Creating a budget

TAMRA CLARK CHAMPION: Hello, and welcome to our recording of "Creating a Budget," presented by US Bank Goals Coaching. I'd like to introduce you to myself. My name is Tamra Clark Champion, and I've been a goals coach with US bank for the past three years. But I've been in the financial services industry for more than 20 years, and I hold three coaching certifications, one from IPEC, the Institute for Professional Excellence in Coaching, one from the ICF, or the International Coaching Federation, and I also earned my health coach certification from the Institute for Integrative Nutrition as a step in my own personal journey to wellness. 
Now, as I mentioned in my intro, I'm part of the US Bank Goals Coaching Program, and as a goals coach, I provide education like this one through financial wellness webinars, and I also help clients one-on-one to build self-awareness and promote habit changes. And we do this through our program by offering professional guidance and support to help you achieve your personal, financial, and professional goals, all of it at no cost. And you don't need to be a customer of US Bank. 
And goals coaching by US Bank is designed to help you approach your goals with clarity and confidence, and our program uses coaching techniques and methodologies and behavioral science to help you build a strong foundation to support you in achieving your goals. And towards the end of the video, I'm going to tell you how to connect with a coach. And thank you for being here to watch "Creating a Budget." 
Now, most of us have experienced, at one point or another, living paycheck to paycheck, and this might even be the reason why you're watching this video today. Maybe you're thinking about how you could squeeze a little more out of your budget every month to make room for things that bring you joy or to pay off debt or to help you prepare for the unexpected. But to make any of those wishes a reality, you'll have to set a goal and make a plan to get there. And this is where some people get stuck. 
Maybe you think, I'm not good at saving, or money's too tight to do anything different. But these are all really common thoughts and feelings that might keep you in that perpetual state of dreaming. And I'm hoping that what I share with you today will help you work through any feelings of stress or confusion and inspire some excitement to start and get you a little bit more comfortable. So first, we're going to start with some obstacles to budgeting. And I want you to know if you get to the end of the video and you still feel like you need some help, again, I'm going to tell you how to get in touch with a US Bank goals coach to get started on your budget. 
So emotions around money can be wide and varied, and so can feelings about budgeting. So before we get into what and how around budgeting, let's talk about the elephant in the room. Why aren't you budgeting already? 
With many of my clients, budgeting is one of the foundations that we start with in discussions with regards to their financial goals, because maybe they've heard or they know the benefits, but something is holding them back. And sometimes it's a lack of knowledge. Maybe they haven't done it before, or there's some conflicting information out there about how to approach it. What's the best method or tool or app for budgeting? How much of your income should be spent versus saved? Or how long is it going to take, and how much time will you have to devote to it? 
But these types of questions can lead to analysis paralysis, which is a behavioral science concept that means you stay stuck in place when it comes to making a decision. Because rather than having to choose and risk making the wrong choice, you might want to just stay in that fear of the unknown. And some people think, if I don't see where my money is going, I could ignore that it's not going where it should. But knowledge is power. 
And what if your money is going to the right places already but you could see it just a little more clearly how to reach those financial goals. If you budget? And then, of course, some people feel a sense of shame or blame or guilt, maybe, about how they spend their money or where they spend their money. But that can be a little bit of a self-defeating prophecy, because you don't know what you don't know. 
And in the center of all these potential obstacles is really you and your limiting beliefs, maybe beliefs like I haven't been successful with budgeting in the past, or budgeting won't make a difference anyway, or maybe even I don't have enough money to budget. Some people also think it's too complicated or too difficult or take too much time. But these feelings, while they are completely normal and valid, they're also disempowering. 
So let's talk about reframing your mindset around budgeting starting right now. Because budgeting is not a hard and rigid framework to control your spending. It really should be considered a flexible set of guidelines for directing your money and your energy. 
And a budget is also not intended to restrict you from spending any money on the things that bring you joy, but it will help to ensure that you're focused on the things that matter with regards to your money, like paying your bills on time every month. And a budget will not replace any unhealthy spending habits or behaviors that you may have in place, but it is a tried and true method for monitoring your spending, and your budget isn't going to take the action steps for you to get from where you are, in debt, for example, but it will help to lay that foundation for you to reach those future financial goals. 
And lastly, a budget is not a one and done exercise. It is a lifestyle choice that will help you achieve financial wellness. And budgeting helps us to see where we may be a little or a lot impulsive in our choices when it comes to purchases, so we can begin to feel more disciplined over time. And that discipline can help us to stay out of debt and ensure that you qualify for the lending to make your dreams come true, and that you can incorporate your future savings goals. 
Now, let's look at one popular method for building your budget. The 50 3020 rule is just one method for getting started, and it was popularized in a book by Elizabeth Warren and her daughter back in 2005. And this was designed as a rough rule of thumb for working class families to plan their spending and simultaneously prepare for future and unforeseen circumstances. 
Now, the percentages may need to be adjusted based on your personal situation, but this is a great and simple place to start when it comes to budgeting. And here's how it works. 
