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I have a question for you. How long in advance do you set a budget? When you sit down to make a budget, are you making a once a month budget and it's the 28th of the month, or it's the night before you're gonna get paid again or maybe even the day after you get paid again?
On today's mini episode, we're gonna talk about not just budgeting by pay period, but budgeting by pay period farther in advance than 30 days. So being able to look into the future of your money more than 30 days ahead.
Early in my twenties when I was just setting out budgeting for the very first time. I used a budgeting app That only allowed me to budget once a month, and not only was I only able to budget from the first of the month to the last day of the month, regardless of when my paychecks came, I also could only look at the current month.
I couldn't plan the next month until that month actually started. I remember always feeling frustrated by the difference between the end of the month and the beginning of the month in how I felt about the budget. When day one of the month came, I was able to look at the current budget and feel a sense of security and a plan that I knew what I was doing for the current month.
But as the month went on and I started to naturally think about the next month, I couldn't yet look at the next month until it actually started. So I always felt behind because I wasn't able to plan until things were already in motion.
Then I switched to budgeting on a spreadsheet, but I was still budgeting once a month even though I was getting paid every other Friday. This at least gave me the opportunity to duplicate my monthly budget tab inside the spreadsheet and look into the future farther in advance than one month. This helped me to make plans for future expenses or see problems in my budget before they actually happened. I wasn't yet budgeting by pay period, this would come a little later, but at least giving myself the opportunity to look a little bit further down the road than 30 days started to add to my level of security.
When we budget in short periods of time, like one month, and don't look ahead to the next month until it's close to starting, we limit ourselves in two ways. Number one, we don't give ourselves enough time to anticipate any problems and make solutions, so there will naturally be times in your budget when there are more expenses than income. This ebb and flow is normal, no matter the size of your income and no matter what your pay schedule is. When we can identify the months or the pay periods where the income is going to be smaller than the expenses, and we see it well in advance, we allow ourselves the time to make solutions; to come up with different ways to approach those expenses or to spread our income out into those low pay periods so that we can cover it. This is information we can see ahead of time. We can identify a low pay period far in advance with just a little bit of planning, but if we wait until the day before the pay period starts, or the day before the new month starts, and then we realize that there's not going to be enough income to cover those expenses, we've limited the number of options we have to fix that problem because we have such a short window of time.
So let me give you an example. If three pay periods from now, I'm going to have to cover the every six month car insurance premium, which is a rather large bill, and that premium is not going to fit into the pay period by itself because I also need to cover the mortgage during that pay period. If I have set the budget up three to five pay periods in advance, I can see that that pay period is gonna be low and start to plan for extra income in the pay periods leading up to that to spread the income out and roll it over from one pay period that has extra money into the pay period that has a deficit. Suddenly my major budget problem becomes a small hiccup in the budget simply because I planned out farther than just one month at a time.
The second thing that happens is not just about the numbers, but it's about our money mindset. When we only make a plan for the next 30 days and try to rinse and repeat that over and over, we keep our priorities in the short term because we're only asking ourselves "What do I wanna do with my money in the next 30 days?" And it's hard to realize that the small things we do in the next 30 days add up to the large changes we're able to make with our money. But when we start to plan long-term and make a budget that lasts for the next three months, for example, we start to naturally shift towards thinking about the long-term because we know that three months from now, we want to see progress with our goals. We want to be better off in three months than we are today. This helps us to have the mindset that what we do now creates a change for the long term. But when we just budget by a small window of time, like every 30 days, we naturally think more short term.
So what do we do instead of budgeting in a small window of time? We plan forward at least three months in advance. If you look at the Debt Free Mom budget template, it has six pay periods per tab. This means that for most people, you're going to be looking at about 12 weeks of time. Now, if you're paid weekly, this would be about six weeks of time, but you can still use multiple tabs to look across your pay periods farther in advance. What this starts to do is to create a sense of how one pay period threads into the next one, and they're all interconnected to move your money from where you are today to where you want to be. As we start to look more long-term, we then give ourselves the chance to number one, identify any pay periods that will have a problem with a deficit or an expense that's very large, so that we can make a plan for covering that large expense well in advance. And number two, it gives us the chance to think long-term By looking at a budget that spans three months, we naturally start to think about our long-term goals, not just our short-term needs.
As I was preparing to talk about this with you, a quote came to mind from the author Annie Dillard. She says, "how we spend our days is in fact how we spend our lives," and I think this applies to our money too. It is really hard in the mundane or in the busy to remember the connection between our grocery spending and our retirement, or to remember the connection between our target total and our vacation in two years. When we start to plan in a long-term way so that we see real specific numbers attached to real specific dates that belong to us, we shift from only focusing on the small today priorities and once and desires, and towards the long-term. We start to see the connection between the small day-to-day habits and the big changes over time. One of the ways you can help yourself see this is to budget further in advance than 30 days. Give yourself a longer window of time between when you're writing the budget and when the budget actually starts and budget for more days than 30 days at one time.
So how does this connect to pay period budgeting? What this does is continue to add to our priority of being accurate and realistic. We wanna be realistic with what we can actually do with our money today. And part of being realistic includes looking further into the future to ask ourselves is the money that appears to be available right now going to be needed in a future pay period, or am I freed up to actually use it towards my goals today? When we start to plan in this long-term form, we naturally shift towards our long-term priorities and we see progress in today's habits in the meantime.
Budgeting is not easy. That's why I created my free budget workshop called "Four Reasons Budgets Fail and How to Make Yours Succeed" because I see the same mistakes made time after time, preventing people from seeing true progress with their goals no matter what their income is. One of the four reasons that budgets fail is because they're too shortsighted, just like we talked about today. If you're curious if the other three mistakes might also be happening in your budget, go to debtfreemom.co/workshop and watch the free workshop today to see the four reasons budgets fail and the four step process to do instead to make yours succeed.
I'm Carly Hill and this is the Debt Free Mom podcast.
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