life.

Step 2: Know your starting point. Just like getting directions in your map app, the route can’t be charted unless you know where you are starting. With budgeting, it’s important to track your spending first (your starting point) before you set a budget (your destination).

Step 3: Calculate total spending. Don’t get caught up in all of the categories. It doesn’t matter if you spend money on Amazon, going out to eat, or taking a vacation. The simplest way to think about budgeting is the total amount you spend.

Step 4: List out your non-monthly irregular expenses. People often say, “We do fine, but something always seems to come up.” You probably won’t spend the same amount of money each month due to birthdays, holidays, travel, etc. Know which months are going to be your most expensive ones (such as December for example).

Step 5: Build your budget. Now that you know what you want your money to do for you, what your starting point is, and which months will be more or less expensive than others, create your budget.

Step 6: Align and reduce spending. Make sure that you keep spending on the things you enjoy and cut back on the things you don’t really care about.

Step 7: Set monthly and weekly spending ranges. In order to stay on track, it’s important to know if you’re under or overbudget. The best way to do that is to take your total monthly spending and break it down on a weekly basis. Add in the timing of your major fixed expenses like housing and auto payments to create your target for each week.

Hold the course

Now that you have a plan, how do you stay on track? It only takes a handful of minutes to make sure you hold the line to reach your budgeting goals. I like to call this my Five-Minute Weekly Spending Review.

If you do only one thing, set up your budgeting app and check it once a week. First, scan your transactions over the last few days and review your total spending month to date. I encourage you to only look at two or three budget categories at a time. This will allow you to remain accountable without becoming overwhelmed.

Don’t make it harder than it has to be

When budgeting, it’s best to keep the process simple. Habit formation comes from small, sustainable changes. To effectively keep your momentum, focus on a plan that works for you and doesn’t take up a lot of time. And lastly, tracking total spending is much more important to your success than creating multiple budget categories. Here are some final do’s and don’ts when it comes to budgeting:

• Do set goals and be specific.
• Don’t start with a budget – track spending first.
• Don’t do it alone – work together.
• Don’t expect perfection – treat it like an experiment.
• Don’t make a complex budget – keep it simple.

If you’ve tried budgeting in the past, don’t see eye-to-eye with your significant other on finances, or aren’t sure where you can reduce your expenses without making big sacrifices, please schedule an appointment with Family Budget Services. Our team would love to help you reduce your expenses while allowing you to still enjoy the lifestyle and experiences that you love.