- Sticking to a budget does not have to be arduous
- The budgeting process can help get your finances in order
- The purpose of a budget is to give you more control over your money
The process of creating a budget is really a simple concept. You list your monthly expenses and then do not spend any more than the allotted amount in each category. Implementation of your budget, on the other hand, is more complicated. It’s that whole, ‘working the budget’ that’s challenging.
There are ups and downs. You do not always have the exact same costs and in many cases, incomes, which can make the budgeting process tricky. You must understand how much you actually spend before you can address budget adjustments. Without tracking your expenditures, you may not know where your money goes.
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Ultimately the goal of a budget is to identify costs and manage your spending in a way that directs funds to your most important priorities. The better you follow your budget, the more control you will have over your overall finances.
Top Budgeting Tips:
Have a Clear Objective – What is your motivation for living on a budget? Do you want to pay off debt faster, have more money for travel or vacations, or add funds to retirement or college accounts? When you are clear about why it is important to control spending, it is easier to stick with the plan you establish.
Be Realistic About Your Costs – It’s one thing to put a number in the budget. It’s another to match your budget estimates with actual costs. Fixed bills like the house and car payment are straight forward. Discretionary costs like food, transportation, and even the power bill can change from month to month.
One way to create a realistic budget is to track expenses for 30 days before estimating your costs for any given month. Then add any intermittent bills like quarterly or annual payments for insurance or taxes.
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Prioritize Spending – Begin by separating fixed and variable costs. Then break down your wants versus your needs. Some categories have more flexibility than others.
Don’t Forget Your Emergency Fund – Even when you have high levels of credit card debt, you should contribute to an emergency fund. Setting aside a little each month for savings will give you a cushion for unexpected expenses. Without a savings account, any extra or unexpected cost will likely go on a credit card, undoing the progress made towards debt reduction.
Regularly Compare Actual Versus Budgeted Costs – A monthly crosscheck of actual versus planned expenses will help you adjust the budget based on reality. View your budget as a living document that changes over time. It is a tool to direct spending so you can afford the things you want the most, not an annoyance that prevents you from getting what you want.
Give Yourself an Incentive Plan – Staying motivated to follow a budget is one of the biggest obstacles. A budget that is too strict will not last long enough to change spending behaviors. A budget that does not push you to change habits will not result in any savings. Creating a reward system can keep you motivated until it becomes a habit while challenging you to spend less. When you reach a milestone in either saving, investing, or debt reduction, give yourself a reward that will motivate you to stick with it through the next milestone.
Finally, if you’re in a plan to pay down debt, successful budgeting can speed up your debt settlement program because you can accelerate payments into your savings account. A win-win against credit card debt is always the richest way to live. You can do this!
What is the most significant impact on your finances?
Fixed costs like housing, utilities, transportation, and debt consume most of your income but are hard to lower. Smaller, discretionary purchases can become significant because the lower individual cost never hits your radar. To save money, you must first identify where you spend, and then find creative ways to reduce or eliminate these small purchases, making a big impact on your finances.
What is the key to a successful budget?
A successful budget requires a clear objective about why you need a budget, setting realistic expectations around what you spend, ensuring you set aside a little for future needs, and directing income based on your financial priorities.
What is the main purpose of following a budget?
The primary purpose of a budget is to give you more control over your finances. When done correctly, a budget will help organize your finances, establish a plan of attack for spending and investing, and track your progress allowing you to improve your financial situation.