50% of your income will go towards necessities. That's your housing, your food, your car payment, utilities, health care, insurance. Those are the things that you can't live without. And then 30% of your income goes towards extras, hobbies, entertainment, vacation. It's important that you enjoy your life and that you do things that you love or that bring you joy with a portion of your income. 
And then 20% of your income goes towards savings and financial goals, like paying off student loans. Now, this budgeting method is a good way to get into the habit of making savings and debt repayment a consistent part of your budget, but you want to keep the following tips in mind. Again, these percentages may not be exactly right for you, so base your budget on your real life and your income, and how much your necessities cost, and use these bucket amounts as a starting point to help you identify where you might be overspending. 
And consider using an app, or maybe a spreadsheet, or a journal or whatever feels right for you. In some cases, you might even be able to use your mobile banking app, or your online banking app, depending on your financial institution, to deal with a lot of the hard work for you. 
One thing that most of us can agree on is that your budget should be flexible in order to ensure that it's followed. Whether you apply the 50/30/20 rule or another method, one thing is certain. When you have an idea of what your cash flow is and you can adjust your spending based on your long-term goals, you can set yourself up for financial success. 
Now, before we get into the mechanics of building the budget, it's good to be aware of common mistakes that people make. 
Budgeting mistakes are bound to happen. But when you know what they are, you can likely avoid them in the future and also navigate them more easily. So here are some things to be aware of that are common mistakes. You may make them yourself. But at least you'll be a little bit better prepared if you see these happen when you're working on your budget. 
And the first one is overgeneralizing. Again, your budget should match your life and your habits, so make sure it feels right for you. 
The second one is unrealistic targets. Look at past bank and credit card statements to see what's really realistic when it comes to your spending, and get a good sense for what you truly spend. 
And then the third one on the left here is tunnel vision. Consider all costs that come with a purchase. For example, if you're looking at purchasing a new vehicle, make sure that you also look into insurance and what that will cost. And check to see what your annual registration for your tags will cost as well. 
And then, the fourth one here is hindsight. Make sure, again, that you're thinking about your future financial goals so that you can be aligned to those goals in your spending. 
And budget creep. This is a common one. Make sure that you're looking at those small amounts because those add up quickly. So also be sure that things that you only pay for once a year or twice a year are being factored into your budget. Break those down into a monthly amount, as well, because you don't want to get surprised when those things are due once or twice a year. Instead, build them into your monthly budget. 
And then the last one. I've talked about this, but I can't say it enough, especially when it comes to my clients. Don't complicate it. Use the simple method that works for you. And what works for a friend or a family member may not be the right thing for you. So try different things out until you find what fits for you. 
And now it's time to build your budget. And while initially it might take some time to get comfortable at it, I hope at this point that you've begun to see some of the benefits of having a budget in the first place. 
So budgeting can really be distilled down to six simple steps. And the first one is to identify that monthly net income. Be sure that you're including all sources of income. Your net income is how much you make after deductions, such as taxes and insurance, so it's the amount you typically take home. Now, you can take a look at your deductions on your paycheck. And if you don't receive a paper check, it's usually stored somewhere within your work system if you'd like to see how much you make before taxes and after. 
And then the second step is to determine your known monthly expenses. This is where you're going to have to go into the credit card statements or the bank statements to see what you've spent, maybe over the last month or two or three. 
And use a budgeting worksheet to help you get started. And again, be sure that you're incorporating not only the monthly expenses that reoccur, but also the ones that might be annual or biannual. This could be property taxes, insurance, auto registration, things like that. You want to include those so that you make sure you're saving up for those along the way. 
The third step is to calculate your income and all of your listed expenses to help you understand if you are a successful saver, a heavy spender, or somewhere in between. You have to know where your starting point is. 
And then you're going to adjust those expenses. It's easier to cut expenses than it is to add income if things aren't lining up. So identify any expenses that you might be able to reduce or eliminate to help you save some money. 
And be sure you're looking at those subscriptions on a regular basis. I look at my monthly, and almost always I can find one or two that I can turn off or pause for a period of time to help me save just a little bit extra money. 
And then you want to make sure that you are saving for unexpected expenses and emergencies as part of your rainy day fund. It's recommended to have at least three months cost of living expenses in your emergency fund. So those would be the needs categories on the 50/30/20 slide that I just talked about. You want to make sure you'd have three months of that saved up. And remember, it's not your total current expenses, but rather those essential things that you could not live without, such as rent, utilities, and groceries, to ensure that you're on your way to financial wellness. And then the last step is to set those future financial goals. 
And also, a couple of tips. Use a budgeting tool that works for you. Not everybody loves technology. If you do, great, there's a lot of wonderful apps out there. My clients have many different ones that they have tried and recommend. However, if you're somebody who likes something simpler, you can use a simple Excel spreadsheet. You can use a notebook or a journal, whatever works for you. Make it applicable to your lifestyle and to what works and feels good. 
