Ready for financial freedom? Start with a budget!

Budgeting. Aside from taxes, it may be the very last thing you think of as a fun thing to do on a Saturday. And yet, as anyone who has done it effectively will tell you, creating a workable budget is the first step to finding true financial freedom. By knowing how, when, and why you spend, you can more easily align what’s going out with what’s coming in. Plus, you can create a systematic plan to reduce debt, grow your savings, and even have a bit left over for that occasional splurge on something that really makes your heart sing.

If you find it hard to believe that the rewards of budgeting are worth the “pain” of the process, my friend Andy just might change your perspective.

In his early 30s, Andy is at a point in his life where he feels like he shouldn’t have to worry about money. He and his wife, Carmen, have a nice home with a reasonable mortgage that’s just the right size for their family of five. They live well but not extravagantly. After staying home with the kids for a few years, Carmen recently went back to school to add a second future income and, at least in theory, take the pressure off their finances. The goal was to pay off the bit of debt they’d accumulated, including a new car Carmen needed to haul their family of five, and start some serious saving.

When Andy and I sat down over a beer last spring, he was not quite the happy, jovial guy I am used to hanging out with. His family’s finances were going in the wrong direction. Instead of decreasing their debt, the numbers were growing. And even though every dime spent was stressing him out, coming to an agreement with Carmen on the direction of the dollars was difficult. For the first time in his marriage, he was worried that money was becoming a real issue—for their bank account and for their relationship.

Fast-forward to last September. As soon as I saw Andy’s face, I knew he was in a completely different—and much better—place. Since we’d talked, he had taken real action to tackle the family budget. He and his wife had sat down together and taken a good close look at what they were spending. He told me they had started by tracking every dime they spent and then working together to figure out where they could comfortably cut back. They put a firm budget in place, even temporarily switching to flip phones, and the results were fantastic. In just under 7 months, they had erased a substantial amount of their debt except for their mortgage. He said that with the money stress gone, he and Carmen seemed closer than ever. And because they really knew what they could afford each month, they both felt a sense of freedom they’d never had before. Best of all, they were saving for a special trip to celebrate—on top of increasing their monthly contributions to their savings.

Luckily, Andy and Carmen recognized the problem early on and were able to get on top of their spending before it created a bigger crisis. But it’s easy to find success stories of people who have erased huge amounts of debt by following a simple process. No matter where your finances stand today, taking the time to create a workable budget is your next best step toward true financial freedom. Here are four simple steps to help you get there:

• Track your spending. Spending is one of the most emotional aspects of money, which is why it’s no surprise that most people resist budgeting. But by tracking what you spend every day for just one month, you can remove the emotion and get down to the facts. Track every dime to see what you really spend on eating out, entertainment, clothes, and more. And don’t forget to include what you’re paying credit card companies every month; this is an expense you can start working to eliminate right away.
• Study your habits. With a month of spending at your fingertips, ask yourself, what did I spend that wasn’t aligned with my values or needs? If you’re overspending on weekends, what can you change and still be happy? (My buddies and I meet up in each other’s homes to share craft beers instead of overspending at a bar. The cost is a whole lot less… and the beer is better too!) Are there unused memberships you can eliminate? Are you using your cable subscription? Did you really need that new outfit? Look at what you can comfortably cut each month to free up your income for the things that really matter.
• Create a realistic budget. Now that you have some insight into your spending and what you can change, create a realistic budget. To keep it simple, make a list of basic categories. Fixed expenses include items like your mortgage, car payment, cell phone/internet/cable bill, and gym membership that don’t change from month to month. Your variable expenses are the ones you have more control over, and they’re likely what’s causing your wallet some pain. Variable categories might include weekend entertainment (dining out, movies, etc.), fuel, grocery and household goods, and clothing. Be sure to include a budget line for expenses such as medical/dental, home and car maintenance, and insurance, all of which can put a big dent in your budget when they hit. Set a dollar amount for each category, and do your best to stay within your budget every month.
• Systematize and simplify. The good news is that once you have budget in place, it’s easy to systemize and simplify the process to make it easy to stick to your plan. If you’re a fan of spreadsheets, a simple excel file might do the trick. If you prefer an app, there’s one out there to suit any budgeting style. The most popular in our office is a unique budgeting app called YNAB (You Need A Budget), which links to your bank accounts and costs just $50/year or $5/month with a 34-day free trial. Dave Ramsey’s Everydollar is a free app that features an easy-to-use interface and includes a great progress meter—though the premium version that links to your bank accounts is a bit more at $10/month. Personally, I prefer Spendee because of its ease of use and the flexibility to create my own budget categories. The premium version costs just $15 (a one-time fee), which gives you access to your bank accounts and a progress meter, allows you to create multiple wallets, and synchronizes your accounts in real time. For more options and to compare the apps, check out the 2017 app roundup from Best Reviews.

Budgeting can be as simple or complex as you choose to make it, but the key is to find a method that works for you and stick to it. Like Andy and Carmen, making the effort now will help you take control of out-of-control spending and help you eliminate debt once and for all. Better yet, it will give you the power to use your hard-earned cash to support the lifestyle you want to live while making smart, swift progress toward your long-term goals. That’s true financial freedom!