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12 Steps to Keeping Your Budget

No finger-pointing allowed! Just reevaluate periodically and make adjustments

spinner image Close-up of a couple working on their monthly family budget plan
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For many families, the spring to-do list is laser-focused on more time spent in the garden and less time spent in front of the refrigerator.  But there’s another critical place to spend time that far too many families and retirees avoid: crunching a family budget.

Most don’t. Nearly 6 in 10 Americans say they don’t track spending at all — and 2 in 5 say they have never had a budget, according to a 2019 report from the Certified Financial Planner Board of Standards. But amid the uncertainty of a COVID-19 world (or even a post-COVID-19 world), it may be more important than ever, in 2022, to establish a budget, say nine certified financial planners contacted by AARP.

How to do it? By taking the time to sit down with your spouse and crunch the numbers. Even then, it shouldn’t be drudgery. Think of it more as an opportunity to plan for the stuff you want, both before retirement and during it. Here’s what experts say are the 12 most important steps in pulling together a family budget this year.   

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1. Look back — but not too hard

Although it’s critical to stop and look at how you — and your family — spent your money last year, it’s equally critical not to beat yourself up by overstudying it. “You don’t want to demotivate yourself from making any meaningful changes in 2022,” says Kristin Pugh, a certified financial planner (CFP) in Atlanta. Too often, “Family budgeting is an exercise in beating yourself up — or your partner — for the bad things that happened in the past,” says Nick Nauta, a CFP in Lansing, Michigan. But whatever happened last year is done — so refocus this year on moving forward.

2. Know what you want 

Sometimes, folks crunch budgets but fail to ask themselves the most important question of all: What do I want?  It’s best to focus your spending on areas that bring joy or value to your life and eliminate the rest when possible, says Justin Rucci, a CFP in Tustin, California. Before even starting to make that annual budget, it’s a smart idea to have a conversation with yourself — and your spouse or partner — that not only looks at what’s coming in and what’s going out, but how and where you really want to spend it, Nauta says.

3. Know yourself

Nobody knows you better than yourself. So when you’re figuring out your budget for the next year, it’s important to factor in your past behaviors. In other words, says Pugh, if you know that 70 percent of the food that you consumed last year was in restaurants, don’t suddenly slash it to zero in 2022. It’s better, she suggests, to try to cut back by 10 percent or 20 percent, so that your expectations can better match with your likely actions. “Build in small changes,” she says. Those are much easier and make it much more likely that you will stick with your budget.

4. Acknowledge values

In the end, couples don’t fight about money, but about their individual needs to have their core values respected and their needs met — including their emotional needs, says Amy Jo Lauber, a CFP in West Seneca, New York. For CFP Nauta’s family, for example, he is very big on family experiences and prefers to budget lots of money for family vacations. But his wife is very big on home improvements, so they also establish a substantial home improvement fund each year, he says. 

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5. Keep it simple

A successful budget must be easy for you and everyone in your family to manage, Nauta says. The key is to set up a plan that’s very easy to follow and doesn’t lose momentum. That’s why he discourages complex spreadsheets for family budgets. Instead, Nauta suggests creating key categories for savings accounts — like vacations and house improvement funds — where automatic transfers are made every month. His credit union allows him to do this with no charges. 

6. Review service contracts

No family budget is complete without a thorough, annual review of all service contracts, says Gregory Kurinec, a CFP in Downers Grove, Illinois. These include subscriptions, insurance policies, landscaping, warranties, Amazon Prime, cable TV and health club contracts. It’s also a good time, he says, to review all lending contracts, including mortgage, car, lines of credit and credit cards. 

7. Pay yourself first

The single most important “bill” you pay in your monthly budget is the one you pay to yourself, says Jordan Benold, a CFP in Frisco, Texas. That means you should set your investments and savings on autopilot so that they automatically get paid at the beginning of the month. And if, perchance, you receive a bonus or raise in 2022? Well, the first place to consider stashing that — or at least part of that — is in your investments or savings.

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8. Change the budget before a major purchase

Sometimes there are budget hiccups that surprise you — and sometimes there are budget hiccups that delight you. In either case, if you kinda, sorta know they’re coming, work them into your 2022 budget, Nauta says. For example, if you’re thinking about buying a new car, factor the monthly payments into your budget before making the purchase. Maybe the $700 monthly payments put a serious nick into your home improvement budget — or maybe you ultimately decide to purchase a cheaper car.

9. Consider the unknown

It’s hard — and not very fun — to plan for the unknown. But if you fail to factor this into your annual budget, it’s bound to happen. You know, the neighbor’s tree that falls on your house. Or the septic tank that backs up. Or both. “Give yourself some wiggle room,” advises Andrew Houte, a CFP in Brookfield, Wisconsin. “There are going to be ebbs and flows that aren’t predictable.”

How to Build a Budget for Your Goals

10. Communicate monthly

If you’re working on your budget with a spouse or partner, you want to make sure to set aside at least an hour — or so — each month to discuss finances, Nauta says. The goal is to have a certain amount of spending that is agreed upon ahead of time, so that you don’t argue over the little stuff. Both people need to be engaged and part of the conversation. 

11. Check what you’re doing

There is nothing magical about an annual budget. The magic is in sticking with it. The best way to stick with a budget is to check spending progress each week against the target budget amount, says Sallie Mullins Thompson, a CFP in Washington D.C. She suggests doing this for at least the first six months of the new budget year. If you’re staying on budget, congratulations! If you’re off budget, readjust.

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12. Consider what could go wrong

For many folks, plan A doesn’t always work out. And for some folks, plan B doesn’t either. The quality of a budget and saving plan is often about how able we are to pivot to plan B — or even plan C, says Sean M. Pearson, a CFP in Conshohocken, Pennsylvania. “A good budget is realistic. A great budget is flexible enough to cover the unexpected.”

Bruce Horovitz is a contributing writer who covers personal finance and caregiving. He previously wrote for The Los Angeles Times and USA TODAY. Horovitz regularly writes for The New York Times, the Wall Street Journal, The Washington Post, Investor's Business Daily, AARP Magazine, AARP Bulletin, Kaiser Health News, and PBS' Next Avenue.

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