And then also make sure that you're prioritizing your spending based on needs versus wants. Those wants are important, but you need to prioritize the needs, especially when you're trying to pay off debt or put more into your savings each month. 
Now, as a coach, we do a lot of behavioral-- we talk about a lot of behavioral science with our clients. So I want to give you a few behavioral science tips that you may have seen in some of our other videos, as well, but apply here, as well. 
When it comes to budgeting, finding ways to commit your time in the future can be a great way to stay on track. Through a combination of technology and people, we often have a variety of different methods that we can use when it comes to finances and goals. 
So personally, I place time on my calendar each week to review and categorize our family's credit card expenses plus any bills that are due that coming week. And this really helps me to stay on top of our budget and not feel overwhelmed. If I did this only once a month or once every couple of months, it would take a lot longer. It would be more complicated. So I like to have reoccurring routine time on my calendar to do this. So consider a scheduling reminder for yourself. 
And then the second thing here in terms of commitment methods, is an accountability partner. This might be your spouse or significant other, a friend, maybe even your teenager. But I found that, with clients, when they talk about their goals allowed with another person, even something as simple as a budget, it's great because you get that support and that encouragement, and it can help you to stay motivated, but it also holds you accountable to make sure that you do that action, that you follow it on a regular basis. So consider having an accountability partner, as well. 
The second behavioral science tip is friction. Now, when you remove friction, you're removing friction so that a positive habit is easier to do, and when you add friction, that's to help you make something that you don't want to do anymore harder to do so it's easier to stop doing it. 
So let me give you a couple of examples here on friction. I take a lot of pride in paying my bills on time. And so to make this as easy as possible, I have every reoccurring bill built into my online bill pay account. And if I'm able to receive the bill through an online bill payer-- this is usually within a day of the lender issuing it-- it gives me a little bit more time to plan ahead, especially for those larger bills, like maybe when I spend a little bit more at Lowe's on a home project. 
So most of the time, even if I've gone over budget, having extra time to plan for the payment means I can pay it off in no more than two payments. And this is a way that I utilize technology to make it easier to receive my bills earlier and pay my bills on time, so I'm removing friction in that situation. 
Now, let me give you an example of adding friction. I'm not as good at saving money as I would like to be. It's true. So what I do is, because our budget can be stretched a little thin right now, like most people's, I actually will, if I get a nice chunk of money, maybe a tax refund, an inheritance, or a bonus, something like that, I will take that and put it into a 12 month CD or certificate of deposit. It allows me to earn a little extra interest each month, and it really makes that money more off limits to me because I know I'll have to pay a penalty if I remove any money from that early. 
So this has added a little bit of friction to help me break that habit of spending money in my savings account, because it's a locked in for a period of time. So think about ways that you can remove friction or add friction to make this budgeting process easier for you to adopt. 
And the third and final behavioral science tip that I want to talk about is habit stacking. And this one is great, especially when it comes to something reoccurring like budgeting, because what you do is you take a new habit that you want to do, and you pair it with something that you already do. And by doing this, it makes that new habit a little less intimidating to start, especially if you've been holding off or putting it off. 
So think about something that you could stack this new habit of budgeting with to make it easier to adapt to, because you could take just one small action each week to work your way up to it. So maybe, for example, the first week that you want to start the budgeting, maybe that first week, all you're going to do is try to make that list of expenses, right? So just start with one small action each week to help you accomplish your change and habit gradually and pair it with something that you're already doing. 
So if you already go to your favorite coffee shop every Friday morning to pick up a latte to treat yourself. Maybe that is the time at which you also sit down with a notebook and start to write down those list of expenses. And again, by spending 10 or 15 minutes a week on this regularly, it's not going to feel overwhelming, and it's going to be a fairly simple process for you. 
All right. So I want to tell you about our coaching program. Because if you need a little bit of help with budgeting or you tend to procrastinate, we've got six coaches on our team and we each have our own unique background. But all of us are committed to helping you make meaningful progress towards your goals. So I want to encourage you to go to our site. You can see it on the video here. It's w www.usbank.com/coaching, or you can scan this QR code on screen with your phone really quickly and it'll take you to our website. You can read our bios and consider scheduling with one of us. And you can start with a 15 minute intro call to meet a coach and ask questions, or schedule that one hour goals discovery session, and we will dive right in during that first conversation. 
And we are trained in behavioral science and goal achievement. We know what it takes to strengthen good habits and replace less than helpful ones, but we also have access to a variety of subject matter experts that you can make use of who can offer valuable insights around various financial components, services, or tools that might help you. And whether your goal is professional, financial, or personal, we can help. 
And again, you don't need to be a customer of US Bank. This is a complimentary service. Please, please, please consider using us if we can be of service to you. 
And with that, I want to thank you so much for watching "Creating a Budget," and I hope that you've taken away something valuable that will help you to budget and/or help you to get started. And again, remember, we are here if you need a little bit of help, Thank you for watching this video.