You’ve probably heard the first thing to do when getting your finances in order is to budget your money… as a bookkeeper, I’m sure you’re thinking I’d tell you the same thing. 

Wrong. Money is more than just numbers on a spreadsheet. 

Budgeting is restrictive and therefore unsustainable. It not only restricts what we spend but also what we make. 

As we navigate the emotions and stories connected to money, you’ll notice a rigid budget may not be the magic solution.

BUT this doesn’t mean we shouldn’t be tracking our money in alternative, and arguably, better ways than by just using a budget. 

The Limitations of Traditional Budgets

Budgets often come with their own set of challenges. From the stress of sticking to rigid plans to the frustration of unexpected expenses, the traditional budgeting model falls short of achieving the long-term financial freedom we all aspire to achieve. 

True financial freedom involves a holistic understanding of your financial landscape and money beliefs. It also entails developing a sustainable approach to managing your money and building self-trust to manage large sums of money. 

Traditional budgets don’t allow us to do any of this. In fact, they often put us in a state of scarcity – which we all know is a place we don’t want to be when we want to attract more money. 

What to Do Instead of a Traditional Budget

So how do we track our money without a rigid budget structure? A spend plan.

Also known as reverse budgeting, a spend plan focuses on the baseline and what you need to earn in order to maintain all of your non-negotiables – housing, transportation, food, and other essentials that make you FEEL good (yoga classes, coaching, supplements… those all count). The best part of a spending plan is that there is no earning maximum like a budget, allowing you to make conscious decisions about where our money is going and if we are using it to support the lifestyle we desire to live both now and in the future.

There are two parts to creating your spend plan: 1) establishing clarity in where you are at, and 2) letting that clarity determine your spending plan. 

Step One: Check-In on Finances with a Money Date

Before you can determine what and where to spend your money, you have to gain an understanding of where you are at – clarity is key. My favorite way to do this is through a money date (more info on scheduling one with yourself here). 

Some easy ways to gain clarity involve making LISTS! 

1. All your debts (your liabilities): This includes due dates, minimum payments, and interest rate. 
2. Everything you own (your assets),  including the current value and what you originally paid. This also includes what you have in various savings accounts. 
3. All your living expenses: Simply what it costs to survive. Rent, car payment, insurance, cell phone, groceries, childcare costs, utilities, and anything else that is recurring. 
4. Other expenses: Annual expenses, yearly doctor appointments, car registration, dues &  subscriptions, wellness costs, etc.. things that you pay for but not on a regular monthly basis. 
5. Sources of income: This includes your W2 if you are employed and your business revenue for the year if you are an entrepreneur (or both if you are an employee with a side hustle). Don’t forget about investment income. 
6. Tax liability. Your W2 will show how much you’ve paid this year if you are an employee. Divide that by your salary to figure out your percentage. For the business owner, you’ll want to look at what you’ve paid in estimated taxes or a previous year’s tax return, assuming revenue is similar. 

Doing this gives you a bird’s eye view of your financial situation and sheds light on the areas that are receiving attention and intention – and other areas that are not. This allows you to move forward and make informed decisions when it comes to your spend plan. 

Step Two: Create Your Spend Plan

Now that you have clarity on where you stand with your finances, it’s time to set intentions on where you’d like to see your money flow. Money is not meant to be held; it is meant to flow intentionally through conscious spending and investments. 

1. Get out your favorite notebook and pen – no, this does not need to be done in a spreadsheet unless you wish – light your favorite candle, and get into a place of ease and trust (not scarcity). 
2. Identify your Priorities: what are the must-haves, the nice-to-haves, and the goals you’re eager to turn into reality? How much would you like to allocate towards these priorities? 
3. Pull up past bank statements, your non-fictional money story. This includes credit card statements, and business bank statements if you’re a business owner.
4. Analyze how much you spend monthly in each of your categories. The goal here is to identify, on average, what you are spending to ensure you are covering your baseline expenses and that you feel in alignment with where your money is going. It will also give you insight into if some expenses need to be adjusted.
5. Identify your baseline number, the minimum amount of money you’ll want to make each month in order to cover all your expenses. This number should bring you peace knowing your lifestyle is supported. 
6. Compare your baseline number with your income from step one and adjust if needed. This may look like cutting a few expenses, or this may look like allocating excessive income towards other expenses, savings, investments, or other financial goals. 

If you are in a situation where you are spending more than you are making, you’ll want to look at where you can reduce unaligned expenses.. But, I also challenge you to think of different ways you can make more money. What the Dave Ramsey’s of the world aren’t sharing with you is that you can only cut so many expenses, but there is no limit on how much you can make. 

Step Three: Track Your Income & Spending

While your spend plan determines where you’d like to see your money flow, tracking shows where your money is actually going and allows you to make adjustments in real time. 

To track your spending and income you can use an app, spreadsheet, or nowadays some checking accounts have built-in tracking software – use whatever is easiest for you to stay consistent. 

Note: Tracking your spending is separate from bookkeeping. We’ll break that down in a future blog post. 

As for the frequency of tracking, bi-weekly is ideal as it allows you to make adjustments earlier on in the month if needed. If your spending and income are rather consistent, tracking monthly or quarterly can also work. The goal is to commit to a frequency you can be consistent with and moves you closer to achieving your financial goals. 

Step Four: Repeat & Adjust As Needed

At the end of each quarter or season, you’ll want to go back through all of the above steps to re-evaluate and re-adjust as your financial situation changes. 

Money flows and financial priorities change, so it’s important to check in regularly. 

Money needs purpose in order to flow. 

Establishing a spend plan gives your money purpose, while tracking your spending brings awareness to where there may be loopholes or unaligned habits with your money. 

The result? Clarity and transparency – and ultimately abundance and ease.