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The Perfect Budget Doesn't Exist

I said it.


The perfect budget doesn’t exist. And quite frankly, I am tired of seeing Tik Tokers post about their perfectly balanced budget, as if that is the key to financial success.


Just because you know exactly where every dollar went, doesn’t mean it was the right place for all your dollars to go…


Budgeting is very important, and below I’ll talk about (my opinion of) the key things to pay attention to with your budget. But, don’t think that what is stopping your from financial freedom is the lack of a perfectly balanced budget.


When you make it complicated, it becomes something to hide behind. “If only I could get my budget in order…” is not going to solve all your problems. Here are a few important things to think about when it comes to simplifying your budget.


1. Pay less attention to where you spend, and more attention to where you save


There are many words for this - reverse budgeting, pay yourself first, etc.


This is not a novel idea, but something I believe in very strongly. Because this is a blog and not personalized advice, I’ll give you a rule of thumb: reach to save 20% of your gross income - this can be in the form of a retirement account, an investment account, paying down debt, etc.


Not all savings accounts are equal, each with different access, tax rules, investment opportunities, etc. which is why this just a basic rule of thumb. This should be much more personalized to your options, which can impact how much you can and “should” save.


Once you come up with a goal and action steps to hit that 20% throughout the year (or whatever number you choose), your focus should be on hitting those savings goals.


Once you know you’re hitting those goals, you can go ahead and spend the rest of your money, guilt-free, on whatever you like. Who cares? You are responsibly saving for your future, and therefore the extra money is totally yours to spend on whatever makes you happy.


I’m being a little facetious here, but it leads into my second point:


2. Know what you spend your money on


I am anti ‘balance the perfect budget’, but I am certainly not anti ‘know where you spend your money’. There is a great Joe Biden quote that comes to mind here:


“Don’t tell me what you value, show me your budget, and I’ll tell you what you value”.


So, step one is to make sure you save first. Step two is to spend your money guilt-free. But just because it is guilt-free, that doesn’t mean it should be reckless or spent on whatever. Guilt-free also certainly does not mean an endless supply…


So, pay attention to what you are spending on. Make sure it still lives in your values! If you love short weekend trips and end up spending a lot of your budget on a daily lunch… that doesn’t make much sense. Make lunch at home and free up your spending for weekend trips.


This is easier said than done, but I encourage to just start reviewing your spending each month. Again, that doesn’t mean a perfectly balanced budget… it just means running through your credit card or bank statements at the end of the month to understand where you spent.


This should be judgement free - be kind to yourself! Look through and see where your money is going - if it surprises you, think about the last month and what you could have changed to make the next month more conducive to how you want to spend your money.


Maybe you spent “wrong” last month relative to your values, but there is no shame in that! Now you know and can improve / change your spending next month. It is always evolving and the first step is just understand, so you know what you can do to change it.


3. Understand discretionary vs. nondiscretionary spending


Finally of importance is starting to understand the difference between your discretionary and nondiscretionary spending. In a very simplified explanation:


Nondiscretionary = needs

Discretionary = wants


The importance of knowing which expenses you can easily change or forgo is important when it comes to your financial flexibility.


Typically, the lower your nondiscretionary expenses are, the more flexible you can be. Usually, these are locked in expenses that do not change very often. Some of them I can think of are:

  • Rent

  • Food

  • Housing costs

  • Medical bills

  • Childcare

  • Insurance

Just because some of these are fixed expenses, it doesn’t mean you don’t have control over them. A lot of times, these are the expenses that have the biggest impact on your ability to save.


Having a really high rent may leave less discretionary spending. This isn’t a bad thing, just be aware that you are valuing a nice living situation over spending money elsewhere.


Same with medical expenses. These may be out of your control, but choosing a health insurance plan most conducive to your needs can move the needle in having those expenses picked up by the insurance company as opposed to your own pocket.


Next is discretionary expenses. These can be:

  • Eating out

  • Bars

  • Shopping

  • Travel

These are closer to wants and can be pared back month to month if needed. These are the expenses with which you have much more flexibility when it comes to your budget. Pay attention to these! These wants are what point you towards your values and where you are choosing to spend your extra money.


If you’re in a bind or not hitting your savings goals, these are the expenses you can more easily turn to in order to clear some room in your budget to save. These are the expenses you should be willing and able to give up month to month if you are serious about your saving goals.


Final Thoughts


I’ve been having increasing conversations with friends and clients about spending and budgeting. This is very much a personal conversation, as much as Tik Tokers what you to think otherwise.


Your budget and spending is very personal to you and your spending categories should not be compared to others, since we all value different things. But, the best way to follow your budget and be intentional with your spending is to know where your money is going, and if that lines up with where you want it to go.


That, on top of making sure you are saving first so you can feel good spending your extra, hard earned money!


Your finances and budget is a journey that is ongoing and always adapting. The best way to budget is to be aware of what you are spending on. Whether you are spending exactly how you want, or not at all, you can always make a change.


There is no shame in where you are starting. Take action steps to make progress towards where you want to be - whether it takes you a month or years, that progress will continually make you feel better about your money and get you to a place of confidence.


What are your 2022 savings goals?