Personal Budgeting Tips

Most people budget by averaging past spending but that just repeats bad habits. Learn how to budget with purpose, set boundaries, and use your income to build real wealth and freedom.

John Briggs | Tax Genius
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Chapters

• 0:00 Why Traditional Budgeting Fails
• 0:25 Forecast Your Goals
• 0:31 Plan for Future Expenses
• 1:10 Budget Conservatively for Growth
• 2:18 Be Intentional with Subscriptions
• 2:57 Using Profit First for Personal Budgeting
• 3:35 Final Thoughts on Budgeting

Transcript

How do I properly set a budget for my personal life?

The concept of budgeting, as most people talk about it, is the idea of looking at what you spent over the last 12 months, taking the average, and saying, "This is what my budget is for each month." But that's not an appropriate way to budget—especially if the last 12 months didn’t result in the financial outcome you wanted. You’re just budgeting to repeat the same outcome.

The first step in budgeting is actually forecasting and predicting what you’re trying to accomplish. What’s the goal? The second step is to look at what expenses you’re going to have. Then, go back and look at your historical expenses—not just to get the average, but to ask: based on those expenses, do I really need those in the future? Are they productive or not?

The beauty and magic of budgeting is regularly comparing what you actually did to what you budgeted. If there’s a difference, that should raise questions. Why is there a difference? The answers usually lead to actions you can take to keep growing and fix roadblocks—because those will happen.

From a personal standpoint, I prefer to be a little more conservative with my budget. The reason is that we have a natural tendency to increase our lifestyle expenses as our income increases. Without boundaries around that, we risk spending every new dollar on lifestyle upgrades. That’s not how I want to live. I want to have some cushion—money left over to save, invest, build retirement, and grow assets. If I spend it all on lifestyle, I can’t grow wealth.

I wouldn’t use my business forecasting tool to determine my personal income. Instead, I look at what I made last year—if I lived comfortably on that, great. I’ll use that as my personal income. Then I go back and ask: does this expense increase my freedom? And does that additional freedom increase my happiness?

When reviewing personal expenses, we all likely have a lot of subscriptions. Some of them we’re not even using. If you’ve got a $10/month gym membership and haven’t been in six months—maybe cancel it. I’m not here to judge; you make your own decisions. Some people like to keep it just in case they get the motivation to go. That’s fine—just be intentional about it.

When you budget personally, make sure you’re putting boundaries around your income so you have control, instead of falling into the trap of “income increased, therefore lifestyle increased.”

I believe in the Profit First system, which is a cash flow management tool. My owner’s pay is a percentage of revenue. So as revenue increases, my owner’s pay increases—but I only take home the same flat amount. Then, at the end of the year, I usually have money left over in that account. That’s fun, because then I can use that to improve our lifestyle—things like completing my wife’s honey-do list. Our whole backyard project came from leftover owner’s pay and profit distributions.

Whatever makes us happy—if it increases our freedom and happiness—we keep those expenses.

I hope that helps. That’s how I look at personal budgeting versus business budgeting.

Remember: profit is a choice. Have the courage and wisdom to choose it.