It is important to have a plan in place for your financial goals so that you know how to allocate your money to meet your needs. Sometimes it’s overwhelming to understand how to create a budget. What are the major categories of spending anyway?
Furthermore, for us horse crazy folk, it is tempting to hide the budget and splurge on entry fees and those nice brush boots on sale in the latest catalog. If that sounds like you, the following is an easy way to visualize how to budget in terms you can understand.
Think of your overall spending as very similar to feeding the horses. One horse is named “Expenses” (isn’t that the truth?). And then you have Paying Off Debt, Saving For Emergencies, Retirement Fund, Cash, and Investments.
When it’s time to feed, you line up the buckets and start scooping their allotted amount of feed into each bucket. You don’t have to stop every night and calculate their rations. You already did that and put it on the board in the tack room. All you have to do is put the right amount into each bucket.
Right now, your horse profiles may look like this:
- Expenses is a skinny, hard to keep, Thoroughbred that you have to pour grain into and there isn’t much left over in the bag for anyone else.
- Paying Off Debt, Saving For Emergencies, Retirement Fund, and Cash are all easy keepers that get a handful to keep them happy and take their supplements.
- Investments is the fat founder pony out on the dry lot that lives on air.
As your income grows, your horse profiles are going to change. Eventually you want:
- Expenses to be an easy keeper who needs just a handful.
- Paying Off Debt moves out of the barn – one less mouth to feed.
- Saving For Emergencies just needs a maintenance plan.
- Retirement Fund and Investments are hard at work for you and need regular feeds because they are now your work horses. They are busy lesson horses and are making you money.
- Cash becomes your show pony and so his needs vary depending on how much fun you are having together. If you go on a big outing, he will need more.
Make sense? Your financial needs will change over time. Therefore it is important to review your budget and goals at least once a year.
What are your current financial goals? Go ahead and create a virtual whiteboard with your financial rations. Where does most of your money currently go? How would you like to make changes to your spending? You can start with the major categories above and then focus on the details as you become more aware of your spending habits.