04 May 2015   /   0 comments

Successful Budgeting Tips

Paul
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Trying to stick to a budget, but keep failing? Ideally most people try to come up with a budget but something comes up and they can’t stick to it. If you continuously keep failing at maintaining a budget it usually best to look at the fundamentals. It only takes a simple misstep or two to take a well planned budget and turn it into a complete disaster. Here are some 5 useful tips to take into consideration to help you build and maintain your budget that will keep you on the right track to reaching your financial goals.

1. Know why you are budgeting

If you’re making a budget because a book or someone says you should because it’s a good idea it probably won’t help you out financially. The reason why you should develop a budget is to help you spend less than you earn. Budgets show you where your spending weaknesses are and provide help in strengthening those areas. A budget isn’t a solution itself but it serves as a guide towards being able to naturally spend less than you earn.

2. Have a specific long term goal in mind

Different people have different financial goals in mind. For some it’s to be debt free, for others it might be saving for a house or a car. Whatever it may be having a long term goal in mind; specifically a goal that would have a big impact in your life is useful when putting a budget together. A good budget is going to have you make some difficult choices. It might be cutting down on your entertainment spending or doing fewer things than you would like too. You will quickly see that these things are tangible, that they do add up and ultimately will make the process of budgeting much more bearable.

3. Know how much you actually make

The correct answer to knowing how much you make is not just your annual salary or dividing your salary into twelve parts for a monthly budget. Instead your budget should be based on your take-home pay per month. For instance let’s say you make $48,000 a year, you’re probably going to be subtracting around $8000 in income taxes and maybe some more considering the cost of work benefits and health insurance. Using $4,000 a month as a foundation for your budget is simply incorrect, the correct number to use should be closer to $3,000. Know exactly what you’re making a month because that is the number you’ll use as the foundation of your budget.

4. Have the correct data on what you spend monthly and irregularly

Similarly, when planning a budget its better if you base your budget on real life numbers. This means taking your bills and receipts from the past couple of months and figure out what you’re spending your money on. The first budget you make shouldn’t really be a “budget” but rather it should be a reflection of your monthly spending. This initial budget should lay the groundwork for your actual budget and from here you can see what you can cut back on in order to reach your financial goal.

5. Be Realistic

Budgeting is a lot like dieting. It is not going to work if you make unrealistic assumptions right off the bat. If you’re going to start a diet, moving to a lettuce and tofu diet might work at the beginning but eventually you will crack. A realistic solution would be to drink low fat versions of their regular counterparts such as coffee and instead of eating a double cheeseburger for lunch, bring in a cold cut sandwich instead. Small steps work better in achieving long term goals instead of huge steps. The same rules can be applied to budgeting. Don’t reduce your entertainment spending by 75% right away because it probably won’t work in the long term. Instead, average out what you have spent in the last couple months and reduce it by 5% to 15%. After a while just trim it a little bit more. Going all in right in the beginning will most likely end in failure.

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